
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~June 30, 2023~~March 31, 2024
or
☐ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number: 001-38314

MVB Financial Corp.
(Exact name of registrant as specified in its charter)

West Virginia						20-0034461
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

301 Virginia Avenue, Fairmont, WV						26554
(Address of principal executive offices)						(Zip Code)

(304) 363-4800
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value

MVBF

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

As of ~~August 7, 2023,~~May 6, 2024, there were ~~12,719,823~~12,885,752 shares of our common stock outstanding with a par value of $1.00 per share.

TABLE OF CONTENTS

Forward-Looking Statements:

Statements in this Quarterly Report on Form 10-Q, other than statements that are based on historical data, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others, statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations and future financial condition, results of operations and performance of the Company and its subsidiaries (collectively, “we,” “our,” or “us”), including the MVB Bank, Inc. (the “Bank”), and statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “target,” “expect,” “intend,” “plan,” “projects,” “outlook” or the negative of those terms or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing our view as of any subsequent date. Forward-looking statements involve significant risks and uncertainties (both known and unknown) and actual results may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such differences include, but are not limited to:


l	interest rate fluctuations in response to economic conditions and the policies of various governmental and regulatory agencies;
l		changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits;
l	industry factors and general economic and political conditions and events, ~~(such~~such as economic slowdowns or recessions, ~~volatility of market interest rates and inflation)~~ nationally and in the markets in which we operate;
l	changes in financial market conditions in areas in which we conduct operations, including, without limitation, changes in deposit flows, the cost of funds, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;
l	~~interest rate fluctuations in response to economic conditions and the policies of various governmental and regulatory agencies;~~
l	~~legislative or regulatory changes, including the possibility of increased oversight due to the~~ evolving ~~nature and complexity of our business model~~legislation and heightened regulatory scrutiny in emerging financial technology ~~(“FinTech”~~("Fintech") and banking-as-a-service ~~sectors, and our ability to recruit and retain employees with industry expertise to comply with such legislation and regulatory scrutiny;~~
l	the impacts related to or resulting from recent bank failures and other volatility, which could affect the ability of depository institutions, including us, to attract and retain depositors, which could adversely affect our liquidity, business, financial condition and results of operations.("BaaS") sectors;
l	our ability to recruit, retain and train talented employees and executives with such knowledge, experience and industry expertise to understand and comply with evolving legislation and regulations and to successfully implement succession plans for such employees and executives;
l	ability to adapt to technological change and to successfully execute business plans, manage risks and achieve objectives, including strategies related to investments in ~~FinTech;~~Fintech;
l	market, economic, operational, liquidity, credit and interest rate risks associated with our business;
l	changes, volatility and disruption in local, national and international political and economic conditions, including, without limitation, major developments such as wars, natural disasters, epidemics and pandemics, military actions, terrorist attacks and geopolitical ~~conflict, including the continuing escalation and conflict in Ukraine;~~conflict;
l	climate change, severe weather and natural disasters which could have a material adverse effect on our business, financial condition and results of operations;
l	changes in the economy and any governmental or societal responses to global health crises and pandemics, which could directly or indirectly impact credit quality trends and the ability to generate loans and gather deposits;
l	unanticipated changes in our liquidity position, including, but not limited to, changes in access to sources of liquidity and capital to address our liquidity needs;
l	~~concentration risk~~changes in volume or composition of our deposit base, including ~~risk of losing~~certain concentrations with large clients and ~~concentration in~~within certain industries, such as ~~gaming deposits;~~banking-as-a-service, digital assets and gaming;
l	the quality and composition of our loan and securities portfolios;
l	~~our~~ ability to successfully conduct acquisitions and integrate acquired businesses and potential difficulties in expanding businesses in existing and new markets;
l	~~our~~ ability to successfully manage credit risk and the sufficiency of allowance for credit losses;
l	increases in the levels of losses, customer bankruptcies, bank failures, claims and assessments;
l	changes in government legislation and accounting policies, including the Dodd-Frank Act and Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”);
l	~~uncertainty about the transition away from the London Inter-bank Offered Rate (“LIBOR”) and to the Secured Overnight Financing Rate (“SOFR”) as the primary interest rate benchmark;~~
l	competition and consolidation in the financial services industry;
l	new legal claims against us, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies or changes in existing legal matters;


l			~~risks associated with the termination of the merger agreement with Integrated Financial Holdings, Inc.,~~success in gaining regulatory approvals, when required, including impact on the market price of our common stock, ability to retain customers, litigation, reputational and regulatory risks, as well as potential adverse reactions from customers, business partners and others resulting from the termination;for proposed mergers or acquisitions;
l			changes in consumer spending and savings habits, including demand for loan products and deposit flow;
l			increased competitive challenges and expanding product and pricing pressures among financial institutions and non-bank financial companies;


l			~~risks related to our dependence on our information technology and telecommunications systems and the potential for any system failures or interruptions, as well as~~ operational risks or risk management failures by us, our customers or critical third parties, including without limitation, with respect to data processing, information systems, compliance with bank secrecy and anti-money laundering laws, technological changes, vendor problems, business interruptions and fraud risk;
l			increasing risk of continually evolving, sophisticated cybersecurity activities faced by financial institutions and others ~~including third-party vendors and other entities that we rely on,~~ that could result in, among other things, theft, loss, misuse or disclosure of confidential client, customer or corporate information or assets and a disruption of computer, software or network systems and the potential impact from such risks, including reputational damage, regulatory penalties, loss of revenues, additional costs (including repair, remediation and other costs), exposure to litigation and other financial losses;
l			risks, uncertainties and losses involved with the developing digital assets industry, including the evolving regulatory framework;
l			failure or circumvention of internal controls;
l			legislative or regulatory changes which adversely affect our operations or business, including the possibility of increased regulatory oversight due to changes in the nature and complexity of our business model;
l			increased emphasis by regulators on federal and state consumer protection laws that extensively govern customer relationships;
l			changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or regulatory ~~agencies, including the impact of adopting the current expected credit~~agencies;
l			risks and potential losses ~~standard;~~involved with uninsured deposits beyond Federal Deposit Insurance Corporation (“FDIC”) limitations; and
l			costs of deposit insurance and changes with respect to ~~Federal Deposit Insurance Corporation (“FDIC”)~~FDIC insurance coverage levels.

Further, we urge you to carefully review and consider the cautionary statements and disclosures, specifically those made in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 (the ~~“2022~~“2023 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March ~~16, 2023,~~13, 2024, and from time to time, in our other filings with the SEC. Actual results may differ materially from those expressed in or implied by any forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except to the extent required by law, we undertake no obligation to update any forward-looking statements in order to reflect any event or circumstance occurring after the date of this report or currently unknown facts or conditions or the occurrence of unanticipated events. All forward-looking statements are qualified in their entirety by this cautionary statement.

REFERENCES

Unless the context otherwise requires, references in this report to “MVB, ~~Financial,” “MVB,~~” the “Company,” “we,” “us,” “our,” and “ours” refer to the registrant, MVB Financial Corp., and its subsidiaries consolidated for the purposes of its financial statements.

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except per share data)


			June 30, 2023		December 31, 2022
			(Unaudited)		(Audited)
		March 31, 2024						March 31, 2024	December 31, 2023
		(Unaudited)						(Unaudited)	(Audited)
ASSETS	ASSETS
Cash and cash equivalents:	Cash and cash equivalents:
Cash and cash equivalents:
Cash and cash equivalents:
Cash and due from banks
Cash and due from banks
Cash and due from banks	Cash and due from banks		$	8,278	$	5,290
Interest-bearing balances with banks	Interest-bearing balances with banks		447,557		34,990
Total cash and cash equivalents	Total cash and cash equivalents		455,835		40,280

Investment securities available-for-sale
Investment securities available-for-sale
Investment securities available-for-sale	Investment securities available-for-sale		329,137		379,814
Equity securities	Equity securities		41,082		38,744
Loans held-for-sale	Loans held-for-sale		7,009		23,126
Loans receivable	Loans receivable		2,312,387		2,372,645
Allowance for credit losses	Allowance for credit losses		(30,294)		(23,837)
Loans receivable, net	Loans receivable, net		2,282,093		2,348,808
Premises and equipment, net	Premises and equipment, net		22,407		23,630
Bank-owned life insurance	Bank-owned life insurance		43,746		43,239
Equity method investments	Equity method investments		76,413		76,223
Accrued interest receivable and other assets	Accrued interest receivable and other assets		91,287		87,833
Assets from discontinued operations			—		4,315
Goodwill			2,838		2,838

TOTAL ASSETS
TOTAL ASSETS
TOTAL ASSETS	TOTAL ASSETS		$	3,351,847	$	3,068,850

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:						Deposits:
Noninterest-bearing	Noninterest-bearing		$	987,555	$	1,231,544
Interest-bearing	Interest-bearing		1,971,384		1,338,938
Total deposits	Total deposits		2,958,939		2,570,482

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities		31,564		36,112
Repurchase agreements	Repurchase agreements		4,798		10,037
FHLB and other borrowings			—		102,333

Subordinated debt
Subordinated debt
Subordinated debt	Subordinated debt		73,414		73,286
Senior term loan	Senior term loan		8,835		9,765
Liabilities from discontinued operations			—		5,444
Total liabilities	Total liabilities		3,077,550		2,807,459

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY
STOCKHOLDERS’ EQUITY
STOCKHOLDERS’ EQUITY

Common stock - par value $1; 40,000,000 and 20,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; 13,567,839 and 12,719,823 shares issued and outstanding, respectively, as of June 30, 2023 and 13,466,281 and 12,618,265 shares issued and outstanding, respectively, as of December 31, 2022			13,568		13,466
Common stock - par value $1; 40,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 13,688,899 and 12,840,883 shares issued and outstanding, respectively, as of March 31, 2024 and 13,606,399 and 12,758,383 shares issued and outstanding, respectively, as of December 31, 2023

Common stock - par value $1; 40,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 13,688,899 and 12,840,883 shares issued and outstanding, respectively, as of March 31, 2024 and 13,606,399 and 12,758,383 shares issued and outstanding, respectively, as of December 31, 2023

Common stock - par value $1; 40,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 13,688,899 and 12,840,883 shares issued and outstanding, respectively, as of March 31, 2024 and 13,606,399 and 12,758,383 shares issued and outstanding, respectively, as of December 31, 2023
Additional paid-in capital	Additional paid-in capital		158,572		157,152
Retained earnings	Retained earnings		153,414		144,911
Accumulated other comprehensive loss	Accumulated other comprehensive loss		(34,464)		(37,704)
Treasury stock - 848,016 shares as of June 30, 2023 and December 31, 2022, at cost			(16,741)		(16,741)
Treasury stock - 848,016 shares as of March 31, 2024 and December 31, 2023, at cost
Total equity attributable to parent	Total equity attributable to parent		274,349		261,084
Noncontrolling interest	Noncontrolling interest		(52)		307
Total stockholders' equity	Total stockholders' equity		274,297		261,391
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,351,847	$	3,068,850

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) (Dollars in thousands, except per share data)


		Three Months Ended June 30,					Six Months Ended June 30,
		2023		2022			2023		2022
				Three Months Ended March 31,
				Three Months Ended March 31,
				Three Months Ended March 31,
						2024					2024	2023
INTEREST INCOME	INTEREST INCOME
Interest and fees on loans
Interest and fees on loans
Interest and fees on loans	Interest and fees on loans	$	39,321	$	25,837		$	78,016	$	47,285
Interest on deposits with banks	Interest on deposits with banks	5,542		313			8,695		540
Interest on investment securities	Interest on investment securities	1,229		838			3,077		1,486
Interest on tax-exempt loans and securities	Interest on tax-exempt loans and securities	939		1,102			2,006		2,041
Total interest income	Total interest income	47,031		28,090			91,794		51,352

INTEREST EXPENSE	INTEREST EXPENSE
INTEREST EXPENSE
INTEREST EXPENSE
Interest on deposits
Interest on deposits
Interest on deposits	Interest on deposits	16,450		661			26,603		1,317
Interest on short-term borrowings	Interest on short-term borrowings	—		9			888		14
Interest on subordinated debt	Interest on subordinated debt	801		760			1,600		1,513
Interest on senior term loan	Interest on senior term loan	198		—			392		—
Total interest expense	Total interest expense	17,449		1,430			29,483		2,844

NET INTEREST INCOME	NET INTEREST INCOME	29,582		26,660			62,311		48,508
Provision (release of allowance) for credit losses		(4,235)		5,100			341		6,380
Net interest income after provision (release of allowance) for credit losses		33,817		21,560			61,970		42,128
NET INTEREST INCOME
NET INTEREST INCOME
Provision for credit losses
Net interest income after provision for credit losses

NONINTEREST INCOME	NONINTEREST INCOME
NONINTEREST INCOME
NONINTEREST INCOME
Payment card and service charge income
Payment card and service charge income
Payment card and service charge income	Payment card and service charge income	3,503		4,015			7,113		6,657

Insurance and investment services income	Insurance and investment services income	78		218			170		472
Insurance and investment services income
Insurance and investment services income
Gain (loss) on sale of available-for-sale securities, net	Gain (loss) on sale of available-for-sale securities, net	—		—			(1,536)		650
Gain (loss) on sale of equity securities, net		(294)		100			(294)		100

Loss on derivatives, net	Loss on derivatives, net	—		—			(100)		—
Gain (loss) on sale of loans, net		(989)		1,405			(1,345)		2,488
Holding gain (loss) on equity securities		160		(26)			(148)		(85)
Loss on derivatives, net
Loss on derivatives, net
Loss on sale of loans, net
Holding loss on equity securities
Compliance and consulting income	Compliance and consulting income	996		1,180			2,012		2,414
Equity method investments income		1,873		549			680		1,687
Loss on divestiture activity		(986)		—			(986)		—
Equity method investments gain		—		71			—		1,874
Equity method investments loss

Other operating income

Other operating income

Other operating income	Other operating income	2,078		1,872			3,920		2,406
Total noninterest income	Total noninterest income	6,419		9,384			9,486		18,663

NONINTEREST EXPENSES	NONINTEREST EXPENSES
NONINTEREST EXPENSES
NONINTEREST EXPENSES
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits	Salaries and employee benefits	15,746		16,585			32,492		32,312
Occupancy expense	Occupancy expense	1,090		907			1,882		1,879
Equipment depreciation and maintenance	Equipment depreciation and maintenance	1,451		1,252			2,908		2,464
Data processing and communications	Data processing and communications	1,118		1,055			2,266		2,071

Professional fees	Professional fees	3,948		3,726			6,899		7,743

Professional fees

Professional fees
Insurance, tax and assessment expense	Insurance, tax and assessment expense	1,131		614			2,035		1,150
Travel, entertainment, dues and subscriptions	Travel, entertainment, dues and subscriptions	2,137		2,045			4,059		3,713
Other operating expenses	Other operating expenses	3,661		1,788			6,058		3,897
Total noninterest expense	Total noninterest expense	30,282		27,972			58,599		55,229
Income before income taxes		9,954		2,972			12,857		5,562
Income from continuing operations, before income taxes
Income taxes
Net income from continuing operations
Income from discontinued operations, before income taxes
Income taxes from discontinued operations


Income taxes		1,956		699		2,421		1,379
Net income from continuing operations		7,998		2,273		10,436		4,183
Income from discontinued operations before income taxes		—		678		11,831		1,664
Income taxes from discontinued operations		—		160		3,049		385
Net income from discontinued operations	Net income from discontinued operations	—		518		8,782		1,279
Net income		7,998		2,791		19,218		5,462
Net loss attributable to noncontrolling interest		114		165		236		358
Net income from discontinued operations
Net income from discontinued operations
Net income, before noncontrolling interest
Net (income) loss attributable to noncontrolling interest

Net income attributable to parent	Net income attributable to parent	$	8,112	$	2,956	$	19,454	$	5,820

Net income attributable to parent

Net income attributable to parent

Earnings per share from continuing operations - basic
Earnings per share from continuing operations - basic
Earnings per share from continuing operations - basic	Earnings per share from continuing operations - basic	$	0.64	$	0.20	$	0.84	$	0.37
Earnings per share from discontinued operations - basic	Earnings per share from discontinued operations - basic	$	—	$	0.04	$	0.69	$	0.11
Earnings per common shareholder - basic	Earnings per common shareholder - basic	$	0.64	$	0.24	$	1.54	$	0.48
Earnings per share from continuing operations - diluted	Earnings per share from continuing operations - diluted	$	0.63	$	0.19	$	0.82	$	0.35
Earnings per share from discontinued operations - diluted	Earnings per share from discontinued operations - diluted	$	—	$	0.04	$	0.68	$	0.10
Earnings per common shareholder - diluted	Earnings per common shareholder - diluted	$	0.63	$	0.23	$	1.50	$	0.45
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	12,689,669		12,176,805		12,656,698		12,135,223
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	12,915,294		12,895,581		12,959,725		12,870,892

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) (Dollars in thousands)


		Three Months Ended June 30,					Six Months Ended June 30,
		2023		2022			2023		2022
Net income before noncontrolling interest		$	7,998	$	2,791		$	19,218	$	5,462
				Three Months Ended March 31,
				Three Months Ended March 31,
				Three Months Ended March 31,
						2024					2024	2023
Net income, before noncontrolling interest

Other comprehensive income (loss):	Other comprehensive income (loss):
Other comprehensive income (loss):
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale	Unrealized holding gains (losses) on securities available-for-sale	(5,381)		(16,631)			2,323		(34,150)
Reclassification adjustment for gain (loss) recognized in income		294		—			1,830		(650)
Unrealized holding gains (losses) on securities available-for-sale
Unrealized holding gains (losses) on securities available-for-sale
Reclassification adjustment for (gain) loss recognized in income
Change in defined benefit pension plan	Change in defined benefit pension plan	371		320			343		689
Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	29		107			58		214
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income		45		(187)			(289)		(197)
Reclassification adjustment for investment hedge carrying value adjustment recognized in income
Other comprehensive income (loss), before tax	Other comprehensive income (loss), before tax	(4,642)		(16,391)			4,265		(34,094)

Income taxes related to items of other comprehensive income (loss):
Income taxes related to items of other comprehensive loss:
Income taxes related to items of other comprehensive loss:
Income taxes related to items of other comprehensive loss:
Unrealized holding gains (losses) on securities available-for-sale	Unrealized holding gains (losses) on securities available-for-sale	1,294		4,194			(558)		8,298
Reclassification adjustment for gain (loss) recognized in income		(71)		—			(440)		152
Unrealized holding gains (losses) on securities available-for-sale
Unrealized holding gains (losses) on securities available-for-sale
Reclassification adjustment for (gain) loss recognized in income
Change in defined benefit pension plan	Change in defined benefit pension plan	(89)		(81)			(82)		(167)
Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	(7)		(27)			(14)		(52)
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income		(11)		47			69		49
Income taxes related to items of other comprehensive income (loss):		1,116		4,133			(1,025)		8,280
Reclassification adjustment for investment hedge carrying value adjustment recognized in income
Income taxes related to items of other comprehensive loss:

Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	(3,526)		(12,258)			3,240		(25,814)
Total other comprehensive income (loss), net of tax
Total other comprehensive income (loss), net of tax

Comprehensive income attributable to noncontrolling interest		114		165			236		358
Comprehensive (income) loss attributable to noncontrolling interest
Comprehensive (income) loss attributable to noncontrolling interest
Comprehensive (income) loss attributable to noncontrolling interest

Comprehensive income (loss)		$	4,586	$	(9,302)		$	22,694	$	(19,994)
Comprehensive income
Comprehensive income
Comprehensive income

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited) (Dollars in thousands except per share data)

Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total stockholders' equity attributable to parent Noncontrolling interest Total stockholders' equity
Shares Amount Shares Amount
Balance at December 31, 2022 13,466,281 $ 13,466 $ 157,152 $ 144,911 $ (37,704) 848,016 $ (16,741) $ 261,084 $ 307 $ 261,391
Net income (loss) — — — 11,342 — — — 11,342 (122) 11,220
Other comprehensive income — — — — 6,766 — — 6,766 — 6,766
Dividends on common stock ($0.17 per share) — — — (2,146) — — — (2,146) — (2,146)
Impact of adopting ASC 326, net of tax — — — (6,642) — — — (6,642) — (6,642)
Stock-based compensation — — 831 — — — — 831 — 831
Stock-based compensation related to equity method investments — — 69 — — — — 69 — 69
Common stock options exercised 4,450 4 66 — — — — 70 — 70
Restricted stock units vested 43,882 44 (44) — — — — — — —
Minimum tax withholding on restricted stock units issued (13,416) (13) (230) — — — — (243) — (243)
Balance at March 31, 2023 13,501,197 $ 13,501 $ 157,844 $ 147,465 $ (30,938) 848,016 $ (16,741) $ 271,131 $ 185 $ 271,316
Net income (loss) — — — 8,112 — — — 8,112 (114) 7,998
Other comprehensive loss — — — — (3,526) — — (3,526) — (3,526)
Dividends on common stock ($0.17 per share) — — — (2,163) — — — (2,163) — (2,163)
Stock-based compensation — — 792 — — — — 792 — 792
Stock-based compensation related to equity method investments — — 104 — — — — 104 — 104
Common stock options exercised 3,000 3 40 — — — — 43 — 43
Restricted stock units vested 86,520 87 (87) — — — — — — —
Minimum tax withholding on restricted stock units issued (22,878) (23) (415) — — — — (438) — (438)
Redemption of noncontrolling interest — — 294 — — — — 294 (123) 171
Balance at June 30, 2023 13,567,839 $ 13,568 $ 158,572 $ 153,414 $ (34,464) 848,016 $ (16,741) $ 274,349 $ (52) $ 274,297


	Common stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock				Total stockholders' equity attributable to parent		Noncontrolling interest		Total stockholders' equity
		Shares								Amount		Shares								Amount
Balance at December 31, 2023			13,606,399	$	13,606	$	160,488	$	160,862	$	(28,831)		848,016	$	(16,741)	$	289,384	$	(42)		$	289,342

Net income			—	—		—		4,482		—			—	—		4,482		20			4,502
Other comprehensive loss			—	—		—		—		(1,968)			—	—		(1,968)		—			(1,968)
Dividends on common stock ($0.17 per share)			—	—		—		(2,145)		—			—	—		(2,145)		—			(2,145)
Stock-based compensation			—	—		780		—		—			—	—		780		—			780
Stock-based compensation related to equity method investments			—	—		104		—		—			—	—		104		—			104
Common stock options exercised			82,500	83		1,130		—		—			—	—		1,213		—			1,213

Balance at March 31, 2024			13,688,899	$	13,689	$	162,502	$	163,199	$	(30,799)		848,016	$	(16,741)	$	291,850	$	(22)		$	291,828


		Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock			Total stockholders' equity attributable to parent		Noncontrolling interest		Total stockholders' equity
		Shares	Amount							Shares		Amount
Balance at December 31, 2021			12,934,966	$	12,935	$	143,521	$	138,219	$	(3,606)	848,016	$	(16,741)	$	274,328	$	975			$	275,303

Net income (loss)			—	—		—		2,864		—		—	—		2,864		(193)				2,671
Other comprehensive loss			—	—		—		—		(13,556)		—	—		(13,556)		—				(13,556)
Dividends on common stock ($0.17 per share)			—	—		—		(2,059)		—		—	—		(2,059)		—				(2,059)

Stock-based compensation			—	—		674		—		—		—	—		674		—				674

Stock-based compensation related to equity method investments			—	—		104		—		—		—	—		104		—				104
Common stock options exercised			56,174	56		669		—		—		—	—		725		—				725

																										Common stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total stockholders' equity attributable to parent		Noncontrolling interest		Total stockholders' equity
Balance at March 31, 2022			12,991,140	$	12,991	$	144,968	$	139,024	$	(17,162)	848,016	$	(16,741)	$	263,080			$	782			$	263,862
																									Shares		Amount	Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total stockholders' equity attributable to parent		Noncontrolling interest		Total stockholders' equity		Amount	Shares	Amount

Net income (loss)	Net income (loss)		—	—		—		2,956		—		—	—		2,956		(165)				2,791
Other comprehensive loss			—	—		—		—		(12,258)		—	—		(12,258)		—				(12,258)
Net income (loss)
Net income (loss)
Other comprehensive income
Dividends on common stock ($0.17 per share)	Dividends on common stock ($0.17 per share)		—	—		—		(2,076)		—		—	—		(2,076)		—				(2,076)

Impact of adopting ASC 326, net of tax
Stock-based compensation	Stock-based compensation		—	—		757		—		—		—	—		757		—				757
Stock-based compensation related to equity method investments	Stock-based compensation related to equity method investments		—	—		173		—		—		—	—		173		—				173
Common stock options exercised	Common stock options exercised		30,200	30		362		—		—		—	—		392		—				392
Restricted stock units vested			73,300	73		(73)		—		—		—	—		—		—				—
Restricted stock units issued
Minimum tax withholding on restricted stock units issued	Minimum tax withholding on restricted stock units issued		(17,596)	(17)		(674)		—		—		—	—		(691)		—				(691)

Stock purchase from noncontrolling interest			—	—		(33)		—		—		—	—		(33)		(7)				(40)

Balance at June 30, 2022			13,077,044	$	13,077	$	145,480	$	139,904	$	(29,420)	848,016	$	(16,741)	$	252,300	$	610			$	252,910
Balance at March 31, 2023
Balance at March 31, 2023
Balance at March 31, 2023

See accompanying notes to unaudited consolidated financial statements.

109

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


		Three Months Ended March 31,						Three Months Ended March 31,
		2024					2024		2023
OPERATING ACTIVITIES
Net income, before noncontrolling interest
Net income, before noncontrolling interest
Net income, before noncontrolling interest
Adjustments to reconcile net income, before noncontrolling interest, to net cash from operating activities:
			Six Months Ended June 30,
Net amortization and accretion of investments
			2023		2022
OPERATING ACTIVITIES
Net income before noncontrolling interest			$	19,218	$	5,462
Adjustments to reconcile net income to net cash from operating activities:
Net amortization and accretion of investments

Net amortization and accretion of investments	Net amortization and accretion of investments		988		1,320
Net amortization of deferred loan costs	Net amortization of deferred loan costs		831		1,269
Provision for credit losses	Provision for credit losses		341		6,380
Depreciation and amortization	Depreciation and amortization		2,683		1,780
Stock-based compensation	Stock-based compensation		1,623		1,431
Stock-based compensation related to equity method investments	Stock-based compensation related to equity method investments		173		277
Loans originated for sale	Loans originated for sale		(402)		(28,308)
Proceeds of loans held-for-sale sold	Proceeds of loans held-for-sale sold		23,562		45,361
Holding loss on equity securities	Holding loss on equity securities		148		85

(Gain) loss on sale of available-for-sale securities, net	(Gain) loss on sale of available-for-sale securities, net		1,536		(650)

(Gain) loss on sale of equity securities, net			294		(100)
(Gain) loss on sale of available-for-sale securities, net
(Gain) loss on sale of available-for-sale securities, net

Gain on sale of loans held-for-sale	Gain on sale of loans held-for-sale		(154)		(2,488)
Loss on sale of loans held for investment			1,499		—
Gain on sale of loans held-for-sale
Gain on sale of loans held-for-sale
Loss on sale of loans held-for-investment
Gain on sale of discontinued operations	Gain on sale of discontinued operations		(11,800)		—

Loss on divestiture activity			986		—

Gain on sale of other real estate owned

Gain on sale of other real estate owned

Gain on sale of other real estate owned	Gain on sale of other real estate owned		(138)		(2)
Income on bank-owned life insurance	Income on bank-owned life insurance		(507)		(487)
Deferred income taxes	Deferred income taxes		59		12
Equity method investments income			(680)		(1,687)
Equity method investments gain			—		(1,874)
Return on equity method investments			308		3,775
Equity method investments loss

Other assets

Other assets

Other assets	Other assets		(6,552)		(19,913)
Other liabilities	Other liabilities		(3,403)		(22,188)
Net cash from operating activities	Net cash from operating activities		30,613		(10,545)
INVESTING ACTIVITIES	INVESTING ACTIVITIES
Purchases of available-for-sale investment securities	Purchases of available-for-sale investment securities		(60,425)		(67,867)
Purchases of available-for-sale investment securities
Purchases of available-for-sale investment securities
Net maturities/paydowns of available-for-sale investment securities	Net maturities/paydowns of available-for-sale investment securities		55,791		14,874
Sales of available-for-sale investment securities	Sales of available-for-sale investment securities		54,531		60,635
Purchases of premises and equipment	Purchases of premises and equipment		(1,213)		(2,109)
Disposals of premises and equipment	Disposals of premises and equipment		425		—
Net change in loans
Proceeds of loans held-for-investment sold

Net change in loans			55,030		(374,878)
Proceeds of loans held for investment sold			9,502		—
Purchases of restricted bank stock			—		(2,962)
Redemptions of restricted bank stock			—		2,325
Proceeds from maturities of certificates of deposit with banks			—		2,223

Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned		385		1,004

Proceeds from sale of other real estate owned

Proceeds from sale of other real estate owned

Investment in equity method investments

Investment in equity method investments

Investment in equity method investments
Purchase of equity securities	Purchase of equity securities		(300)		(2,859)
Proceeds from sale of equity securities			206		1,100

Net cash transferred for sale of discontinued operations	Net cash transferred for sale of discontinued operations		(3,935)		—
Net cash transferred in divestiture activity			(8)		—
Net cash transferred for sale of discontinued operations
Net cash transferred for sale of discontinued operations

Net cash from investing activities

Net cash from investing activities

Net cash from investing activities	Net cash from investing activities		109,989		(368,514)
FINANCING ACTIVITIES	FINANCING ACTIVITIES
Net increase in deposits			388,457		237,365
Net change in deposits
Net change in deposits
Net change in deposits
Net change in repurchase agreements	Net change in repurchase agreements		(5,239)		(233)
Net change in FHLB and other borrowings	Net change in FHLB and other borrowings		(102,333)		—

Principal payments on senior term loan	Principal payments on senior term loan		(956)		—

Principal payments on senior term loan

Principal payments on senior term loan

Common stock options exercised

Common stock options exercised

Common stock options exercised	Common stock options exercised		113		1,117

Withholding cash issued in lieu of restricted stock	Withholding cash issued in lieu of restricted stock		(680)		(691)
Withholding cash issued in lieu of restricted stock
Withholding cash issued in lieu of restricted stock
Cash dividends paid on common stock	Cash dividends paid on common stock		(4,309)		(4,135)

1110


Redemption of noncontrolling interest		(100)		—
Stock purchase from noncontrolling interest		—		(40)
Net cash from financing activities	Net cash from financing activities	274,953		233,383
Net change in cash and cash equivalents	Net change in cash and cash equivalents	415,555		(145,676)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	40,280		307,437
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	455,835	$	161,761

Cash payments for:	Cash payments for:
Cash payments for:
Cash payments for:
Interest on deposits, repurchase agreements and borrowings
Interest on deposits, repurchase agreements and borrowings
Interest on deposits, repurchase agreements and borrowings	Interest on deposits, repurchase agreements and borrowings	$	30,233	$	3,450
Income taxes	Income taxes	10,235		316

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:

Supplemental disclosure of cash flow information:

Supplemental disclosure of cash flow information:

Change in unrealized holding losses on securities available-for-sale	Change in unrealized holding losses on securities available-for-sale	4,154		36,355
Restricted stock units vested		131		73

Change in unrealized holding losses on securities available-for-sale

Change in unrealized holding losses on securities available-for-sale

Employee stock-based compensation tax withholding obligations
Employee stock-based compensation tax withholding obligations
Employee stock-based compensation tax withholding obligations	Employee stock-based compensation tax withholding obligations	(36)		(17)
Impact of adopting ASC 326, net of tax	Impact of adopting ASC 326, net of tax	6,642		—
Creation of servicing assets from loan sales		406		—
Loans transferred to loans held-for-sale		7,909		7,957

Loans transferred to (out of) loans held-for-sale
Loans transferred to (out of) loans held-for-sale
Loans transferred to (out of) loans held-for-sale
Due from broker for available-for-sale investment securities sold

See accompanying notes to unaudited consolidated financial statements.

1211

Notes to the Consolidated Financial Statements

Note 1 – Nature of Operations and Basis of Presentation

Business and Organization

MVB Financial Corp. is a financial holding company organized in 2003 as a West Virginia corporation that operates principally through its wholly-owned subsidiary, MVB Bank, Inc. (the “Bank”). The Bank’s consolidated subsidiaries include MVB Edge Ventures, LLC (“Edge Ventures”), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Insurance, LLC, (“MVB Insurance”). The Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”). Edge Ventures wholly-owns Victor Technologies, Inc. (“Victor”) and MVB Technology, LLC ("MVB Technology"). The Bank also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”) and MVB Financial Corp. owns equity method investments in Warp Speed Holdings, LLC (“Warp Speed”) and Ayers Socure II, LLC (“Ayers Socure II”).

Edge Ventures serves as a management company providing oversight, alignment and structure for MVB’s Fintech companies and allocates resources to help incubate venture businesses and technologies acquired and developed by MVB. MVB Financial Corp.'s consolidated subsidiaries also includes SPE PR, LLC.

Through our professional services entities, which include Paladin Fraud and Trabian, we provide consulting solutions to assist Fintech and corporate clients in building digital products and meeting their fraud defense needs.

In February 2023, we completed the sale of the Bank’s wholly-owned subsidiary, ProCo Global, Inc. (“Chartwell,” which does business under the registered trade name Chartwell Compliance). In May 2023, ~~MVB~~we entered into an agreement with Flexia, to facilitate the divestiture of ~~MVB’s~~our interests in the ongoing business of Flexia. Refer to Note 1415 – Acquisition & Divestiture Activity.

We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as well as Fintech banking.

CoRe Banking

We offer our customers a full range of products and services including:


l			Various demand deposit accounts, savings accounts, money market accounts and certificates of deposit;
l			Commercial, consumer and real estate mortgage loans and lines of credit;
l			Debit cards;
l			Cashier’s checks; and
l			Safe deposit rental ~~facilities; and~~facilities.
l			~~Non-deposit investment services offered through an association with a broker-dealer.~~

Fintech Banking

We provide innovative strategies to independent banking and corporate clients throughout the United States. Our dedicated Fintech team specializes in providing banking services to corporate Fintech clients, ~~with a primary focus~~primarily focusing on operational risk management and compliance. Managing banking relationships with clients in the payments, digital ~~savings, digital~~ assets, ~~crowd funding, lottery~~banking-as-a-service and gaming industries is complex, from both an operational and regulatory perspective. ~~We believe that the~~Due to this complexity, there are a limited number of banking institutions serving these industries, ~~causes them to be underserved with~~which can result in a lack of quality ~~banking services and provides~~focus on these entities, providing us with ~~a significantly~~an expanded pool of potential customers. When serviced in a safe and efficient manner, we believe these industries provide a source of stable, lower cost deposits and noninterest, fee-based income. We thoroughly analyze each industry in which our customers operate, as well as any new products or services provided, from both an operational and regulatory perspective.

Principles of Consolidation and Basis of Presentation

The financial statements are consolidated to include the accounts of MVB and its subsidiaries, including the Bank and the Bank’s subsidiaries. In our opinion, the accompanying consolidated financial statements contain all normal recurring adjustments necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with instructions for Form 10-Q and Article 10 of Regulation S-X of the SEC. All significant intercompany accounts and transactions have been eliminated in consolidated financial statements.

Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The consolidated balance sheet as of December 31, ~~2022~~2023 has been derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 (the ~~“2022~~“2023 Form 10-K”). The information presented in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated

financial statements and notes thereto included in the ~~2022~~2023 Form 10-K. Operating results for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2023.~~2024.

Wholly-owned investments or investments in which we have a controlling financial interest, whether majority owned or in certain circumstances a minority interest, are required to be consolidated into our financial statements. We evaluate investments in entities on an ongoing basis to determine the need to consolidate.

The Bank owns an 80.8% interest in Trabian, which grants us a controlling interest. Accordingly, we are required to consolidate 100% of Trabian within the consolidated financial statements. The remaining interests of Trabian are accounted for separately as noncontrolling ~~interest~~interests within our consolidated financial statements. Noncontrolling interest represents the portion of ownership and profit or loss that is attributable to the minority owners of these entities.

Unconsolidated investments where we have the ability to exercise significant influence over the operating and financial policies of the respective investee are accounted for using the equity method of accounting. Those investments that are not consolidated or accounted for using the equity method of accounting are accounted for under cost or fair value accounting. For investments accounted for under the equity method, we record our investment in non-consolidated affiliates and the portion of income or loss in equity in earnings of non-consolidated affiliates. We periodically evaluate these investments for impairment. As of ~~June 30, 2023,~~March 31, 2024, we held three equity method investments. See Note 5 – Equity Method Investments for further information.

Preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based upon the best available information and actual results could differ from those estimates. An estimate that is particularly significant to the consolidated financial statements relates to the determination of the allowance for credit losses (“ACL”) ~~and the allowance for loan losses (“ALL”) for current and previous periods, respectively.~~.

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.

We have evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

~~Recent~~Recently Issued Accounting Pronouncements

In March 2020, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for certain contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform. In December 2022, the FASB issued ASC 2022-06, Deferral of the Sunset Date of Topic 848, which extends the sunset date of Topic 848 from December 31, 2022, to December 31, 2024. The guidance permits entities to not apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. In January 2021, ASU 2021-01 was issued by the FASB and clarifies that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting transition. As of ~~June 30, 2023,~~March 31, 2024, all loans and other relevant financial instruments that referenced LIBOR have been transitioned to the ~~secured overnight financing rate (“SOFR”).~~SOFR.

In ~~June 2022,~~November 2023, the FASB issued ASU ~~2022-03,~~2023-07, ~~Fair Value Measurement~~Segment Reporting (Topic ~~820)~~280): ~~Fair Value Measurement of Equity Securities Subject~~Improvements to ~~Contractual Sale Restrictions~~Reportable Segments Disclosures. . The amendments are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments clarify ~~that~~circumstances in which an entity can disclose multiple segment measures of profit or loss and provide new segment disclosure requirements for entities with a ~~contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair value.~~single reportable segment. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account and require additional disclosures related to equity securities with contractual sale restrictions. The amendment isare effective for fiscal years beginning after December 15, ~~2023.~~2023 and interim periods within fiscal years beginning after December 14, 2024. We ~~do not~~are currently ~~expect~~evaluating the impact these ~~amendments to~~changes may have ~~a material impact~~on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disaggregated information about a reporting entity's effect tax rate reconciliation as well as information on income taxes paid. Public business entities will be required to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. The amendments also require greater detail about individual reconciling items in the rate reconciliation to the extent that the impact of those items

~~In March 2023, the FASB issued ASU 2023-02,~~ ~~Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structure Using the Proportional Amortization Method~~.exceeds a specified threshold. The amendments ~~allow registrants the option to apply the proportional amortization method to account for all types of investments in tax credit structures if certain conditions~~ are met. Prior to these amendments, the option to use the proportional amortization method was limited to only investments in low-income-housing tax credit structures. Under the proportional amortization method, entities amortize the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognize the net amortization and income tax credits and other benefits in the income statement as a component of income tax expense or benefit. The amendment is effective for fiscal years beginning after December 15, ~~2023.~~2024. We are currently evaluating the impact these changes may have on our consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amendments clarify how an entity determines whether a profits interest or similar award is within the scope of Compensation - Stock Compensation (Topic 718) or not a share-based payment arrangements, and therefore within the scope of other guidance. The amendments are effective for fiscal years beginning after December 15, 2024. We do not currently expect these amendments to have a material impact on our consolidated financial statements.

~~Adoption of New~~Recently Adopted Accounting ~~Pronouncement~~Pronouncements

In January 2023, we adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial ~~guidance: ASU 2018-19,~~guidance, which collectively comprise ~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses, ASU 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU 2019-05,~~ ~~Financial Instruments – Credit Losses, Topic 326,~~ ~~ASU 2019-10,~~ ~~Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,~~ ~~ASU 2019-11,~~ ~~Codification Improvements to Topic 326, Financial Instruments – Credit Losses~~ ~~and ASU 2022-02,~~ ~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures~~ ~~all of which clarify codification and correct unintended application of the guidance. Collectively, upon adoption, these updates comprise~~ Accounting Standards Codification Topic 326 Financial Instruments - Credit Losses ("ASC 326"). ~~The new guidance replaces~~ASC 326 replaced the incurred loss impairment methodology in current U.S. GAAP with an expected credit loss methodology and ~~requires~~required consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost ~~will be~~are presented at the net amount expected to be collected by using an ~~allowance for credit losses.~~ACL. Purchased credit deteriorated (“PCD”) loans ~~will receive~~received an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities ~~will be~~are recorded through an ~~allowance for credit losses,~~ACL, with such allowance limited to the amount by which fair value is below amortized cost. We formed a cross-functional implementation team. This cross-functional team has completed testing the model and has executed the implementation plan, which included assessment and documentation of processes, internal controls and data sources; model testing and documentation; and system configuration, among other things. We completed the process of implementing a third-party vendor solution to assist us in the application of this standard. Adoption of this pronouncement resulted in an increase in the ACL as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.

~~On January 1, 2023, we~~ adopted ~~ASU 2016-13~~ASC 326 using the modified retrospective method for loans, leases and off-balance sheet credit exposures. Adoption of this guidance resulted in a $10.0 million increase in the ACL, comprised of increases in the ACL for loans of $8.9 million and the ACL for unfunded commitments of $1.1 million, with $1.2 million of the increase reclassified from the amortized cost basis of PCD financial assets. This increase was offset by $2.1 million related to tax effect, resulting in a cumulative adjustment to retained earnings of $6.6 million. ~~Results for reporting periods beginning after January~~For additional information on the new standard, see Note 1 ~~2023 are presented under ASU 2016-13 while prior period amounts continue~~- Summary of Significant Accounting Policies to ~~be reported~~the consolidated financial statements included in ~~accordance with the incurred loss model.~~

Item 8, Financial Statements and Supplementary Data

~~The ACL for the majority~~, of the Bank's loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a one-year straight-line reversion period. The Bank’s current ACL fluctuates over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios.

We adopted ASC 326 using the prospective transition approach for PCD assets that were previously classified as purchased credit impaired (“PCI”). In accordance with the pronouncement, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. As mentioned above, the amortized cost basis of the PCD assets was adjusted to reflect the addition of $1.2 million to the ACL. The remaining noncredit discount (based on the adjusted amortized cost basis) is being accreted into interest income at a rate that approximates the effective interest rate beginning on January 1, 2023. With regard to PCD assets, because we elected to disaggregate the former PCI pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans are now being reported as nonaccrual loans using the same criteria as other loans.

~~In addition to the aforementioned elections, we made the following elections at adoption:~~


l			~~to not measure an ACL for accrued interest receivable and instead elected to reverse interest income on those loans that are 90 days past due;~~
l			to exclude accrued interest receivable from the amortized cost basis of financial instruments subject to ASC 326 and to separately state the balance of accrued interest receivable and other assets on the consolidated balance sheet;
l			as a practical expedient, elected to use the fair value of collateral when determining the ACL for loans if repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans).
l			~~to update our troubled debt restructuring ("TDR") disclosures in accordance with ASU 2022-02,~~ ~~Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,~~ ~~which eliminated the accounting guidance for TDRs for creditors.~~

~~In June~~ 2023 ~~we adopted ASU 2022-01,~~ ~~Fair Value Hedging – Portfolio Layer Method~~, upon entering into an interest rate swap to hedge the fair value of fixed rate mortgages included in a closed portfolio for changes in the SOFR benchmark interest rate component of the mortgages. This ASU amends the guidance in ASU 2017-12 and expands what it now calls the portfolio layer method (previously the last-of-layer method) to allow entities to hedge multiple layers of a closed portfolio of assets. It also allows for the use of an amortizing notional swap when entering into a portfolio layer method hedge. Thus, the interest rate swap is considered a hedge of a single layer of the closed portfolio of fixed rate loans. We applied this ASU to the derivatives we entered into during June 2023 as further described in ~~Note 10 - Fair Value Measurements~~ ~~below~~. ~~There were no instruments on the balance sheet that were subject to this ASU prior to June 2023.~~Form 10-K.

Note 2 – Investment Securities

The following tables present amortized cost and fair values of investment securities available-for-sale as of the periods shown:


			June 30, 2023
		March 31, 2024													March 31, 2024
(Dollars in thousands)	(Dollars in thousands)		Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		(Dollars in thousands)	Amortized Cost	Unrealized Gain	Unrealized Loss		Fair Value
United States government agency securities	United States government agency securities		$	44,844	$	6	$	(6,376)	$	38,474
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities		65,715		—		(11,349)		54,366
United States treasury securities	United States treasury securities		106,552		—		(8,523)		98,029
Municipal securities	Municipal securities		136,352		4,232		(19,518)		121,066
Corporate debt securities	Corporate debt securities		9,071		—		(170)		8,901
Other debt securities	Other debt securities		7,500		—		—		7,500
Total debt securities			370,034		4,238		(45,936)		328,336
Total available-for-sale debt securities
Other securities	Other securities		801		—		—		801
Total investment securities available-for-sale			$	370,835	$	4,238	$	(45,936)	$	329,137
Investment securities available-for-sale


			December 31, 2022
		December 31, 2023													December 31, 2023
(Dollars in thousands)	(Dollars in thousands)		Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		(Dollars in thousands)	Amortized Cost	Unrealized Gain	Unrealized Loss		Fair Value
United States government agency securities	United States government agency securities		$	51,436	$	15	$	(6,637)	$	44,814
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities		68,267		—		(11,696)		56,571
United States treasury securities	United States treasury securities		130,689		48		(9,828)		120,909
Municipal securities	Municipal securities		157,842		2,412		(21,618)		138,636
Corporate debt securities	Corporate debt securities		10,570		10		(20)		10,560
Other debt securities	Other debt securities		7,500		—		—		7,500
Total debt securities			426,304		2,485		(49,799)		378,990
Total available-for-sale debt securities
Other securities	Other securities		824		—		—		824
Total investment securities available-for-sale			$	427,128	$	2,485	$	(49,799)	$	379,814
Investment securities available-for-sale

The following table presents amortized cost and fair values of available-for-sale debt securities by contractual maturity as of the period shown:


			June 30, 2023
		March 31, 2024								March 31, 2024
(Dollars in thousands)	(Dollars in thousands)		Amortized Cost		Fair Value		(Dollars in thousands)	Amortized Cost	Fair Value
Within one year	Within one year		$	4,704	$	4,701
After one year, but within five years	After one year, but within five years		112,082		103,496
After five years, but within ten years	After five years, but within ten years		39,867		35,626
After ten years	After ten years		213,381		184,513
Total			$	370,034	$	328,336
Total available-for-sale debt securities

The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may be repaid sooner than scheduled.

Investment securities with a carrying value of ~~$212.0~~$236.3 million and ~~$91.3~~$223.4 million at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve discount window.

Our investment portfolio includes securities that are in an unrealized loss position as of ~~June 30, 2023, the details of which are included in the following table.~~March 31, 2024. We evaluate available-for-sale debt securities to determine whether the unrealized loss is due to credit-related factors or non-credit-related factors. When determining the ~~allowance for credit losses~~ACL on securities, we consider such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, ~~the time frame securities have been in an unrealized loss position,~~ our ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency and whether or not the financial condition of the security issuer has severely deteriorated.

Although these securities would result in a pre-tax loss of ~~$45.9~~$36.8 million if sold at ~~June 30, 2023, declines~~March 31, 2024, we have no intent to sell the applicable securities at such fair values, and maintain that we have the ability to hold these securities until all principal has been recovered. It is more likely than not that we will not, for liquidity purposes, sell any securities at a loss. Declines in the fair ~~value~~values of these securities can be traced to general market conditions, which reflect the prospect for the economy as a whole, rather than credit-related conditions. Therefore, we have no ~~allowance for credit~~ACL losses as of ~~June 30, 2023.~~March 31, 2024.

The following tables show available-for-sale debt securities in an unrealized loss position for which an ~~allowance for credit losses~~ACL has not been recorded as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, aggregated by investment category and length of time that the individual securities have been in a continuous loss position:
June 30, 2023
(Dollars in thousands) Less than 12 months 12 months or more
Description and number of positions Fair Value Unrealized Loss Fair Value Unrealized Loss
United States government agency securities (25) $ 272 $ — $ 36,479 $ (6,376)
United States sponsored mortgage-backed securities (48) 2,362 (22) 52,004 (11,327)
United States treasury securities (23) — — 98,028 (8,523)
Municipal securities (155) 2,890 (6,810) 85,784 (12,708)
Corporate debt securities (7) 2,429 (142) 1,472 (28)
Total $ 7,953 $ (6,974) $ 273,767 $ (38,962)

December 31, 2022
(Dollars in thousands) Less than 12 months 12 months or more
Description and number of positions Fair Value Unrealized Loss Fair Value Unrealized Loss
United States government agency securities (32) $ 21,287 $ (1,937) $ 19,423 $ (4,700)
United States sponsored mortgage-backed securities (51) 6,953 (852) 49,618 (10,844)
United States treasury securities (29) 11,936 (130) 102,092 (9,698)
Municipal securities (173) 65,930 (7,507) 41,184 (14,111)
Corporate debt securities (3) 2,380 (20) — —
Total $ 108,486 $ (10,446) $ 212,317 $ (39,353)


	March 31, 2024
(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (26)	$	4,363	$	(21)	$	33,669	$	(6,011)
United States sponsored mortgage-backed securities (54)	19,467		(146)		48,156		(11,774)
United States treasury securities (23)	—		—		100,563		(5,761)
Municipal securities (215)	555		(11)		86,573		(12,932)
Corporate debt securities (7)	498		(2)		3,451		(128)

Total	$	24,883	$	(180)	$	272,412	$	(36,606)


	December 31, 2023
(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (25)	$	316	$	—	$	34,619	$	(5,603)
United States sponsored mortgage-backed securities (47)	—		—		50,345		(10,549)
United States treasury securities (23)	—		—		100,354		(6,045)
Municipal securities (216)	847		(10)		106,060		(11,148)
Corporate debt securities (7)	2,009		(67)		1,933		(67)

Total	$	3,172	$	(77)	$	293,311	$	(33,412)

The following table summarizes investment sales, related gains and losses and unrealized holding ~~gains~~losses for the periods shown:


	Three Months Ended March 31,
	Three Months Ended March 31,
	Three Months Ended March 31,
(Dollars in thousands)
(Dollars in thousands)
(Dollars in thousands)
Proceeds from sales of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from sales of available-for-sale securities
Gains, gross
Gains, gross
Gains, gross
Losses, gross
Losses, gross
Losses, gross

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Proceeds from sales of available-for-sale securities	$	—	$	—	$	54,531	$	60,635
Gains, gross	—		—		—		717
Losses, gross	—		—		1,536		67

Proceeds from sales of equity securities	$	206	$	1,100	$	206	$	1,100
Gain, gross	—		100		—		100
Losses, gross	294		—		294		—

Unrealized holding gains (losses) on equity securities	160		(26)		(148)		(85)

Unrealized holding losses on equity securities

Unrealized holding losses on equity securities

Unrealized holding losses on equity securities

Note 3 – Loans and Allowance for Credit Losses

The following table presents the components of loans as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	March 31, 2024	December 31, 2023
Commercial:	Commercial:
Business
Business
Business	Business	$	845,107	$	851,072
Real estate	Real estate	616,034		632,839
Acquisition, development and construction	Acquisition, development and construction	106,906		126,999
Total commercial	Total commercial	$	1,568,047	$	1,610,910
Residential real estate	Residential real estate	674,090		606,970
Home equity lines of credit	Home equity lines of credit	16,651		18,734
Consumer	Consumer	51,766		131,566
Total loans, excluding PCI		2,310,554		2,368,180
Purchased credit impaired loans:

Residential real estate		—		2,482

Total purchased credit impaired loans		—		2,482
Total Loans		$	2,310,554	$	2,370,662

Total loans

Total loans

Total loans
Deferred loan origination costs, net	Deferred loan origination costs, net	1,833		1,983
Loans receivable	Loans receivable	$	2,312,387	$	2,372,645

We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments. ~~With the adoption of ASU 2016-13 on January 1, 2023, we modified our~~Our loan portfolio segmentation ~~to be~~is based primarily on call report codes, which are levels at which we develop and document our systematic methodology to determine the ~~allowance for credit losses~~ACL attributable to each respective portfolio segment. The ACL portfolio segments are aggregated into broader segments in order to present informative yet concise disclosures within this document, as follows:

Commercial business loans– Commercial business loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate, and to finance future cash flows of Federal government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial business loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both internally originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both internally originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow.

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

Residential real estate – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers, but also includes loans to residential real estate developers, secured by residential real estate, which we previously presented under commercial acquisitions, development and construction loans under the incurred loss model. Residential real estate loans to consumers are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s, and where applicable, the builder’s, continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Residential real estate secured loans to developers represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Home equity lines of credit – This segment includes ~~subsegment~~subsegments for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

Consumer loans– This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. This segment primarily includes loans purchased from a third-party originator that originates loans in order to finance the purchase of personal automotive vehicles for sub-prime borrowers. Credit risk is unique in comparison to the Consumer segment as this segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan.

~~Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with the incurred loss model.~~

~~The following table presents impaired loans by class segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods shown:~~

Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Total Impaired Loans
(Dollars in thousands) Recorded Investment Related Allowance Recorded Investment Recorded Investment Unpaid Principal Balance
December 31, 2022
Commercial
Business $ 3,436 $ 1,253 $ 7,015 $ 10,451 $ 15,324
Real estate 1,240 222 125 1,365 1,470
Acquisition, development and construction — — — — 1,415
Total commercial 4,676 1,475 7,140 11,816 18,209
Residential real estate — — 2,603 2,603 2,671
Home equity lines of credit — — 90 90 94
Consumer 1,347 268 4 1,351 1,351
Total impaired loans $ 6,023 $ 1,743 $ 9,837 $ 15,860 $ 22,325

~~The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods shown:~~
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
(Dollars in thousands) Average Investment in Impaired Loans Interest Income Recognized on Accrual Basis Interest Income Recognized on Cash Basis Average Investment in Impaired Loans Interest Income Recognized on Accrual Basis Interest Income Recognized on Cash Basis
Commercial
Business $ 11,015 $ — $ — $ 10,741 $ — $ —
Real estate 1,597 16 15 1,681 33 33
Acquisition, development and construction 306 — — 314 — —
Total commercial 12,918 16 15 12,736 33 33
Residential 8,374 5 4 8,372 10 9
Home equity 159 — — 174 — —
Consumer 754 — — 593 — —
Total $ 22,205 $ 21 $ 19 $ 21,875 $ 43 $ 42

As of ~~June 30, 2023,~~March 31, 2024, the Bank’s other real estate owned balance totaled ~~$0.9~~$0.8 million, ~~substantially~~ all of which was related to our acquisition of The First State Bank (“First State”) in 2020. The ~~Bank held $0.8 million, or 89%, of~~ other real estate owned ~~as a result of the foreclosure~~balance consisted of two unrelated commercial ~~loans. The remaining $0.1 million, or 11%, consists of two foreclosed residential real estate property.~~properties. As of ~~June 30, 2023,~~March 31, 2024, there ~~were two~~was one residential ~~mortgages~~mortgage in the process of foreclosure with loan balances totaling $0.2 million.

Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions.

Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loans categorized as “Doubtful” rated have all the weakness inherent in those classified Substandard with the added characteristic that the weakness makes collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

The Special Mention rated category includes assets that are currently protected but are potentially weak, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the “Loss” category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories, unless a specific action, such as past due status, bankruptcy, repossession or death, occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Bank's Credit Department

ensures that a review of all commercial relationships of $1.0 million or more is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan review process and on an ongoing basis. The Bank has an experienced ~~Credit Department~~credit department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships ~~in excess~~with the intent of ~~$3.0 million or criticized relationships.~~reviewing 40% to 45% of the Bank's commercial outstanding loan balances on an annual basis. The Bank's ~~Credit Department~~credit department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. ~~Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.~~

The following table presents the amortized cost of loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system by vintage year as of the period shown:

Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
June 30, 2023
Commercial business:
Risk rating:
Pass $ 67,617 $ 265,932 $ 141,159 $ 29,974 $ 17,500 $ 66,225 $ 235,707 $ — $ 824,114
Special Mention — 1,395 83 711 98 4,502 — — 6,789
Substandard — 232 475 — 5,290 5,485 — — 11,482
Doubtful — — 1,144 264 — 1,314 — — 2,722
Total commercial business loans $ 67,617 $ 267,559 $ 142,861 $ 30,949 $ 22,889 $ 77,526 $ 235,707 $ — $ 845,107
Gross charge-offs $ — $ — $ 116 $ 141 $ — $ 11 $ — $ 268
Commercial real estate:
Risk rating:
Pass $ 32,028 $ 157,930 $ 231,805 $ 12,251 $ 26,729 $ 113,943 $ — $ — $ 574,686
Special Mention — — — — 6,859 15,123 — — 21,982
Substandard — — — — — 19,366 — — 19,366
Doubtful — — — — — — — — —
Total commercial real estate loans $ 32,028 $ 157,930 $ 231,805 $ 12,251 $ 33,588 $ 148,432 $ — $ — $ 616,034
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Commercial acquisition, development and construction:
Risk rating:
Pass $ 1,943 $ 32,930 $ 44,498 $ 21,945 $ 3,128 $ 1,653 $ — $ — $ 106,097
Special Mention — — — — — 10 — — 10
Substandard — — — — — 799 — — 799
Doubtful — — — — — — — — —
Total commercial acquisition, development and construction loans $ 1,943 $ 32,930 $ 44,498 $ 21,945 $ 3,128 $ 2,462 $ — $ — $ 106,906
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Commercial business:
Risk rating:
Pass	$	11,058	$	148,499	$	230,313	$	71,110	$	30,347	$	119,528	$	85,322	$	—	$	696,177
Special Mention	—		—		29,776		185		817		4,094		—		—		34,872
Substandard	—		1,250		1,227		691		—		4,349		808		—		8,325
Doubtful	—		—		924		779		264		1,028		—		—		2,995
Total commercial business loans	$	11,058	$	149,749	$	262,240	$	72,765	$	31,428	$	128,999	$	86,130	$	—	$	742,369
Gross charge-offs	$	—	$	—	$	614	$	—	$	—	$	367	$	—	$	—	$	981

Commercial real estate:
Risk rating:
Pass	$	37,733	$	112,029	$	134,778	$	191,268	$	11,813	$	131,047	$	518	$	—	$	619,186
Special Mention	—		—		—		25,919		—		17,150		—		—		43,069
Substandard	—		—		—		—		—		18,812		—		—		18,812
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	37,733	$	112,029	$	134,778	$	217,187	$	11,813	$	167,009	$	518	$	—	$	681,067
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial acquisition, development and construction:
Risk rating:
Pass	$	5,146	$	6,592	$	56,763	$	30,552	$	23,656	$	3,692	$	2,500	$	—	$	128,901
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		14,652		—		708		—		—		15,360
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial acquisition, development and construction loans	$	5,146	$	6,592	$	56,763	$	45,204	$	23,656	$	4,400	$	2,500	$	—	$	144,261
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate:
Risk rating:
Pass	$	8,946	$	56,959	$	417,220	$	104,709	$	34,748	$	28,585	$	2,705	$	—	$	653,872
Special Mention	—		—		—		—		4,118		1,161		—		—		5,279
Substandard	—		—		—		—		81		787		120		—		988
Doubtful	—		—		—		211		—		94		—		—		305
Total residential real estate loans	$	8,946	$	56,959	$	417,220	$	104,920	$	38,947	$	30,627	$	2,825	$	—	$	660,444
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
March 31, 2024
Home equity lines of credit:
Risk rating:
Pass	$	—	$	58	$	36	$	—	$	—	$	11	$	12,828	$	—	$	12,933
Special Mention	—		—		—		—		—		—		271		—		271
Substandard	—		—		—		—		—		—		165		—		165
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity lines of credit loans	$	—	$	58	$	36	$	—	$	—	$	11	$	13,264	$	—	$	13,369
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Risk rating:
Pass	$	—	$	2,040	$	17,093	$	5,243	$	—	$	55	$	30	$	—	$	24,461
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		21		189		10		—		—		—		—		220
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	—	$	2,061	$	17,282	$	5,253	$	—	$	55	$	30	$	—	$	24,681
Gross charge-offs	$	—	$	189	$	833	$	147	$	—	$	—	$	—	$	—	$	1,169

Total:
Risk rating:
Pass	$	62,883	$	326,177	$	856,203	$	402,882	$	100,564	$	282,918	$	103,903	$	—	$	2,135,530
Special Mention	—		—		29,776		26,104		4,935		22,405		271		—		83,491
Substandard	—		1,271		1,416		15,353		81		24,656		1,093		—		43,870
Doubtful	—		—		924		990		264		1,122		—		—		3,300
Total loans	$	62,883	$	327,448	$	888,319	$	445,329	$	105,844	$	331,101	$	105,267	$	—	$	2,266,191
Gross charge-offs	$	—	$	189	$	1,447	$	147	$	—	$	367	$	—	$	—	$	2,150


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2023
Commercial business:
Risk rating:
Pass	$	176,309	$	251,265	$	92,307	$	64,964	$	50,765	$	90,355	$	20,315	$	—	$	746,280
Special Mention	990		32,342		72		830		339		3,767		—		—		38,340
Substandard	368		988		521		—		4,640		1,436		—		—		7,953
Doubtful	—		2,022		839		264		—		1,402		—		—		4,527
Total commercial business loans	$	177,667	$	286,617	$	93,739	$	66,058	$	55,744	$	96,960	$	20,315	$	—	$	797,100
Gross charge-offs	$	—	$	228	$	1,250	$	141	$	—	$	2,953	$	—	$	—	$	4,572

Commercial real estate:
Risk rating:
Pass	$	80,553	$	149,189	$	205,651	$	11,952	$	26,438	$	101,322	$	51,239	$	—	$	626,344
Special Mention	—		—		7,961		—		6,079		11,201		—		—		25,241
Substandard	—		—		—		—		—		18,999		—		—		18,999
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	80,553	$	149,189	$	213,612	$	11,952	$	32,517	$	131,522	$	51,239	$	—	$	670,584
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial acquisition, development and construction:
Risk rating:
Pass	$	6,546	$	54,170	$	29,535	$	22,041	$	—	$	1,483	$	4,823	$	—	$	118,598
Special Mention	—		—		14,652		—		—		—		—		—		14,652
Substandard	—		—		—		—		—		754		—		—		754
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial acquisition, development and construction loans	$	6,546	$	54,170	$	44,187	$	22,041	$	—	$	2,237	$	4,823	$	—	$	134,004
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate:
Risk rating:
Pass	$	33,867	$	413,466	$	96,413	$	38,169	$	7,306	$	21,313	$	50,815	$	—	$	661,349
Special Mention	—		—		—		4,224		414		708		—		—		5,346
Substandard	—		988		3,764		82		146		777		—		—		5,757
Doubtful	—		—		—		—		—		95		—		—		95
Total residential real estate loans	$	33,867	$	414,454	$	100,177	$	42,475	$	7,866	$	22,893	$	50,815	$	—	$	672,547
Gross charge-offs	$	—	$	—	$	—	$	—	$	19	$	381	$	—	$	—	$	400

Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
June 30, 2023
Residential Real Estate:
Risk rating:
Pass $ 61,630 $ 426,251 $ 105,465 $ 39,932 $ 7,549 $ 25,496 $ — $ — $ 666,323
Special Mention — — — 3,924 1,382 735 — — 6,041
Substandard — — — 83 153 912 — — 1,148
Doubtful — — — — — 578 — — 578
Total residential real estate loans $ 61,630 $ 426,251 $ 105,465 $ 43,939 $ 9,084 $ 27,721 $ — $ — $ 674,090
Gross charge-offs $ — $ — $ — $ — $ — $ 22 $ — $ — $ 22
Home equity lines of credit:
Risk rating:
Pass $ — $ 37 $ — $ — $ 174 $ 866 $ 15,265 $ — $ 16,342
Special Mention — — — — — 75 150 — 225
Substandard — — — — — 84 — — 84
Doubtful — — — — — — — — —
Total home equity lines of credit loans $ — $ 37 $ — $ — $ 174 $ 1,025 $ 15,415 $ — $ 16,651
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Consumer:
Risk rating:
Pass $ 8,860 $ 33,732 $ 8,011 $ 2 $ 56 $ 87 $ — $ — $ 50,748
Special Mention — — — — — — — — —
Substandard 160 801 54 — — 2 — — 1,017
Doubtful — — — — — 1 — — 1
Total consumer loans $ 9,020 $ 34,533 $ 8,065 $ 2 $ 56 $ 90 $ — $ — $ 51,766
Gross charge-offs $ 217 $ 6,772 $ 1,268 $ — $ — $ — $ — $ — $ 8,257
Total:
Risk rating:
Pass $ 172,078 $ 916,812 $ 530,938 $ 104,104 $ 55,136 $ 208,270 $ 250,972 $ — $ 2,238,310
Special Mention — 1,395 83 4,635 8,339 20,445 150 — 35,047
Substandard 160 1,033 529 83 5,443 26,648 — — 33,896
Doubtful — — 1,144 264 — 1,893 — — 3,301
Total consumer loans $ 172,238 $ 919,240 $ 532,694 $ 109,086 $ 68,918 $ 257,256 $ 251,122 $ — $ 2,310,554
Gross charge-offs $ 217 $ 6,772 $ 1,384 $ 141 $ — $ 33 $ — $ — $ 8,547

The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods shown:

(Dollars in thousands) Pass Special Mention Substandard Doubtful Total
December 31, 2022
Commercial
Business $ 830,319 $ 5,963 $ 12,103 $ 2,687 $ 851,072
Real estate 592,997 18,883 20,600 359 632,839
Acquisition, development and construction 120,788 5,277 934 — 126,999
Total commercial 1,544,104 30,123 33,637 3,046 1,610,910
Residential real estate 605,513 760 1,556 1,623 609,452
Home equity lines of credit 18,269 375 90 — 18,734
Consumer 131,562 — 4 — 131,566
Total loans $ 2,299,448 $ 31,258 $ 35,287 $ 4,669 $ 2,370,662


	Term Loans Amortized Cost Basis by Origination Year
(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2023
Home equity lines of credit:
Risk rating:
Pass	$	638	$	3,798	$	1,779	$	1,192	$	501	$	3,084	$	3,154	$	—	$	14,146
Special Mention	—		61		—		36		—		41		86		—		224
Substandard	—		83		—		78		—		—		—		—		161
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity lines of credit loans	$	638	$	3,942	$	1,779	$	1,306	$	501	$	3,125	$	3,240	$	—	$	14,531
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Risk rating:
Pass	$	2,275	$	18,926	$	5,753	$	9	$	28	$	53	$	20	$	—	$	27,064
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	20		266		58		—		—		—		—		—		344
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	2,295	$	19,192	$	5,811	$	9	$	28	$	53	$	20	$	—	$	27,408
Gross charge-offs	$	1,144	$	10,608	$	1,753	$	—	$	—	$	2	$	—	$	—	$	13,507

Total:
Risk rating:
Pass	$	300,188	$	890,814	$	431,438	$	138,327	$	85,038	$	217,610	$	130,366	$	—	$	2,193,781
Special Mention	990		32,403		22,685		5,090		6,832		15,717		86		—		83,803
Substandard	388		2,325		4,343		160		4,786		21,966		—		—		33,968
Doubtful	—		2,022		839		264		—		1,497		—		—		4,622
Total loans	$	301,566	$	927,564	$	459,305	$	143,841	$	96,656	$	256,790	$	130,452	$	—	$	2,316,174
Gross charge-offs	$	1,144	$	10,836	$	3,003	$	141	$	19	$	3,336	$	—	$	—	$	18,479

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A complete review is presented to the Chief Credit Officer and/or the Special Asset Review Committee (“SARC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, becomes likely the borrower cannot or will not make scheduled principal or interest payments, full repayment of principal and interest is not expected or the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status unless we believe it is likely the accrued interest will be collected. Any payments subsequently received are applied to the principal. All principal and interest due must be paid up-to-date and the Bank is reasonably sure of future satisfactory payment performance to remove a loan from non-accrual status. Usually, this requires the receipt of ~~six~~ ~~consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or the SARC.~~

2322

The following table presents the amortized cost basis in loans by aging category and accrual status as of the periods shown:

(Dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Total Past Due Total Loans Non-Accrual 90+ Days Still Accruing Non Accrual with No Credit Loss Interest Income Recognized
June 30, 2023
Commercial
Business $ 834,448 $ 239 $ 4,554 $ 5,866 $ 10,659 $ 845,107 $ 10,801 $ — $ 3,825 $ —
Real estate 616,034 — — — — 616,034 — — — —
Acquisition, development and construction 106,107 799 — — 799 106,906 — — — —
Total commercial 1,556,589 1,038 4,554 5,866 11,458 1,568,047 10,801 — 3,825 —
Residential real estate 672,516 — — 1,574 1,574 674,090 1,659 — — —
Home equity lines of credit 16,651 — — — — 16,651 169 — — —
Consumer 43,140 5,320 2,291 1,015 8,626 51,766 1,017 — — —
Total loans $ 2,288,896 $ 6,358 $ 6,845 $ 8,455 $ 21,658 $ 2,310,554 $ 13,646 $ — $ 3,825 $ —

~~The following table presents the aging of recorded investment in loans, including accruing and nonaccrual loans, as of the period shown:~~


(Dollars in thousands)	(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing		(Dollars in thousands)	Current	30-59 Days Past Due	60-89 Days Past Due	90+ Days Past Due	Total Past Due	Total Loans	Non-Accrual	90+ Days Still Accruing	Non Accrual with No Credit Loss	Interest Income Recognized

December 31, 2022
March 31, 2024
Commercial	Commercial
Commercial
Commercial
Business
Business
Business	Business	$	850,112	$	—	$	960	$	—	$	960	$	851,072	$	7,528	$	—
Real estate	Real estate	632,839		—		—		—		—		632,839		—		—
Acquisition, development and construction	Acquisition, development and construction	126,999		—		—		—		—		126,999		—		—

Total commercial	Total commercial	1,609,950		—		960		—		960		1,610,910		7,528		—
Residential real estate	Residential real estate	606,554		1,820		1,078		—		2,898		609,452		2,196		—
Home equity lines of credit	Home equity lines of credit	18,131		603		—		—		603		18,734		90		—
Consumer	Consumer	120,504		6,848		2,867		1,347		11,062		131,566		1,351		—
Total loans	Total loans	$	2,355,139	$	9,271	$	4,905	$	1,347	$	15,523	$	2,370,662	$	11,165	$	—

December 31, 2023
December 31, 2023
December 31, 2023
Commercial
Commercial
Commercial
Business
Business
Business
Real estate
Acquisition, development and construction
Total commercial
Residential real estate
Home equity lines of credit
Consumer
Total loans

The ACL is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the ACL when management believes the loan balance is uncollectible. Accrued interest receivable is excluded from the estimate of credit losses. Management determines the ACL balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit behaviors along with model judgments provide the basis for the estimation of expected credit losses. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in environmental conditions, such as changes in economic conditions, property values or other relevant factors.

The Bank’s methodology for determining the ACL is based on the requirements of ASC ~~326 for loans individually evaluated for impairment and~~ ~~ASC Subtopic 450-20 - Contingencies~~ for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Credit Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ACL.326.

The ACL is calculated on a collective basis when similar risk characteristics exist. The ACL for the majority of loans and leases was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a one-year straight-line reversion period with loss rates, prepayment assumptions and curtailment assumptions

driven by each loan’s collateral type. Expected credit loss rates were estimated using a regression model based on historical data from peer banks which incorporates a third-party vendor’s economic forecast to predict the change in credit losses. As of ~~June 30, 2023,~~March 31, 2024, the Bank expects the markets in which it operates will experience ~~a decline in~~ economic ~~conditions and an increase in the unemployment rate and level of delinquencies,~~improvements over the next one to two years. The ACL for only one portfolio segment consisting entirely of automotive loans to consumers was calculated under the remaining life methodology using straight-line amortization over the remaining life of the portfolio.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When Bank management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Real Estate		Vehicles and Equipment		Assignment of Cash Flow		Accounts Receivable		Other		Totals		Allowance for Credit Losses		(Dollars in thousands)	Real Estate	Vehicles and Equipment	Assignment of Cash Flow	Accounts Receivable	Other	Totals	Allowance for Credit Losses
June 30, 2023
March 31, 2024
Commercial
Commercial
Commercial	Commercial
Business	Business	$	1,434	$	3,952	$	900	$	238	$	264	$	6,788	$	2,666

Business
Business
Real estate
Acquisition, development and construction
Total commercial	Total commercial	$	1,434	$	3,952	$	900	$	238	$	264	$	6,788	$	2,666
Residential	Residential	1,599		—		—		—		—		1,599		391

Home equity lines of credit
Consumer	Consumer	—		1,015		—		—		—		1,015		199
Total	Total	$	3,033	$	4,967	$	900	$	238	$	264	$	9,402	$	3,256
Collateral value

December 31, 2023

December 31, 2023

December 31, 2023
Commercial
Commercial
Commercial
Business
Business
Business
Real estate
Acquisition, development and construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total
Collateral value	Collateral value	$	2,503	$	9,312	$	—	$	178	$	451	$	12,444

The Bank evaluates certain loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans are evaluated collectively for expected credit losses by applying allocation rates derived from the Bank’s historical losses specific to these loans. The reserve was immaterial at ~~June 30, 2023~~March 31, 2024 and ~~$0.1 million at~~ December 31, ~~2022.~~2023.

Management has identified a number of additional qualitative factors which it uses to supplement the estimated losses derived from the loss rate methodologies employed within the ~~CECL~~Current Expected Credit Losses model because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from the loss rate methodologies. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors.

~~For accounting methodologies related to the incurred loss method previously used before the adoption of ASC 326, refer to~~ ~~Note 1 - Summary of Significant Accounting Policies~~ ~~and~~ ~~Note 3 - Loans and Allowance for Loan Losses~~ ~~of the Notes to the Consolidated Financial Statements included in~~ ~~Item 8, Financial Statements and Supplementary Data, of the 2022 Form 10-K.~~

To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of unfunded commitments based on the same segmentation used for the ~~allowance for credit losses~~ACL calculation. The estimated funding rate for each segment was derived from a funding rate study created by a third-party vendor which analyzed funding of various loan types over time to develop industry benchmarks at the call report code level. Once the estimated future advances were calculated, the allocation rate

applicable to that portfolio segment was applied in the same manner as those used for the ~~allowance for credit loss~~ACL calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the liability for unfunded commitments related to loans ~~held for investment~~held-for-investment was ~~$1.4 million and $0.5 million, respectively.~~$1.0 million.

Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ACL. When information confirms all or part of specific loans to be uncollectible, these

amounts are promptly charged off against the ACL.

The following table presents the balance and activity for the primary segments of the ACL as of the periods shown:


			Commercial								Residential			Home Equity			Consumer			Total
		Commercial																							Commercial	Residential	Home Equity	Consumer	Total
(Dollars in thousands)	(Dollars in thousands)		Business		Real Estate		Acquisition, development and construction		Total Commercial				Residential						Home Equity				Consumer	Total
ALL, prior to adoption of ASC 326, at December 31, 2022			$	8,771	$	5,704	$	1,064	$	15,539
Impact of adopting ASC 326			(126)		(2,846)		288		(2,684)		3,889					(5)			6,482			7,682
Provision (release of allowance) for credit losses			2,186		180		355		2,721		(86)			(14)			(2,153)			468
Initial allowance on loans purchased with credit deterioration			710		—		—		710		507			—			—			1,217
Charge-offs			(268)		—		—		(268)		(22)			—			(8,257)			(8,547)
Recoveries			35		13		—		48		—			2			5,587			5,637
ACL at June 30, 2023			$	11,308	$	3,051	$	1,707	$	16,066	$	7,168		$	114		$	6,946		$	30,294

(Dollars in thousands)
ACL balance at March 31, 2023			$	9,918	$	3,177	$	1,640	$	14,735	$	7,618		$	119		$	13,041		$	35,513
ACL at December 31, 2023
ACL at December 31, 2023
ACL at December 31, 2023
Provision (release of allowance) for credit losses	Provision (release of allowance) for credit losses		1,504		(133)		67		1,438		(450)			(6)			(4,969)			(3,987)
Charge-offs	Charge-offs		(127)		—		—		(127)		—			—			(3,573)			(3,700)
Recoveries	Recoveries		13		7		—		20		—			1			2,447			2,468
ACL balance at June 30, 2023			$	11,308	$	3,051	$	1,707	$	16,066	$	7,168		$	114		$	6,946		$	30,294
ACL at March 31, 2024


	Commercial								Residential		Home Equity		Consumer		Total
(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial







ALL, prior to adoption of ASC 326, at December 31, 2022	$	8,771	$	5,704	$	1,064	$	15,539	$	2,880	$	131	$	5,287	$	23,837
Impact of adopting ASC 326	(126)		(2,846)		288		(2,684)		3,889		(5)		6,482		7,682
Initial allowance on loans purchased with credit deterioration	710		—		—		710		507		—		—		1,217
Provision (release of allowance) for credit losses	681		313		288		1,282		364		(8)		2,817		4,455
Charge-offs	(141)		—		—		(141)		(22)		—		(4,684)		(4,847)
Recoveries	23		6		—		29		—		1		3,139		3,169

ACL balance at March 31, 2023	$	9,918	$	3,177	$	1,640	$	14,735	$	7,618	$	119	$	13,041	$	35,513

During the three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, there were charge offs totaling $2.2 million. For the three months ended March 31, 2024, $1.2 million, or 55%, of charge offs were related to the subprime consumer automotive segment, $0.6 million, or 27%, was related to a ~~$0.2~~commercial note secured by business assets and $0.4 million, ~~and $0.1 million release of allowance~~or 18%, was related to a commercial note secured by heavy equipment. During the three months ended March 31, 2024, the provision related to unfunded commitments ~~respectively. Substantially all of the charge-offs during three and six months ended June 30, 2023 are related to our subprime automobile portfolio of loans.~~

The following table presents the primary segments of the ALL segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods shown:

Commercial Residential Home Equity Consumer Total
(Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial
ALL balance at December 31, 2021 $ 8,027 $ 5,091 $ 982 $ 14,100 $ 948 $ 128 $ 2,427 $ 17,603
     Charge-offs — — — — — — (3,652) (3,652)
     Recoveries 10 62 — 72 — 4 1,664 1,740
     Provision (release) 40 1,488 (15) 1,513 824 9 4,697 7,043
ALL balance at June 30, 2022 $ 8,077 $ 6,641 $ 967 $ 15,685 $ 1,772 $ 141 $ 5,136 $ 22,734
Individually evaluated for impairment $ 1,076 $ 223 $ — $ 1,299 $ 84 $ — $ 212 $ 1,595
Collectively evaluated for impairment $ 7,001 $ 6,418 $ 967 $ 14,386 $ 1,688 $ 141 $ 4,924 $ 21,139
(Dollars in thousands)
ALL balance at March 31, 2022 $ 6,869 $ 5,566 $ 735 $ 13,170 $ 1,127 $ 131 $ 3,766 $ 18,194
     Charge-offs — — — — — — (2,529) (2,529)
     Recoveries 9 55 — 64 — 2 1,289 1,355
     Provision 1,199 1,020 232 2,451 645 8 2,610 5,714
ALL balance at June 30, 2022 $ 8,077 $ 6,641 $ 967 $ 15,685 $ 1,772 $ 141 $ 5,136 $ 22,734

~~The following table presents the primary segments of our loan portfolio as of the period shown:~~
Commercial Residential Home Equity Lines of Credit Consumer Total
(Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial
June 30, 2022
Individually evaluated for impairment $ 11,953 $ 1,182 $ 1,069 $ 14,204 $ 8,407 $ 198 $ 831 $ 23,640
Collectively evaluated for impairment 818,227 696,454 111,187 1,625,868 432,154 19,992 107,054 2,185,068
Total Loans $ 830,180 $ 697,636 $ 112,256 $ 1,640,072 $ 440,561 $ 20,190 $ 107,885 $ 2,208,708
was not significant.

The ACL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the portfolio segments, the related loss estimation methodologies and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.

~~Purchased Credit Impaired Loans~~

~~The carrying amount of purchased credit impaired loans ("PCI") outstanding at June 30, 2022 was $5.8 million.~~

~~The following table presents the accretable yield, or income expected to be collected, during the periods shown:~~

(Dollars in thousands) Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
Beginning balance $ 6,253 $ 6,505
Accretion of income (985) (1,793)
Accretion from disposals (1,041) (1,041)
Disposals (1,271) (1,271)
Other changes in expected cash flows (1,047) (491)
Ending balance 1,909 1,909

The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the PCI loan portfolio as of the periods indicated:

Commercial Residential Consumer Total
(Dollars in thousands) Business Real Estate Total Commercial
ALL balance as of December 31, 2021 — — — 544 119 663
Release — — — (544) (119) (663)
ALL balance as of June 30, 2022 — — — — — —
Collectively evaluated for impairment — — — — — —
(Dollars in thousands)
ALL balance as of March 31, 2022 112 53 165 323 126 614
Release (112) (53) (165) (323) (126) (614)
ALL balance as of June 30, 2022 — — — — — —

Loan Modifications for Borrowers Experiencing Financial Difficulty

Occasionally, the Bank modifies loans to borrowers in financial distress by providing concessions that allow for the borrower to lower their payment obligations for a defined period, these may include, but are not limited to: principal forgiveness, payment delays, term extensions, interest rate reductions and any combinations of the preceding.

The following ~~tables~~table summarize the amortized cost basis of loans that were modified ~~during three and six months ended June 30, 2023:~~as of the period shown:


(Dollars in thousands)	(Dollars in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Total		Total Class of Financing Receivable		(Dollars in thousands)			Principal Forgiveness						Payment Delay								Term Extension							Interest Rate Reduction								Total						Total Class of Financing Receivable
June 30, 2023
March 31, 2024
Commercial	Commercial
Commercial
Commercial
Business
Business
Business	Business	$	—	$	4,563	$	—	$	—	$	4,563	1	%		$	—			$		$	1,377			$				$	—			$			$	—			$				$	1,377			—			—		%
Real estate	Real estate	—		11,376		—		—		11,376		2	%	Real estate			—			—				—				—					—		—						—			—					—		—				—	%

Total commercial
Total commercial
Total commercial	Total commercial	—		15,939		—		—		15,939		1	%		—				1,377			1,377				—					—			—					—				1,377					1,377		—				—	%
Residential	Residential	—		—		—		—		—		—	%	Residential			—			—				—				—					—		—						—			—					—		—				—	%
Home equity lines of credit	Home equity lines of credit	—		—		—		—		—		—	%	Home equity lines of credit			—			—				—				—					—		—						—			—					—		—				—	%
Consumer	Consumer	—		—		—		—		—		—	%	Consumer			—			—				—				—					—		—						—			—					—		—				—	%
Total	Total	$	—	$	15,939	$	—	$	—	$	15,939	1	%	Total			$	—		$			$	1,377			$				$	—		$				$	—			$				$	1,377		—				—	%

The above table presents the amortized cost basis of loans at ~~June 30, 2023~~March 31, 2024 that were experiencing financial difficulty and modified during the three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, by class and by type of modification. Also presented above is the percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable. ~~Five~~Six loans to ~~unrelated~~six borrowers received payment delay modifications in the

three ~~and six~~ months ended ~~June 30, 2023,~~March 31, 2024, including ~~four~~six commercial loans with government guarantees totaling ~~$4.6 million~~$1.4 million. There were no loans that were experiencing financial difficulty and ~~one loan secured by commercial office real estate totaling $11.4 million.~~modified during the three months ended March 31, 2023.

The Bank closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. ~~The following table presents the performance of such loans that have been modified as of the period shown:~~

(Dollars in thousands) 30-59 Days
Past Due 60-89 Days
Past Due Greater Than
89 Days
Past Due Total Past Due
June 30, 2023
Commercial
Business $ — $ 2,075 $ — $ 2,075
Total commercial — 2,075 — 2,075
Residential — — — —
Home equity lines of credit — — — —
Consumer — — — —
Total $ — $ 2,075 $ — $ 2,075

As of June 30, 2023, there is one modified loan past due, with an amortized costs basis of $2.1 million. This is a commercial note with a government guarantee and is considered non-accrual as of June 30, 2023.

~~The following table presents the amortized cost basis of loans that had a payment default and were modified prior to that default to borrowers experiencing financial difficulty as of the period shown:~~

(Dollars in thousands) Principal Forgiveness Payment Delay Term Extension Interest Rate Reduction Total
June 30, 2023
Commercial
Business $ — $ 2,075 $ — $ — $ 2,075
Real estate — — — — —
Total commercial — 2,075 — — 2,075
Residential — — — — —
Home equity lines of credit — — — — —
Consumer — — — — —
Total $ — $ 2,075 $ — $ — $ 2,075

As of June 30, 2023, there is one modified loan that has defaulted, with an amortized costs basis of $2.1 million. This is a commercial note with a government guarantee and is considered non-accrual as of June 30, 2023. Upon the Bank’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written-off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ~~allowance for credit losses~~ACL is adjusted by the same amount.

~~Troubled Debt Restructurings~~

~~Results for reporting periods beginning after January 1, 2023 are presented under ASC 326, which eliminated the accounting guidance for TDRs, while~~ There were no loans that had a payment default and were modified prior ~~period amounts continue~~ to ~~be reported in accordance with the TDR model.~~

~~At December 31, 2022, the Bank had specific reserve allocations for TDRs of $0.4 million. Loans considered~~that default to be troubled debt restructured loans totaled $10.4 million as of December 31, 2022. Of the total, $4.7 million represents accruing troubled debt restructured loans and represent 45% of total impaired loans at December 31, 2022. Meanwhile, as of December 31, 2022, $5.7 million represents nine loans to seven borrowers that have defaulted under the restructured terms. The largest of these loans is a $1.9 million restructured commercial loan to a company previously dependent on the coal industry, which is now structured as an unsecured loan. Three of these loans to an unrelated borrower, totaling $3.1 million, are restructured equipment loans to a borrowerexperiencing financial difficulty in the coal industry, which was provided extended interest-only terms to allow time for the collateral equipment to be sold. There is a commercial loan totaling $0.5 million secured by government lease payments that previously defaulted and is now

making restructured payments. The four remaining unrelated borrowers have a single loan each, totaling $0.2 million. These borrowers have experienced continued financial difficulty and were considered non-performing loans as of December 31, 2022.

~~During the six~~three months ended ~~June 30, 2022, no additional loans were classified as TDRs~~March 31, 2024 and ~~no restructured loan defaulted under their modified terms that were not already classified as non-performing for having previously defaulted under their modified terms.~~March 31, 2023.

Note 4 – Premises and Equipment

The following table presents the components of premises and equipment as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)		June 30, 2023		December 31, 2022		(Dollars in thousands)	March 31, 2024	December 31, 2023
Land	Land		$	3,465	$	3,465
Buildings and improvements	Buildings and improvements		13,393		13,393
Furniture, fixtures and equipment	Furniture, fixtures and equipment		17,666		17,549
Software	Software		6,598		6,019
Construction in progress	Construction in progress		521		508
Leasehold improvements	Leasehold improvements		2,836		2,836
			44,479		43,770
		42,648
Accumulated depreciation	Accumulated depreciation		(22,072)		(20,140)
Premises and equipment, net	Premises and equipment, net		$	22,407	$	23,630

We lease certain premises and equipment under operating and finance leases. At ~~June 30, 2023,~~March 31, 2024, we had lease liabilities totaling ~~$14.5~~$13.7 million and right-of-use assets totaling ~~$13.3~~$12.5 million, substantially all of which ~~$13.2 million~~ was related to operating leases. At ~~June 30, 2023,~~March 31, 2024, the weighted-average remaining lease term for operating leases was ~~11.1~~10.4 years and the weighted-average discount rate used in the measurement of operating lease liabilities was ~~3.0%~~3.1%.

At December 31, ~~2022,~~2023, we had lease liabilities totaling ~~$15.0~~$14.0 million and right-of-use assets totaling ~~$13.9~~$12.9 million, substantially all of which was related to operating leases. At December 31, ~~2022,~~2023, the weighted-average remaining lease term for operating leases was ~~11.6~~10.5 years and the weighted-average discount rate used in the measurement of operating lease liabilities was ~~3.0%~~3.1%.

Lease liabilities and right-of-use assets are reflected in accrued interest payable and other liabilities and accrued interest receivable and other assets, ~~respectively.~~respectively.

The following table presents lease costs for the periods shown:


		Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
(Dollars in thousands)
(Dollars in thousands)
(Dollars in thousands)	(Dollars in thousands)	2023		2022		2023		2022
Amortization of right-of-use assets, finance leases	Amortization of right-of-use assets, finance leases	$	1	$	14	$	7	$	29
Amortization of right-of-use assets, finance leases
Amortization of right-of-use assets, finance leases
Operating lease cost
Operating lease cost
Operating lease cost	Operating lease cost	446		445		896		890
Short-term lease cost	Short-term lease cost	2		8		8		14
Short-term lease cost
Short-term lease cost
Variable lease cost	Variable lease cost	10		10		19		19
Variable lease cost
Variable lease cost
Sublease income
Sublease income
Sublease income	Sublease income	(87)		—		(174)		—

Total lease cost	Total lease cost	$	372	$	477	$	756	$	952

Total lease cost

Total lease cost

For operating leases with initial or remaining terms of one year or more as of ~~June 30, 2023,~~March 31, 2024, the following table presents future minimum payments for the twelve month periods ended ~~June 30:~~March 31:


(Dollars in thousands)	(Dollars in thousands)	Operating Leases
2024		$	829
(Dollars in thousands)
(Dollars in thousands)
2025
2025
2025	2025	1,621
2026	2026	1,618
2026
2026
2027
2027
2027	2027	1,594
2028	2028	1,625
2029 and thereafter		10,111
2028
2028
2029
2029
2029
2030 and thereafter
2030 and thereafter
2030 and thereafter
Total future minimum lease payments
Total future minimum lease payments
Total future minimum lease payments	Total future minimum lease payments	$	17,398
Less: Amounts representing interest	Less: Amounts representing interest	(2,921)
Less: Amounts representing interest
Less: Amounts representing interest
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	14,477
Present value of net future minimum lease payments
Present value of net future minimum lease payments

Future minimum payments on finance leases were not material as of ~~June 30, 2023 were not material.~~March 31, 2024.

Note 5 – Equity Method Investments

In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must assess whether our equity method investments are significant. In evaluating the significance of these investments, we performed the income, investment and asset tests described in S-X 1-02(w) for each equity method investment. Rule 4-08(g) of Regulation S-X requires summarized financial information for all equity method investees in a quarterly report if any of the equity method investees, individually or in the aggregate, result in any of the tests exceeding 10%.

Under the income test, our proportionate share of the revenue from equity method investments in the aggregate exceeded the applicable threshold under Rule 4-08(g) of 10%, accordingly, we are required to provide summarized income statement information for all investees for all periods presented. There were no equity method investments which met any of the applicable thresholds for reporting Rule 3-09 for reporting separate financial statements.

Our equity method investments are initially recorded at cost, including transaction costs to obtain the equity method investment, and are subsequently adjusted for changes due to our share of the entities' earnings.

ICM

The following table presents summarized income statement information for ICM for the periods shown:


		Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
(Dollars in thousands)
(Dollars in thousands)
(Dollars in thousands)	(Dollars in thousands)	2023		2022		2023		2022
Total revenues	Total revenues	$	12,239	$	22,063	$	21,645	$	44,179
Net income (loss)		(1,089)		1,938		$	(4,171)	$	5,169
Total revenues
Total revenues
Net loss
Net loss
Net loss

Gain on sale of loans		7,240		14,872		$	12,688	$	29,961
Gain on loans sold

Gain on loans sold

Gain on loans sold
Gain on loans held-for-sale
Gain on loans held-for-sale
Gain on loans held-for-sale
Volume of loans sold	Volume of loans sold	409,222		692,553		$	712,004	$	1,380,646
Volume of loans sold
Volume of loans sold

Our ownership percentage of 40% of ICM ~~is 40% and it was determined that we~~allows us to have significant influence over the operations and decision making at ICM. Accordingly, the investment, which had a carrying value of $22.9 million at March 31, 2024, is accounted for as an equity method investment. Our share of ICM's net loss totaled ~~$0.4~~$0.2 million and ~~$1.7~~$1.2 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and March 31, 2023, respectively ~~and our share of ICM's net income totaled $0.7 million and $2.0 million for the three and six months ended June 30, 2022, respectively.~~. As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023, the mortgage pipeline was ~~$631.9~~$537.6 million and ~~$678.3~~$439.0 million, respectively.

Warp Speed

The following table presents summarized income statement information for our equity method investment in Warp Speed for the periods shown:

(Dollars in thousands)

Three Months Ended June 30, 2023

Six Months Ended June 30, 2023

(Dollars in thousands)

Total revenues

39,816

75,333

Net income

6,243

8,925

Total revenues

Net income (loss)

Gain on sale of loans

12,464

25,146

Gain on loans sold

Gain on loans held-for-sale

Volume of loans sold

307,999

598,206

Volume of loans sold

~~Our~~In October 2022, we acquired a 37.5% interest in Warp Speed and accounted for our ownership as an equity method investment, initially recorded at cost including costs incurred to obtain the equity method investment. It was determined that our ownership percentage of Warp Speed is ~~37.5%~~ ~~and it was determined~~provides that we have significant influence over its operations and decision making. Accordingly, the investment, which had a carrying value of $51.7 million at March 31, 2024, is accounted for as an equity method investment. At the time of acquisition, we made a policy election to record our proportionate share of net income of the investee on a three month lag. Our share of Warp Speed's net loss and income totaled $~~2.3~~0.9 million and ~~$3.3~~$1.0 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and March 31, 2023, respectively. As of ~~June 30,~~March 31, 2024 and December 31, 2023, the mortgage pipeline was ~~$116.9~~$253.2 million. and $267.8 million, respectively.

Ayers Socure II

Our ownership percentage of Ayers Socure II is 10% and it was determined that we have significant influence over the company. Accordingly, the investment is accounted for as an equity method investment. Our share of net income from Ayers Socure II for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 was not significant. The equity method investment in Ayers Socure II is not considered a significant investment based on the criteria of Rules 3-09 and 4-08(g) of Regulation S-X.

Ayers Socure II's sole business is ownership of equity securities in Socure Inc. (“Socure”). In addition to our equity method investment in Ayers Socure II, we also have direct equity security ownership interest in Socure. With the combination of our investments in both Ayers Socure II and Socure directly, we own less than 1% of Socure in the aggregate.

Note 6 – Deposits

The following table presents the components of deposits as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	March 31, 2024	December 31, 2023
Demand deposits of individuals, partnerships and corporations	Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand	Noninterest-bearing demand	$	987,555	$	1,231,544
Interest-bearing demand		639,814		720,074
Noninterest-bearing demand
Noninterest-bearing demand
NOW
Savings and money markets	Savings and money markets	624,276		284,447
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	707,294		334,417
Total deposits	Total deposits	$	2,958,939	$	2,570,482

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	2,414	$	4,386
Time deposits that meet or exceed the FDIC insurance limit
Time deposits that meet or exceed the FDIC insurance limit

The following table presents the maturities of time deposits for the twelve month periods ended ~~June 30:~~March 31:


(Dollars in thousands)	(Dollars in thousands)
2024		$	402,287
2025
2025
2025	2025	300,347
2026	2026	1,617
2027	2027	844
2028	2028	1,959
2029
Thereafter	Thereafter	240
Total	Total	$	707,294

As of ~~June 30,~~March 31, 2024 and December 31, 2023, overdrawn deposit accounts totaling ~~$3.4~~$5.0 million and $3.8 million were reclassified as loan balances.

Note 7 – Borrowed Funds

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh, Pennsylvania. As of ~~June 30, 2023,~~March 31, 2024, the Bank's maximum borrowing capacity with the FHLB was ~~$766.4~~$697.0 million and the remaining borrowing capacity was ~~$753.1~~$683.9 million, with the difference being deposit letters of ~~credit.~~credit of $11.9 million and credit enhancement recourse obligations related to the master commitments through the FHLB's Mortgage Partnership Finance program of $1.2 million.

Short-term borrowings

As of ~~June 30,~~March 31, 2024 and December 31, 2023, the Bank had no short-term borrowings with the FHLB or Federal Reserve Bank and no ~~borrowings under the~~ federal funds ~~rate~~ purchased outstanding. ~~As of December 31, 2022, the Bank had $102.3 million short-term borrowings with the FHLB and no borrowings under the federal funds rate purchased outstanding.~~

The following table presents information related to short-term borrowings as of and for the periods indicated:

(Dollars in thousands) Six Months Ended June 30, 2023 Year Ended December 31, 2022
Balance at end of period $ — $ 102,333
Average balance during the period 35,347 15,494
Maximum month-end balance — 102,333
Weighted-average rate during the period 5.07 % 2.82 %
Weighted-average rate at end of period — % 4.45 %


(Dollars in thousands)	Three Months Ended March 31, 2024			Year Ended December 31, 2023
Balance at end of period	$	—		$	—
Average balance during the period	44			17,542
Maximum month-end balance	—			—
Weighted-average rate during the period	9.14		%	5.07		%
Weighted-average rate at end of period	—		%	—		%

Long-term borrowings

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Bank had no long-term borrowings with the FHLB or the Federal Reserve

Bank.

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”) with clients representing funds deposited by clients, on an overnight basis, that are collateralized by investment securities owned by us. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between us and the client and are accounted for as secured borrowings. Our repurchase agreements reflected in liabilities consist of client accounts and securities which are pledged on an individual security basis.

We monitor the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected in the amount of cash received in connection with the transaction. The primary risk with our repurchase agreements is the market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, all of our repurchase agreements were overnight agreements. These borrowings were collateralized with investment securities with a carrying value of $3.9 million and $4.9 million ~~and $10.4 million~~ at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, and were comprised of ~~United States government agency securities and~~ United States sponsored mortgage-backed securities. Declines in the value of the collateral would require us to increase the amounts of securities pledged.

The following table presents information related to repurchase agreements as of and for the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Six Months Ended June 30, 2023			Year Ended December 31, 2022			(Dollars in thousands)	Three Months Ended March 31, 2024		Year Ended December 31, 2023
Balance at end of period	Balance at end of period	$	4,798		$	10,037
Average balance during the period	Average balance during the period	6,514			10,987
Maximum month-end balance	Maximum month-end balance	10,041			12,680
Weighted-average rate during the period	Weighted-average rate during the period	0.03		%	0.05		%	Weighted-average rate during the period	0.01	%	0.02	%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.01		%	0.06		%	Weighted-average rate at end of period	0.01	%	0.01	%

Subordinated debt

The following table presents information related to subordinated debt as of and for the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Six Months Ended June 30, 2023			Year Ended December 31, 2022			(Dollars in thousands)	Three Months Ended March 31, 2024		Year Ended December 31, 2023
Balance at end of period	Balance at end of period	$	73,414		$	73,286
Average balance during the period	Average balance during the period	73,350			73,159
Maximum month-end balance	Maximum month-end balance	73,414			73,286
Weighted-average rate during the period	Weighted-average rate during the period	4.40		%	4.20		%	Weighted-average rate during the period	4.07	%	4.38	%
Weighted-average rate at end of period	Weighted-average rate at end of period	3.97		%	3.97		%	Weighted-average rate at end of period	4.02	%	4.02	%

In September 2021, we completed the private placement of $30.0 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a 10-year term, maturing October 1, 2031, and will bear interest at a fixed rate of 3.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is ~~expected to be~~ Three-Month Term SOFR, plus 254 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes.

In November 2020, we completed the private placement of $40.0 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a ten-year term, maturing December 1, 2030, and will bear interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is ~~expected to be~~ Three-Month Term SOFR, plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes.

In March 2007, we completed the private placement of $4.0 million Floating Rate, Trust Preferred Securities through our MVB Financial Statutory Trust I subsidiary (the “Trust”). We established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The Trust Preferred Securities and the Debentures mature in 2037 and have been redeemable by us since 2012. Interest payments are due in March, June, September and December and are

adjusted at the interest due dates at a rate of 0.26% plus Three-Month Term SOFR. The obligations we provide with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by us of the Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. The securities issued by the Trust are includable for regulatory purposes as a component of our Tier 1 capital.

Senior term loan

The following table presents information related to senior term loan as of and for the periods shown:

(Dollars in thousands) Six Months Ended June 30, 2023 Year Ended December 31, 2022
Balance at end of period $ 8,835 $ 9,765
Average balance during the period 9,557 2,328
Maximum month-end balance 9,768 9,886
Weighted-average rate during the period 8.27 % 7.00 %
Weighted-average rate at end of period 8.57 % 7.44 %


(Dollars in thousands)	Three Months Ended March 31, 2024			Year Ended December 31, 2023
Balance at end of period	$	6,549		$	6,786
Average balance during the period	6,736			9,007
Maximum month-end balance	6,794			9,768
Weighted-average rate during the period	8.18		%	8.50		%
Weighted-average rate at end of period	7.63		%	8.76		%

In October 2022, we entered into a credit agreement with Raymond James Bank (“Raymond James”). Pursuant to the credit agreement, Raymond James has extended to us a senior term loan in the aggregate principal amount of up to $10.0 million. In connection with the closing of the Warp Speed transaction, we borrowed $10.0 million and paid Raymond James an upfront fee of 1% of the loan amount. The loan will bear interest per annum at a rate equal to 2.75%, plus term ~~secured overnight financing rate,~~SOFR, which will reset monthly. Accrued interest is payable on the last business day of each month, beginning with October 31, 2022, with the then outstanding principal balance of the loan payable on the last business day of each quarter in the amount of ~~125,000~~$125,000 during the first year and ~~250,000~~$250,000 thereafter. The loan will mature in April 2025, unless accelerated earlier upon an event of default.

Note 8 – Pension and Supplemental Executive Retirement Plans

We participate in a trusteed pension plan known as the Allegheny Group Retirement Plan. Benefits are based on years of service and the employee’s compensation. Accruals under the plan were frozen as of May 31, 2014. Freezing the plan resulted in a remeasurement of the pension obligations and plan assets as of the freeze date. The pension obligation was remeasured using the discount rate based on the Citigroup Above Median Pension Discount Curve in effect on May 31, 2014 of 4.5%.

The following table presents information pertaining to the activity in our defined benefit pension plan, using the latest available actuarial valuations with a measurement date of March 31, 2024 and 2023 for the periods shown:


	Three Months Ended March 31,
(Dollars in thousands)	2024		2023

Interest cost	$	113	$	113
Expected return on plan assets	(157)		(164)
Amortization of net actuarial loss	43		29

Net periodic benefit (income) cost	$	(1)	$	(22)
Contributions paid	$	—	$	—

There was no service cost or amortization of prior service cost for the three months ended March 31, 2024 and 2023.

In June 2017, we approved a Supplemental Executive Retirement Plan (the “SERP”), pursuant to which the Chief Executive Officer of Potomac Mortgage Group (“PMG”) is entitled to receive certain supplemental nonqualified retirement benefits. The SERP took effect on December 31, 2017. As the executive completed three years of continuous employment with PMG prior to retirement date (which shall be no earlier than the date he attains age 55) he will, upon retirement, be entitled to receive $1.8 million payable in 180 equal consecutive monthly ~~installments of $10 thousand.~~installments. The liability is calculated by discounting the anticipated future cash flows at 4.0%.The liability accrued for this obligation was ~~$1.3~~$1.4 million as of ~~both June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.Service ~~costs were~~cost was not material for any periods covered by this report.

~~The following table presents information pertaining~~ In February 2024, the SERP was terminated. Within the agreement, there is a one year provision for payment delay. As such, the $1.8 million obligation is scheduled to ~~the activity~~be paid in ~~our defined benefit plan, using the latest available actuarial valuations with a measurement date of June 30, 2023 and 2022 for the periods shown:~~

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2023 2022 2023 2022
Interest cost $ 113 $ 85 226 170
Expected return on plan assets (164) (167) (328) (334)
Amortization of net actuarial loss 29 107 58 214
Net periodic benefit (income) cost $ (22) $ 25 $ (44) $ 50
Contributions paid $ — $ — $ — $ —

~~There was no service cost or amortization of prior service cost for the three and six months ended June 30, 2023 and 2022.~~

February 2025.

3531

Note 9 – Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of our financial instruments as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)		(Dollars in thousands)	Carrying Value	Estimated Fair Value	Quoted Prices in Active Markets for Identical Assets (Level I)	Significant Other Observable Inputs (Level II)	Significant Unobservable Inputs (Level III)
June 30, 2023
March 31, 2024
Financial Assets:
Financial Assets:
Financial Assets:	Financial Assets:
Cash and cash equivalents	Cash and cash equivalents	$	455,835	$	455,835	$	455,835	$	—	$	—

Cash and cash equivalents
Cash and cash equivalents
Securities available-for-sale	Securities available-for-sale	329,137		329,137		—		294,719		34,418
Equity securities	Equity securities	41,082		41,082		4,837		—		36,245
Loans held-for-sale		7,009		7,009		—		7,009		—

Loans receivable, net
Loans receivable, net
Loans receivable, net	Loans receivable, net	2,282,093		2,158,860		—		—		2,158,860
Servicing rights	Servicing rights	1,911		1,972		—		—		1,972
Interest rate swap		9,372		9,372		—		9,372		—
Fair value hedge		219		219		—		219		—
Interest rate swaps

Accrued interest receivable
Accrued interest receivable
Accrued interest receivable	Accrued interest receivable	16,102		16,102		—		2,391		13,711
FHLB Stock	FHLB Stock	2,168		2,168		—		2,168		—
Bank-owned life insurance		43,746		43,746		—		43,746		—

Embedded derivative
Embedded derivative
Embedded derivative	Embedded derivative	648		648		—		—		648

Financial Liabilities:	Financial Liabilities:
Financial Liabilities:
Financial Liabilities:
Deposits
Deposits
Deposits	Deposits	$	2,958,939	$	2,623,395	$	—	$	2,623,395	$	—
Repurchase agreements	Repurchase agreements	4,798		4,798		—		4,798		—

Interest rate swap		8,429		8,429		—		8,429		—
Interest rate swaps
Fair value hedge
Accrued interest payable	Accrued interest payable	1,809		1,809		—		1,809		—

Senior term loan	Senior term loan	8,835		8,667		—		8,667		—
Senior term loan
Senior term loan
Subordinated debt	Subordinated debt	73,414		63,539		—		63,539		—

December 31, 2022
December 31, 2023
December 31, 2023
December 31, 2023
Financial assets:	Financial assets:
Financial assets:
Financial assets:
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents	Cash and cash equivalents	$	40,280	$	40,280	$	40,280	$	—	$	—
Securities available-for-sale	Securities available-for-sale	379,814		379,814		—		344,471		35,343
Equity securities	Equity securities	38,744		38,744		5,382		—		33,362
Loans held-for-sale	Loans held-for-sale	23,126		24,898		—		24,898		—
Loans receivable, net	Loans receivable, net	2,348,808		2,285,427		—		—		2,285,427
Servicing rights	Servicing rights	1,616		1,634		—		—		1,634
Interest rate swap		8,427		8,427		—		8,427		—
Interest rate swaps
Accrued interest receivable	Accrued interest receivable	12,617		12,617		—		2,778		9,839
Bank-owned life insurance		43,239		43,239		—		43,239		—
FHLB Stock	FHLB Stock	9,966		9,966		—		9,966		—

Embedded derivative
Embedded derivative
Embedded derivative	Embedded derivative	787		787		—		—		787

Financial liabilities:	Financial liabilities:
Financial liabilities:
Financial liabilities:
Deposits
Deposits
Deposits	Deposits	$	2,570,482	$	2,226,037	$	—	$	2,226,037	$	—
Repurchase agreements	Repurchase agreements	10,037		10,037		—		10,037		—
Interest rate swaps
Fair value hedge	Fair value hedge	572		572		—		572		—
Interest rate swap		8,427		8,427		—		8,427		—
Accrued interest payable	Accrued interest payable	2,558		2,558		—		2,558		—
FHLB and other borrowings		102,333		102,006		—		102,006		—

Senior term loan
Senior term loan
Senior term loan	Senior term loan	9,765		9,765		—		9,765		—
Subordinated debt	Subordinated debt	73,286		64,330		—		64,330		—

3632

Note 10 – Fair Value Measurements

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time of our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision.Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

The methods of determining the fair value of assets and liabilities presented in this footnote are consistent with our methodologies disclosed in Note 1 - Summary of Significant Accounting Policies ~~of the Notes~~ to the ~~Consolidated Financial Statements~~consolidated financial statements included in Item 8, Financial Statements and Supplementary Data, of the ~~2022~~2023 Form 10-K.

Assets Measured on a Recurring Basis

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following measurements are made on a recurring basis.

Available-for-sale investment securities – Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds, United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt securities. There have been no changes in valuation techniques for the three ~~and six~~ months ended ~~June 30, 2023.~~March 31, 2024. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. We classified investments in government securities as Level II instruments and valued them using the market approach.

Equity securities – Certain equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating,prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the three ~~and six~~ months ended ~~June 30, 2023.~~March 31, 2024. Valuation techniques are consistent with techniques used in prior periods.

Loans held-for-sale - The fair value of loans held-for-sale is determined, when possible, using quoted secondary market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.

Interest rate ~~swap~~swaps – Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data. ~~These instruments are included in accrued interest receivable and other assets and accrued interest payable and other liabilities, as applicable, on the consolidated balance sheet.~~

Fair value ~~hedge~~hedges – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data. ~~These instruments are included in loans receivable on the consolidated balance sheet.~~

~~Bank-owned life insurance -~~ Life insurance where the bank is both the policy beneficiary and owner. Bank-owned life insurance is recorded at fair value on a recurring basis, and increases in cash surrender, contract value and net insurance proceeds at maturity are recorded as other income.

Embedded derivatives — Accounted for and recorded separately from the underlying contract as a derivative at fair value on a recurring basis. Fair values are determined using the Monte Carlo model valuation technique. The valuation methodology utilized includes significant unobservable inputs. These instruments are included in accrued interest receivable and other assets on the consolidated balance sheet and gains and losses are included in interest income on the consolidated statement of income.

3733

The following tables present assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of the periods shown by level within the fair value hierarchy:

June 30, 2023
(Dollars in thousands) Level I Level II Level III Total
Assets:
United States government agency securities $ — $ 38,474 $ — $ 38,474
United States sponsored mortgage-backed securities — 54,366 — 54,366
United States treasury securities 98,029 — — 98,029
Municipal securities — 86,648 34,418 121,066
Corporate debt securities — 8,901 — 8,901
Other securities — 801 — 801
Equity securities 4,837 — — 4,837
Interest rate swap — 9,372 — 9,372
Fair value hedge — 219 — 219
Bank-owned life insurance — 43,746 — 43,746
Embedded derivative — — 648 648
Liabilities:
Interest rate swap — 8,429 — 8,429


		December 31, 2022									March 31, 2024
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I	Level II	Level III	Total
Assets:	Assets:
United States government agency securities	United States government agency securities	$	—	$	44,814	$	—	$	44,814
United States government agency securities
United States government agency securities
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	—		56,571		—		56,571
United States treasury securities	United States treasury securities	—		120,909		—		120,909
Municipal securities	Municipal securities	—		103,293		35,343		138,636
Corporate debt securities	Corporate debt securities	—		10,560		—		10,560

Other securities
Other securities
Other securities	Other securities	—		824		—		824
Equity securities	Equity securities	5,382		—		—		5,382
Loans held-for-sale
Interest rate swaps

Interest rate swap		—		8,427		—		8,427
Bank-owned life insurance		—		43,239		—		43,239

Embedded derivative

Embedded derivative

Embedded derivative	Embedded derivative	—		—		787		787
Liabilities:	Liabilities:
Interest rate swap		—		8,427		—		8,427
Interest rate swaps
Interest rate swaps
Interest rate swaps
Fair value hedge	Fair value hedge	—		572		—		572


	December 31, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	—	$	38,408	$	—	$	38,408
United States sponsored mortgage-backed securities	—		82,382		—		82,382
United States treasury securities	—		100,356		—		100,356
Municipal securities	—		88,662		18,245		106,907
Corporate debt securities	—		8,942		—		8,942
Other securities	—		780		—		780
Equity securities	3,590		—		—		3,590
Loans held-for-sale	—		629		—		629
Interest rate swaps	—		6,249		—		6,249

Embedded derivative	—		—		648		648
Liabilities:
Interest rate swaps	—		6,249		—		6,249
Fair value hedge	—		6,111		—		6,111

3834

The following table represents recurring Level III assets as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Municipal Securities		Embedded Derivatives		Total		(Dollars in thousands)	Municipal Securities	Embedded Derivatives	Total
Balance at March 31, 2023		$	36,458	$	648	$	37,106
Realized and unrealized loss included in earnings		1		—		1

Maturities/calls		(700)		—		(700)
Unrealized loss included in other comprehensive income (loss)		(1,341)		—		(1,341)
Balance at June 30, 2023		$	34,418	$	648	$	35,066

Balance at December 31, 2022		$	35,343	$	787	$	36,130
Realized and unrealized loss included in earnings		1		(139)		(138)

Maturities/calls		(767)		—		(767)

Unrealized loss included in other comprehensive income (loss)		(159)		—		(159)
Balance at June 30, 2023		$	34,418	$	648	$	35,066

Balance at March 31, 2022		$	39,668	$	—	$	39,668
Realized and unrealized gain included in earnings		1		—		1
Balance at December 31, 2023
Realized and unrealized income included in earnings
Purchase of securities	Purchase of securities	186		—		186
Maturities/calls	Maturities/calls	(785)		—		(785)
Unrealized loss included in other comprehensive income (loss)	Unrealized loss included in other comprehensive income (loss)	(2,035)		—		(2,035)
Balance at June 30, 2022		$	37,035	$	—	$	37,035
Balance at March 31, 2024

Balance at December 31, 2021		$	41,763	$	—	$	41,763
Realized and unrealized gains included in earnings		8		—		8
Purchase of securities		1,048		—		1,048

Balance at December 31, 2022

Balance at December 31, 2022

Balance at December 31, 2022
Realized loss included in earnings

Maturities/calls	Maturities/calls	(3,075)		—		(3,075)
Unrealized loss included in other comprehensive income		(2,709)		—		(2,709)
Balance at June 30, 2022		$	37,035	$	—	$	37,035
Maturities/calls
Maturities/calls
Unrealized gain included in other comprehensive income (loss)
Balance at March 31, 2023

Assets Measured on a Nonrecurring Basis

We may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during ~~2023~~2024 and ~~2022~~2023 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible ~~loan~~credit losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

Collateral-dependent loans - Certain loans receivable are evaluated individually for credit loss when the borrower is experiencing financial difficulties and repayment is expected to be provided substantially through the operation or sale of collateral. Estimated credit losses are based on the fair value of the collateral, adjusted for costs to sell. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of collateral-dependent real estate related loans, we obtain a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

Loans held-for-sale - The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.

Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.

Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

The following table presents the fair value of these assets as of the periods shown:


			June 30, 2023
		March 31, 2024													March 31, 2024
(Dollars in thousands)	(Dollars in thousands)		Level I		Level II		Level III		Total		(Dollars in thousands)	Level I	Level II	Level III		Total
Collateral-dependent loans	Collateral-dependent loans		$	—	$	—	$	6,146	$	6,146
Other real estate owned	Other real estate owned		—		—		947		947
Other debt securities	Other debt securities		—		—		7,500		7,500
Equity securities	Equity securities		—		—		36,245		36,245


			December 31, 2022
		December 31, 2023													December 31, 2023
(Dollars in thousands)	(Dollars in thousands)		Level I		Level II		Level III		Total		(Dollars in thousands)	Level I	Level II	Level III		Total
Impaired loans			$	—	$	—	$	14,117	$	14,117
Collateral-dependent loans
Other real estate owned	Other real estate owned		—		—		1,194		1,194
Other debt securities	Other debt securities		—		—		7,500		7,500
Equity securities	Equity securities		—		—		33,362		33,362

4036

The following tables present quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value as of the periods shown:

Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range
June 30, 2023
Nonrecurring measurements:
Collateral-dependent loans $ 6,146
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%

Liquidation expense 2
6%
Other real estate owned $ 947
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%

Liquidation expense 2
6%
Other debt securities $ 7,500 Net asset value Cost, less impairment 0%
Equity securities $ 36,245 Net asset value Cost, less impairment 0%
Recurring measurements:
Municipal securities 5
$ 34,418
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%
Embedded derivatives $ 648 Monte Carlo pricing model Deferred payment $0 - $49.1 million
Volatility 59%
Term 4.75 years
Risk free rate 3.59%
December 31, 2022
Nonrecurring measurements:
Impaired loans $ 14,117
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%
Liquidation expense 2
6%
Other real estate owned $ 1,194
Appraisal of collateral 1
Appraisal adjustments 2
0% - 20%
Liquidation expense 2
6%
Other debt securities $ 7,500 Net asset value Cost, less impairment 0%
Equity securities $ 33,362 Net asset value Cost, less impairment 0%
Recurring measurements:
Municipal securities 5
$ 35,343
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%
Embedded derivatives $ 787 Monte Carlo pricing model Deferred payment $0 - $51.9 million
Volatility 58%
Term 5 years
Risk free rate 3.95%


	Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range
March 31, 2024
Nonrecurring measurements:
Collateral-dependent loans	$	18,546	Appraisal of collateral 1	Appraisal adjustments 2	0% - 20%
				Liquidation expense 2	6%

Other real estate owned	$	825	Appraisal of collateral 1	Appraisal adjustments 2	0% - 20%
				Liquidation expense 2	6%

Other debt securities	$	7,500	Net asset value	Cost, less impairment	0%

Equity securities	$	37,237	Net asset value	Cost, less impairment	0%

Recurring measurements:
Municipal securities 5	$	17,363	Appraisal of bond 3	Bond appraisal adjustment 4	5% - 15%

Embedded derivatives	$	648	Monte Carlo pricing model	Deferred payment	$0 - $49.1 million
				Volatility	59%
				Term	4.75 years
				Risk free rate	3.59%

December 31, 2023
Nonrecurring measurements:
Collateral-dependent loans	$	2,891	Appraisal of collateral 1	Appraisal adjustments 2	0% - 20%
				Liquidation expense 2	6%

Other real estate owned	$	825	Appraisal of collateral 1	Appraisal adjustments 2	0% - 20%
				Liquidation expense 2	6%

Other debt securities	$	7,500	Net asset value	Cost, less impairment	0%

Equity securities	$	37,496	Net asset value	Cost, less impairment	0%

Recurring measurements:
Municipal securities 5	$	18,245	Appraisal of bond 3	Bond appraisal adjustment 4	5% - 15%

Embedded derivatives	$	648	Monte Carlo pricing model	Deferred payment	$0 - $49.1 million
				Volatility	59%
				Term	4.75 years
				Risk free rate	3.59%

1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs that are not identifiable.

2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

3 Fair value is determined through independent analysis of liquidity, rating, yield and duration.

4 Appraisals may be adjusted for qualitative factors, such as local economic conditions, liquidity, marketability and legal structure.

5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.

Note 11 – Derivatives

We use certain derivative instruments to meet the needs of customers, as well as to manage the interest rate risk associated with certain transactions. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value.

Fair Value Hedges of Interest Rate Risk

We are exposed to changes in the fair value of fixed rate mortgages included in a closed portfolio due to changes in benchmark interest rates.

In ~~June~~ 2023 we entered into ~~three~~five fixed portfolio layer method fair value swaps, designated as hedging instruments, to manage exposure to changes in fair value on ~~these instruments~~fixed rate mortgages and certain fixed rate available for sale securities attributable to the designated interest rate. Four of the interest rate swaps are designated to hedge a closed portfolio of fixed rate mortgages, and one of the interest rate swaps is designated to hedge a closed portfolio of fixed rate municipal bonds. The interest rate swaps involve the payment of fixed-rate amounts to a counterparty in exchange for us receiving variable-rate payments over the life of the agreements, without the exchange of the underlying notional amount.

We designated the fair value swaps under the portfolio layer method (“PLM”). The total notional amount of the ~~three~~ fiveswaps was ~~$148.5~~$436.5 millionas of ~~June 30, 2023,~~March 31, 2024, one of which is amortizing and included a ~~$1.5~~$13.5 million amortization adjustment to the notional amount at ~~June 30, 2023.~~March 31, 2024. Under this method, the hedged ~~item is~~items are designated as a hedged layer of a closed ~~portfolio~~portfolios of financial loans and municipal bonds that isare anticipated to remain outstanding for the designated hedged ~~period.~~periods. Adjustments ~~will be~~are made to record the ~~swap~~swaps at fair value on the consolidated balance sheets, with changes in fair value recognized in interest income. The carrying values of the fair value swaps on the consolidated balance sheets ~~will~~are also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk.

The following table represents the carrying value of the portfolio layer method hedged assets and the cumulative fair value hedging adjustments included in the carrying value of the hedged assets as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

June 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

(Dollars in thousands)

Amortized Cost Basis

Hedged Asset

Basis Adjustment

Amortized Cost Basis

Hedged Asset

Basis Adjustment

(Dollars in thousands)

Balance Sheet Location

Amortized Cost Basis

Hedged Asset

Basis Adjustment

Amortized Cost Basis

Hedged Asset

Basis Adjustment

Fixed Rate Assets

508,971

148,547

(870)

—

Fixed rate mortgages

Fixed rate bonds

Total hedged assets

Derivatives Not Designated as Hedging Instruments

Matched Interest Rate Swaps. We enter into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert floating-rate loan payments to fixed rate loan payments. When we enter into an interest rate swap contract with a commercial loan borrower, we simultaneously enter into a "mirror" swap contract with a third-party. The third-party exchanges the borrower's fixed-rate loan payments for floating-rate loan payments. These derivatives are not designated as hedges and changes in fair value are recognized in earnings. Because these derivatives have mirror-image contractual terms, the changes in fair value substantially offset each other through earnings. Fees earned in connection with the execution of derivatives related to this program are recognized in earnings through loan-related derivative income.

The following tables summarize outstanding financial derivative instruments as of March 31, 2024 and December 31, 2023:


		March 31, 2024
(Dollars in thousands)	Balance Sheet Location	Notional Amount		Fair Value of Asset (Liability)		Gain (Loss)
Fair value hedge of interest rate risk:
Pay fixed rate swaps with counterparty	Accrued interest receivable and other assets	$	436,459	$	(729)	$	5,382

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	143,048		7,784		7,784
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	143,048		(7,784)		(7,784)

Total derivatives		$	722,555	$	(729)	$	5,382


		December 31, 2023
(Dollars in thousands)	Balance Sheet Location	Notional Amount		Fair Value of Asset (Liability)		Gain (Loss)
Fair value hedge of interest rate risk:
Pay fixed rate swaps with counterparty	Accrued interest receivable and other assets	$	440,297	$	(6,111)	$	(6,111)

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	126,494		6,249		6,249
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	126,494		(6,249)		(6,249)

Total derivatives		$	693,285	$	(6,111)	$	(6,111)

Embedded Derivative

In December 2022, we entered into an agreement to sell a portion of our shares of Interchecks Technologies, Inc., a former equity method investment that was subsequently reclassified to equity securities due to the decrease in the remaining ownership percentage. Based on the terms of the sale, we recognized the cash received at closing, as well as a receivable for the remaining installment payment, which is based on a future economic event and is accounted for and separately recorded as a derivative. The derivative instrument is included in accrued interest receivable and other assets on the consolidated balance sheet, while the gains and losses are included in noninterest income on the consolidated statement of income. The fair value of the embedded derivative was $0.6 million at March 31, 2024 and December 31, 2023, with no gain or loss for the three months ended March 31, 2024 and a loss of 0.1 million for the three months ended March 31, 2023.

Note 1112 – Earnings per Share

We determine basic earnings per share (“EPS”) by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is determined by dividing net income available to common shareholders by the weighted-average number of shares outstanding, increased by both the number of shares that would be issued assuming the exercise of instruments under our incentive stock plan.

The following table presents our calculation of EPS for the periods shown:




		Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands except shares and per share data)	(Dollars in thousands except shares and per share data)	2023		2022		2023		2022
(Dollars in thousands except shares and per share data)
(Dollars in thousands except shares and per share data)
Numerator for earnings per share:
Numerator for earnings per share:
Numerator for earnings per share:	Numerator for earnings per share:
Net income from continuing operations	Net income from continuing operations	$	7,998	$	2,273	$	10,436	$	4,183
Net loss attributable to noncontrolling interest		114		165		236		358
Net income from continuing operations
Net income from continuing operations
Net (income) loss attributable to noncontrolling interest
Net (income) loss attributable to noncontrolling interest
Net (income) loss attributable to noncontrolling interest

Net income available to common shareholders from continuing operations

Net income available to common shareholders from continuing operations

Net income available to common shareholders from continuing operations
Net income from discontinued operations available to common shareholders
Net income from discontinued operations available to common shareholders
Net income from discontinued operations available to common shareholders
Net income available to common shareholders	Net income available to common shareholders	8,112		2,438		10,672		4,541
Net income from discontinued operations available to common shareholders - basic and diluted		—		518		8,782		1,279
Net income available to common shareholders
Net income available to common shareholders	Net income available to common shareholders	$	8,112	$	2,956	$	19,454	$	5,820

Denominator:	Denominator:

Denominator:

Denominator:
Weighted-average shares outstanding - basic
Weighted-average shares outstanding - basic
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	12,689,669		12,176,805		12,656,698		12,135,223

Effect of dilutive securities		225,625		718,776		303,027		735,669
Effect of dilutive instruments

Effect of dilutive instruments

Effect of dilutive instruments
Weighted-average shares outstanding - diluted
Weighted-average shares outstanding - diluted
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	12,915,294		12,895,581		12,959,725		12,870,892

Earnings per share from continuing operations - basic	Earnings per share from continuing operations - basic	$	0.64	$	0.20	$	0.84	$	0.37

Earnings per share from continuing operations - basic

Earnings per share from continuing operations - basic
Earnings per share from discontinued operations - basic
Earnings per share from discontinued operations - basic
Earnings per share from discontinued operations - basic	Earnings per share from discontinued operations - basic	$	—	$	0.04	$	0.69	$	0.11
Earnings per common share - basic	Earnings per common share - basic	$	0.64	$	0.24	$	1.54	$	0.48
Earnings per common share - basic
Earnings per common share - basic
Earnings per share from continuing operations - diluted
Earnings per share from continuing operations - diluted
Earnings per share from continuing operations - diluted	Earnings per share from continuing operations - diluted	$	0.63	$	0.19	$	0.82	$	0.35
Earnings per share from discontinued operations - diluted	Earnings per share from discontinued operations - diluted	$	—	$	0.04	$	0.68	$	0.10
Earnings per share from discontinued operations - diluted
Earnings per share from discontinued operations - diluted
Earnings per share common share - diluted
Earnings per share common share - diluted
Earnings per share common share - diluted	Earnings per share common share - diluted	$	0.63	$	0.23	$	1.50	$	0.45

Securities not included in the computation of diluted EPS because the effect would be antidilutive		641,534		499,887		274,409		496,625
Instruments not included in the computation of diluted EPS because the effect would be antidilutive

Instruments not included in the computation of diluted EPS because the effect would be antidilutive

Instruments not included in the computation of diluted EPS because the effect would be antidilutive

4340

Note 1213 – Comprehensive Income

The following tables present the reclassified components of accumulated other comprehensive income (“AOCI”) as of and for the periods shown:


		Three Months Ended June 30,				Six Months Ended June 30,
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
(Dollars in thousands)	(Dollars in thousands)	2023		2022		2023		2022
(Dollars in thousands)
(Dollars in thousands)
Details about AOCI components
Details about AOCI components
Details about AOCI components	Details about AOCI components	Amount reclassified from AOCI		Amount reclassified from AOCI		Amount reclassified from AOCI		Amount reclassified from AOCI		Affected income statement line item						Amount reclassified from AOCI						Affected income statement line item
Available-for-sale securities	Available-for-sale securities										Available-for-sale securities
Realized gain (loss) recognized in income	Realized gain (loss) recognized in income	$	(294)	$	—	$	(1,830)	$	650	Gain (loss) on sale of available-for-sale securities	Realized gain (loss) recognized in income		$	658		$		$	(1,536)		Gain (loss) on sale of available-for-sale securities				Gain (loss) on sale of available-for-sale securities

Income tax effect	Income tax effect	71		—		440		(152)		Income taxes
Income tax effect
Income tax effect													(158)					369					Income taxes
Realized gain (loss) recognized in income, net of tax	Realized gain (loss) recognized in income, net of tax	(223)		—		(1,390)		498
Defined benefit pension plan items
Defined benefit pension plan items
Defined benefit pension plan items	Defined benefit pension plan items
Amortization of net actuarial loss	Amortization of net actuarial loss	(29)		$	(107)	$	(58)	$	(214)	Salaries and employee benefits	Amortization of net actuarial loss		(43)			$		$	(29)		Salaries and employee benefits				Salaries and employee benefits

Income tax effect	Income tax effect	7		27		14		52		Income taxes
Income tax effect
Income tax effect													10					7					Income taxes
Defined benefit pension plan items, net of tax	Defined benefit pension plan items, net of tax	(22)		(80)		(44)		(162)
Investment hedge	Investment hedge
Investment hedge
Investment hedge
Carrying value adjustment
Carrying value adjustment
Carrying value adjustment	Carrying value adjustment	(45)		187		289		197		Interest on investment securities		—			334		334			Interest on investment securities				Interest on investment securities

Income tax effect
Income tax effect
Income tax effect	Income tax effect	11		(47)		(69)		(49)		Income taxes		—			(80)		(80)			Income taxes				Income taxes
Investment hedge, net of tax	Investment hedge, net of tax	(34)		140		220		148

Total reclassifications	Total reclassifications	$	(279)	$	60	$	(1,214)	$	484

Total reclassifications

Total reclassifications													$	467				$	(935)


(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment hedge		Total
Balance at December 31, 2023	$	(25,871)	$	(2,994)	$	34	$	(28,831)
Other comprehensive income (loss) before reclassification	(1,957)		456		—		(1,501)
Amounts reclassified from accumulated other comprehensive income (loss)	(500)		33		—		(467)
Net current period other comprehensive income (loss)	(2,457)		489		—		(1,968)
Balance at March 31, 2024	$	(28,328)	$	(2,505)	$	34	$	(30,799)













Balance at December 31, 2022	$	(34,829)	$	(3,129)	$	254	$	(37,704)
Other comprehensive income (loss) before reclassification	5,852		(21)		—		5,831
Amounts reclassified from accumulated other comprehensive income (loss)	1,167		22		(254)		935
Net current period other comprehensive income (loss)	7,019		1		(254)		6,766
Balance at March 31, 2023	$	(27,810)	$	(3,128)	$	—	$	(30,938)

4441

(Dollars in thousands) Unrealized gains (losses) on available for-sale securities Defined benefit pension plan items Investment hedge Total
Balance at March 31, 2023 $ (27,810) $ (3,128) $ — $ (30,938)
     Other comprehensive income (loss) before reclassification (4,087) 282 — (3,805)
Amounts reclassified from accumulated other comprehensive income (loss) 223 22 34 279
Net current period other comprehensive income (loss) (3,864) 304 34 (3,526)
Balance at June 30, 2023 $ (31,674) $ (2,824) $ 34 $ (34,464)
Balance at December 31, 2022 $ (34,829) $ (3,129) $ 254 $ (37,704)
     Other comprehensive income (loss) before reclassification 1,765 261 — 2,026
Amounts reclassified from accumulated other comprehensive income (loss) 1,390 44 (220) 1,214
Net current period other comprehensive income (loss) 3,155 305 (220) 3,240
Balance at June 30, 2023 $ (31,674) $ (2,824) $ 34 $ (34,464)
Balance at March 31, 2022 $ (13,766) $ (3,704) $ 308 $ (17,162)
Other comprehensive income (loss) before reclassification (12,437) 239 — (12,198)
Amounts reclassified from accumulated other comprehensive income (loss) — 80 (140) (60)
Net current period other comprehensive income (loss) (12,437) 319 (140) (12,258)
Balance at June 30, 2022 $ (26,203) $ (3,385) $ 168 $ (29,420)
Balance at December 31, 2021 $ 147 $ (4,069) $ 316 $ (3,606)
     Other comprehensive income (loss) before reclassification (25,852) 522 — (25,330)
Amounts reclassified from accumulated other comprehensive income (loss) (498) 162 (148) (484)
Net current period other comprehensive income (loss) (26,350) 684 (148) (25,814)
Balance at June 30, 2022 $ (26,203) $ (3,385) $ 168 $ (29,420)

Note 1314 – Segment Reporting

We have identified three reportable segments: CoRe ~~banking; mortgage banking;~~Banking; Mortgage Banking; and ~~financial holding company.~~Financial Holding Company. All other operating segments are summarized in an ~~other~~Other category.

Our CoRe Banking segment, which includes our Fintech division, represents banking products and services offered to customers by the Bank, primarily loans and deposits accounts. Revenue from ~~CoRe~~ banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. ~~Our Fintech division is included in the CoRe banking segment.~~

Revenue from our ~~mortgage banking~~Mortgage Banking segment is primarily comprised of our share of net income or loss from

mortgage banking activities of our equity method investments in ICM and Warp Speed.

Revenue from ~~financial holding company~~Financial Holding Company activities is mainly comprised of intercompany service income and dividends.

The following tables present information about the reportable segments and reconciliation to the consolidated financial statements for the periods shown:


Three Months Ended June 30, 2023		CoRe Banking			Mortgage Banking				Financial Holding Company				Other					Intercompany Eliminations					Consolidated
Three Months Ended March 31, 2024											Three Months Ended March 31, 2024						CoRe Banking								Mortgage Banking		Financial Holding Company		Other		Intercompany Eliminations		Consolidated
(Dollars in thousands)	(Dollars in thousands)			CoRe Banking							Mortgage Banking									Financial Holding Company								Other		Intercompany Eliminations		Consolidated
Interest income
Interest income
Interest income	Interest income	$	46,929				$	105			$	3			$	6					$	(12)			$	47,031
Interest expense	Interest expense	16,439			—				999				23					(12)					17,449
Net interest income (expense)	Net interest income (expense)	30,490			105				(996)				(17)					—					29,582
Release of allowance for credit losses		(4,235)			—				—				—					—					(4,235)
Net interest income (expense) after release of allowance for credit losses		34,725			105				(996)				(17)					—					33,817
Provision for credit losses
Net interest income (expense) after provision for credit losses

Noninterest income	Noninterest income	4,113			1,872				3,116				1,051					(3,733)					6,419

Noninterest income

Noninterest income

Noninterest Expenses:	Noninterest Expenses:
Noninterest Expenses:
Noninterest Expenses:
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits	Salaries and employee benefits	9,053			7				4,623				2,063					—					15,746
Other expenses	Other expenses	14,148			18				2,163				1,940					(3,733)					14,536
Total noninterest expenses	Total noninterest expenses	23,201			25				6,786				4,003					(3,733)					30,282

Income (loss) before income taxes		15,637			1,952				(4,666)				(2,969)					—					9,954
Income (loss), before income taxes
Income (loss), before income taxes
Income (loss), before income taxes
Income taxes	Income taxes	3,237			643				(1,207)				(717)					—					1,956

Net income (loss)		12,400			1,309				(3,459)				(2,252)					—					7,998
Net income (loss), before noncontrolling interest

Net loss attributable to noncontrolling interest		—			—				—				114					—					114

Net income (loss), before noncontrolling interest

Net income (loss), before noncontrolling interest

Net income attributable to noncontrolling interest
Net income attributable to noncontrolling interest
Net income attributable to noncontrolling interest

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	12,400		$	1,309			$	(3,459)			$	(2,138)				$	—				$	8,112

Capital expenditures for the three months ended June 30, 2023		$	155		$	—			$	—			$	1,561				$	—				$	1,716
Total assets as of June 30, 2023		$	3,295,564		$	85,563			$	335,193			$	20,871				$	(385,344)				$	3,351,847
Total assets as of December 31, 2022		$	3,014,475		$	34,248			$	375,171			$	27,075				$	(382,119)				$	3,068,850
Goodwill as of June 30, 2023		$	—		$	—			$	—			$	2,838				$	—				$	2,838
Goodwill as of December 31, 2022		$	—		$	—			$	—			$	2,838				$	—				$	2,838
Net income (loss) available to common shareholders

Net income (loss) available to common shareholders

Capital expenditures for the three months ended March 31, 2024
Capital expenditures for the three months ended March 31, 2024
Capital expenditures for the three months ended March 31, 2024
Total assets as of March 31, 2024
Total assets as of December 31, 2023
Goodwill as of March 31, 2024
Goodwill as of December 31, 2023

4642


Three Months Ended June 30, 2022		CoRe Banking			Mortgage Banking					Financial Holding Company		Other			Intercompany Eliminations			Consolidated
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023																								CoRe Banking	Mortgage Banking	Financial Holding Company	Other	Intercompany Eliminations	Consolidated
(Dollars in thousands)	(Dollars in thousands)			CoRe Banking					Mortgage Banking					Financial Holding Company			Other			Intercompany Eliminations	Consolidated
Interest income
Interest income
Interest income	Interest income	$	27,910				$	103				$	87		$	—		$	(10)			$	28,090
Interest expense	Interest expense	672			—					760		8			(10)			1,430
Net interest income (expense)	Net interest income (expense)	27,238			103					(673)		(8)			—			26,660
Release of allowance for loan losses		5,100			—					—					—			5,100
Net interest income (expense) after release of allowance for credit losses		22,138			103					(673)		(8)			—			21,560
Provision for loan losses
Net interest income (expense) after provision for loan losses

Noninterest income	Noninterest income	7,093			787					3,228		1,584			(3,308)			9,384

Noninterest income

Noninterest income

Noninterest Expenses:	Noninterest Expenses:
Noninterest Expenses:
Noninterest Expenses:
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefits	Salaries and employee benefits	9,948			—					4,439		2,198			—			16,585
Other expenses	Other expenses	10,913			94					2,247		1,441			(3,308)			11,387
Total noninterest expenses	Total noninterest expenses	20,861			94					6,686		3,639			(3,308)			27,972

Income (loss) before income taxes		8,370			796					(4,131)		(2,063)			—			2,972
Income (loss), before income taxes
Income (loss), before income taxes
Income (loss), before income taxes
Income taxes	Income taxes	1,771			207					(815)		(464)			—			699
Net income (loss) from continuing operations	Net income (loss) from continuing operations	6,599			589					(3,316)		(1,599)			—			2,273
Income from discontinued operations, before income taxes	Income from discontinued operations, before income taxes	—			—					—		678			—			678
Income taxes - discontinued operations	Income taxes - discontinued operations	—			—					—		160			—			160
Net income from discontinued operations	Net income from discontinued operations	—			—					—		518			—			518
Net income (loss)		6,599			589					(3,316)		(1,081)			—			2,791
Net income (loss), before noncontrolling interest

Net loss attributable to noncontrolling interest
Net loss attributable to noncontrolling interest
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—			—					—		165			—			165

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	6,599		$	589				$	(3,316)	$	(916)		$	—		$	2,956

Capital expenditures for the three months ended June 30, 2022		$	—		$	—				$	47	$	834		$	—		$	881
Net income (loss) available to common shareholders

Net income (loss) available to common shareholders

Capital expenditures for the three months ended March 31, 2023
Capital expenditures for the three months ended March 31, 2023
Capital expenditures for the three months ended March 31, 2023

4743

Six Months Ended June 30, 2023 CoRe Banking Mortgage Banking Financial Holding Company Other Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 91,591 $ 210 $ 36 $ — $ (43) $ 91,794
Interest expense 27,480 — 1,992 54 (43) 29,483
   Net interest income (expense) 64,111 210 (1,956) (54) — 62,311
Provision for credit losses 341 — — — — 341
Net interest income (expense) after provision for credit losses 63,770 210 (1,956) (54) — 61,970
Noninterest income 7,131 686 5,526 2,835 (6,692) 9,486
Noninterest Expenses:
Salaries and employee benefits 18,104 7 9,573 4,808 — 32,492
Other expenses 25,202 52 4,080 3,465 (6,692) 26,107
   Total noninterest expenses 43,306 59 13,653 8,273 (6,692) 58,599
Income (loss) before income taxes 27,595 837 (10,083) (5,492) — 12,857
Income taxes 5,752 139 (2,149) (1,321) — 2,421
   Net income (loss) from continuing operations 21,843 698 (7,934) (4,171) — 10,436
Income from discontinued operations, before income taxes — — — 11,831 — 11,831
Income taxes - discontinued operations — — — 3,049 — 3,049
   Net income from discontinued operations — — — 8,782 — 8,782
Net income (loss) 21,843 698 (7,934) 4,611 — 19,218
   Net loss attributable to noncontrolling interest — — — 236 — 236
Net income (loss) available to common shareholders $ 21,843 $ 698 $ (7,934) $ 4,847 $ — $ 19,454
Capital expenditures for the six months ended June 30, 2023 $ 492 $ — $ — $ 2,155 $ — $ 2,647

Six Months Ended June 30, 2022 CoRe Banking Mortgage Banking Financial Holding Company Other Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 51,081 $ 206 $ 80 $ — $ (15) $ 51,352
Interest expense 1,331 — 1,513 15 (15) 2,844
   Net interest income (expense) 49,750 206 (1,433) (15) — 48,508
Provision for credit losses 6,380 — — — — 6,380
Net interest income (expense) after provision for credit losses 43,370 206 (1,433) (15) — 42,128
Noninterest income 13,991 2,010 5,899 3,120 (6,357) 18,663
Noninterest Expenses:
Salaries and employee benefits 19,456 — 8,495 4,361 — 32,312
Other expenses 21,961 94 4,452 2,767 (6,357) 22,917
   Total noninterest expenses 41,417 94 12,947 7,128 (6,357) 55,229
Income (loss) before income taxes 15,944 2,122 (8,481) (4,023) — 5,562
Income taxes 3,402 548 (1,684) (887) — 1,379
   Net income (loss) from continuing operations 12,542 1,574 (6,797) (3,136) — 4,183
Income from discontinued operations, before income taxes — — — 1,664 — 1,664
Income taxes - discontinued operations — — — 385 — 385
   Net income from discontinued operations — — — 1,279 — 1,279
   Net income (loss) before noncontrolling interest 12,542 1,574 (6,797) (1,857) — 5,462
   Net loss attributable to noncontrolling interest — — — 358 — 358
Net income (loss) available to common shareholders $ 12,542 $ 1,574 $ (6,797) $ (1,499) $ — $ 5,820
Capital expenditures for the six months ended June 30, 2022 $ 250 $ — $ 385 $ 1,474 $ — $ 2,109

Note 1415 – Acquisition & Divestiture Activity

Flexia Payments, LLC

In May 2023, MVB Technology entered into an Assignment and Assumption Agreement with Flexia Payments, LLC ("Flexia"), wherein Flexia assigned loans outstanding between Flexia and MVB to MVB Technology. In consideration for the assignment, Flexia granted a license to MVB Technology for the Flexia software. Additionally, through a Mutual Release Agreement between Edge Ventures and Flexia, Edge Ventures transferred its 800 Class A Common Units and 1,500 Preferred Units of Flexia back to Flexia for cancellation. As a result of the transactions, we incurred a loss of $1.1 million and no longer consolidate Flexia in our financial statements.

Chartwell Compliance

In February 2023, we completed the sale of the Bank’s wholly-owned subsidiary, Chartwell, for total consideration of $14.4 million in the form of a note issued to the buyer, resulting in a gain on sale of $11.8 million. The note matures June 20, 2027 and bears interest at a fixed rate of 7%, payable in four equal annual installments commencing June 20, 2024. To facilitate a transition of the Chartwell services and support the onboarding and conversion of systems, we entered into a 60 day Employee Lease and Service Agreement, whereby we provided the purchaser with finance and accounting, human capital, information technology, marketing and record/data retention services. In addition, we entered into a contract with the purchaser to continue to provide services and support from Chartwell for three years following the sale. During the three months ended March 31, 2024, we have paid $1.2 million in fees related to this contract.

Balances attributable to Chartwell are included in assets from discontinued operations and liabilities from discontinued operations on our December 31, 2022 balance sheet. There were no assets from discontinued operations or liabilities from discontinued operations as of June 30, 2023. Chartwell's net income is presented in income from discontinued operations for all periods shown. Prior period balances have been reclassified to conform with this presentation.

The following table presents the major classes of ~~assets held-for-sale from discontinued operations and liabilities held-for-sale from discontinued operations as of December 31, 2022:~~


~~(Dollars in thousands)~~	~~December 31, 2022~~
~~Premises and equipment~~	$	23
~~Accrued interest receivable and other assets~~	~~3,142~~
~~Goodwill~~	~~1,150~~
~~Total assets from discontinued operations~~	$	~~4,315~~

~~Accrued interest payable and other liabilities~~	$	~~5,444~~
~~Total liabilities from discontinued operations~~	$	~~5,444~~

~~The following table presents the major classes of~~ net income from discontinued operations for the periods shown:

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2023 2022 2023 2022
Compliance consulting income $ — $ 4,213 $ 2,369 $ 8,308
Gain on sale of discontinued operations — — 11,800 —
Total income $ — $ 4,213 $ 14,169 $ 8,308
Salaries and employee benefits $ — $ 2,398 $ 2,082 $ 4,632
Other expenses — 1,137 256 2,012
Total expenses $ — $ 3,535 $ 2,338 $ 6,644
Income before income taxes $ — $ 678 $ 11,831 $ 1,664
Income taxes — 160 3,049 385
Net income from discontinued operations $ — $ 518 $ 8,782 $ 1,279

~~Integrated Financial Holdings, Inc.~~


	Three Months Ended March 31,
(Dollars in thousands)	2023
Compliance consulting income	$	2,369
Gain on sale of discontinued operations	11,800
Total income	$	14,169

Salaries and employee benefits	$	2,082
Other expenses	256
Total expenses	$	2,338

Income, before income taxes	$	11,831
Income taxes	3,049
Net income from discontinued operations	$	8,782

In August 2022, we entered into a Merger Agreement (the “Merger Agreement”) with Integrated Financial Holdings, Inc. (“IFH”). The Merger Agreement provided that IFH would merge with and into MVB, with MVB continuing as the surviving corporation (the “Merger”). Following the Merger, West Town Bank & Trust, a state bank chartered under the laws of Illinois and wholly-owned subsidiary of IFH, would merge with and into the Bank, with the Bank as the surviving bank (the “Bank Merger”), pursuant to the Agreement and Plan of Merger, dated October 4, 2022, between West Town Bank & Trust and the Bank (the “Bank Merger Agreement” and, together with the Merger Agreement, the “Merger Agreements”). In May 2023, MVB, IFH, West Town Bank & Trust and the Bank entered into a Termination Agreement pursuant to which the parties mutually agreed to terminate the Merger Agreements and mutually released one another from any claims (subject to limited customary exceptions) related to the contemplated merger transactions.

5044

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the ~~2022~~2023 Form 10-K. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. See the “Forward-Looking Statements” section of this ~~Report~~report for further information on forward-looking statements.

Executive Summary

We continue to adapt our business model due to challenging market conditions, primarily brought on by an environment of increasing interest rates, a slowing economy and multiple high-profile bank ~~failures.~~failures that occurred during the first half of 2023. Interest rates have remained at an elevated level through March 31, 2024 as the Federal Reserve raised its key interest rate to a range of 4.25% to 4.5%. Lower loan balances are the result of slower market demand and deliberate efforts to improve balance sheet liquidity. We remain committed to our key Fintech ~~industry~~industries of gaming and ~~payments initiatives and continue to implement cost-saving measures.~~payments. We continue to expand the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. Additionally, we have expanded our compliance and risk management team to support the growth in these lines of business. ~~We have entered into agreements for card issuing and acquiring program sponsorships to further enhance fee income and noninterest income.~~

Current Market Conditions

InThere continues to be a focus on liquidity after the events in March 2023, when certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there has been substantial market disruption and indications that deposit concerns could spread within the banking industry, leading to deposit outflows and other destabilizing results. These market events could have a material adverse affect on our business. A deterioration in economic conditions or the loss of confidence in financial institutions may result in deposit base outflows and limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings and borrowings from the Federal Reserve and FHLB. In addition, account and deposit balances may decrease when clients perceive alternative investments, such as the stock market or real estate, as providing a better risk/return tradeoff. Furthermore, the portion of our deposit portfolio that is comprised of large uninsured deposits may be more likely to be withdrawn rapidly under adverse economic conditions. If our clients move money out of bank deposits into investments or to other financial institutions, we could lose a relatively low cost source of funds. As of March 31, 2024 and March 31, 2023, our liquid assets totaled $737.3 million and $711.8 million, respectively, which we believe would enable us to meet our cash obligations as they come due.

Financial Results

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

During the three months ended ~~June 30, 2023,~~March 31, 2024, net interest income ~~increased $2.9~~decreased $2.6 million,noninterest income ~~decreased $3.0~~increased $4.8 millionand noninterest expenses increased by ~~$2.3~~$1.9 million compared to the three months ended ~~June 30, 2022.~~March 31, 2023. Our tax- equivalent yield on earning assets ~~(tax-equivalent)~~ in the three months ended ~~June 30, 2023~~March 31, 2024 was ~~6.02%~~6.34% compared to ~~4.32%~~6.00% in the three months ended ~~June 30, 2022.~~March 31, 2023. Loans receivable decreased by ~~$48.8~~$50.3 million to ~~$2.31~~$2.27 billion during the three months ended ~~June 30, 2023.~~March 31, 2024. Our overall cost of interest-bearing liabilities was ~~3.29%~~4.22% in the three months ended ~~June 30, 2023~~March 31, 2024 compared to ~~0.47%~~2.95% in the three months ended ~~June 30, 2022.~~March 31, 2023. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a tax-equivalent net interest margin ~~(tax-equivalent)~~ of ~~3.80%~~3.83% in the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~4.10%~~4.40% in the three months ended ~~June 30, 2022.~~March 31, 2023.

Our net income for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~$8.0~~$4.5 million compared to ~~$2.8~~$11.3 million in the three months ended ~~June 30, 2022.~~March 31, 2023. Earnings for the three months ended ~~June 30, 2023~~March 31, 2024 equated to a return on average assets of ~~1.0%~~0.5% and a return on average equity of ~~12.0%~~6.2%, compared to the three months ended ~~June 30, 2022~~March 31, 2023 results of ~~0.4%~~1.4% and ~~4.6%, respectively.Basic and diluted earnings per share were $0.64 and $0.63, respectively, for the three months ended June 30, 2023, compared to $0.24 and $0.23, respectively, for the three months ended June 30, 2022.~~

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~During the six months ended June 30, 2023, net interest income increased $13.8 million,noninterest income decreased $9.2 million and noninterest expenses increased by $3.4 million compared to the six months ended June 30, 2022.Our yield on earning assets (tax-equivalent) in the six months ended June 30, 2023was 6.01% compared to 3.84% in the six months ended June 30, 2022. Loans receivable decreased by $60.3 million to $2.31 billion during the six months ended June 30, 2023.~~Our overall cost of interest-bearing liabilities was 3.14% in the six months ended June 30, 2023 compared to 0.45% in the six months ended June 30, 2022. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a net interest margin (tax-equivalent) of 4.09% in the six months ended June 30, 2023, compared to 3.63% in the six months ended June 30, 2022.

Our net income for the six months ended June 30, 2023 was $19.2 million compared to $5.5 million in the six months ended June 30, 2022, largely the result of an $11.8 million pre-tax gain related to the sale of the Bank’s wholly-owned subsidiary, Chartwell. Earnings for the six months ended June 30, 2023 equated to a return on average assets of 1.2% and a return on average equity of 14.09%, compared to the six months ended June 30, 2022 results of 0.39% and 4.44%16.1%, respectively. Basic and diluted earnings per share were ~~$1.54~~$0.35 and ~~$1.50,~~$0.34, respectively, for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$0.48~~$0.90 and ~~$0.45,~~$0.87, respectively, for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

~~Corporate Updates~~

~~Flexia Payments, LLC~~

In May 2023, MVB Technology entered into an Assignment and Assumption Agreement with Flexia, wherein Flexia assigned loans outstanding between Flexia and MVB to MVB Technology. In consideration for the assignment, Flexia granted a license to MVB Technology for the Flexia software. Additionally, through a Mutual Release Agreement between Edge Ventures and Flexia, Edge Ventures transferred its 800 Class A Common Units and 1,500 Preferred Units of Flexia back to Flexia for cancellation. As a result of the transactions, we no longer consolidate Flexia in our financial statements.

~~Integrated Financial Holdings, Inc.~~

In August 2022, we entered into the Merger Agreement with IFH). The Merger Agreement provided that IFH would merge with and into MVB, with MVB continuing as the surviving corporation. Following the Merger, West Town Bank & Trust, a state bank chartered under the laws of Illinois and wholly-owned subsidiary of IFH, would merge with and into the Bank, with the Bank as the surviving bank, pursuant to the Agreement and Plan of Merger, dated October 4, 2022, between West Town Bank & Trust and the Bank. In May 2023, MVB, IFH, West Town Bank & Trust and the Bank entered into a Termination Agreement pursuant to which the parties mutually agreed to terminate the Merger Agreements and mutually released one another from any claims (subject to limited customary exceptions) related to the contemplated merger transactions.

Net Interest Income and Net Interest Margin (Average Balance Schedules)

The following tables present information regarding ~~(1)~~(i) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; ~~(2)~~(ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; ~~(3)~~(iii) the interest rate spread; ~~(4)~~(iv) net interest income and margin; and ~~(5)~~(v) net interest income and margin (on a tax-equivalent basis) as of and for the periods shown. The average balances presented are derived from daily average balances.

5246


			Three Months Ended June 30,
			2023						2022
		Three Months Ended March 31,																																							Three Months Ended March 31,
		2024																													2024												2023
(Dollars in thousands)	(Dollars in thousands)		Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost		(Dollars in thousands)			Average Balance					Interest Income/Expense							Yield/Cost						Average Balance				Interest Income/Expense						Yield/Cost
Assets	Assets
Interest-bearing balances with banks	Interest-bearing balances with banks		$	444,600	$	5,542	5.00	%	$	197,613	$	304	0.62	%
CDs with banks			—		—		—		1,582		9		2.28
Interest-bearing balances with banks
Interest-bearing balances with banks																		$	549,894				$	7,341						5.37		%				$	285,102			$	3153					4.49	%

Investment securities:	Investment securities:
Investment securities:
Investment securities:
Taxable
Taxable
Taxable	Taxable		220,687		1,229		2.23		237,745		838		1.41
Tax-exempt 2	Tax-exempt 2		123,497		1,147		3.73		147,646		1,342		3.65
Loans and loans held-for-sale: 1	Loans and loans held-for-sale: 1
Commercial
Commercial
Commercial	Commercial		1,635,438		30,534		7.49		1,564,266		20,021		5.13
Tax exempt 2	Tax exempt 2		3,822		42		4.41		4,930		52		4.23
Real estate	Real estate		593,767		5,691		3.84		393,983		2,674		2.72
Consumer	Consumer		128,113		3,096		9.69		88,366		3,142		14.26
Total loans	Total loans		2,361,140		39,363		6.69		2,051,545		25,889		5.06
Total earning assets	Total earning assets		3,149,924		47,281		6.02		2,636,131		28,382		4.32
Less: Allowance for loan losses			(35,143)						(19,927)
Less: Allowance for credit losses
Cash and due from banks
Cash and due from banks
Cash and due from banks	Cash and due from banks		5,756						5,579
Other assets	Other assets		289,161						237,016
Other assets
Other assets
Total assets
Total assets
Total assets	Total assets		$	3,409,698					$	2,858,799

Liabilities	Liabilities

Liabilities

Liabilities
Deposits:	Deposits:
Deposits:
Deposits:
NOW
NOW
NOW	NOW		$	682,277	$	4,816	2.83	%	$	654,781	$	256	0.16	%		$	555,530			$	$	4,929			3.57				3.57		%				$	796,901		$	$	4,661		2.37				2.37	%
Money market checking	Money market checking		615,962		2,439		1.59		380,295		184		0.19
Savings	Savings		72,289		351		1.95		27,496		1		0.01
IRAs	IRAs		6,401		45		2.82		6,314		17		1.08
CDs	CDs		662,753		8,799		5.33		75,487		203		1.08
Repurchase agreements and federal funds sold	Repurchase agreements and federal funds sold		5,428		—		—		11,566		1		0.03
FHLB and other borrowings	FHLB and other borrowings		158		—		—		2,312		8		1.39
Senior term loan	Senior term loan		9,351		198		8.49		—		—		—
Subordinated debt	Subordinated debt		73,382		801		4.38		73,126		760		4.17
Total interest-bearing liabilities	Total interest-bearing liabilities		2,128,001		17,449		3.29		1,231,377		1,430		0.47
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits		971,436						1,331,357
Other liabilities	Other liabilities		38,842						40,900
Other liabilities
Other liabilities
Total liabilities
Total liabilities
Total liabilities	Total liabilities		3,138,279						2,603,634

Stockholders’ equity	Stockholders’ equity

Stockholders’ equity

Stockholders’ equity

Common stock

Common stock

Common stock	Common stock		13,533						13,289
Paid-in capital	Paid-in capital		158,601						145,014
Paid-in capital
Paid-in capital
Treasury stock
Treasury stock
Treasury stock	Treasury stock		(16,741)						(16,741)
Retained earnings	Retained earnings		148,600						137,989
Retained earnings
Retained earnings
Accumulated other comprehensive loss
Accumulated other comprehensive loss
Accumulated other comprehensive loss	Accumulated other comprehensive loss		(32,714)						(25,097)
Total stockholders’ equity	Total stockholders’ equity		271,279						254,454
Total stockholders’ equity
Total stockholders’ equity
Noncontrolling interest
Noncontrolling interest
Noncontrolling interest	Noncontrolling interest		140						711
Total stockholders’ equity attributable to parent	Total stockholders’ equity attributable to parent		271,419						255,165
Total stockholders’ equity attributable to parent
Total stockholders’ equity attributable to parent
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity		$	3,409,698					$	2,858,799
Total liabilities and stockholders’ equity
Total liabilities and stockholders’ equity

Net interest spread (tax-equivalent)

Net interest spread (tax-equivalent)

Net interest spread (tax-equivalent)	Net interest spread (tax-equivalent)						2.73	%					3.85	%																			2.12	%															3.05	%
Net interest income and margin (tax-equivalent) 2	Net interest income and margin (tax-equivalent) 2				$	29,832	3.80	%			$	26,952	4.10	%	Net interest income and margin (tax-equivalent) 2											$	30,333	3.83					3.83	%										$	33,013		4.40	4.40	%
Less: Tax-equivalent adjustments	Less: Tax-equivalent adjustments				$	(250)					$	(292)
Net interest spread	Net interest spread						2.70	%					3.80	%
Net interest spread
Net interest spread																																		2.10	%															3.02	%
Net interest income and margin	Net interest income and margin				$	29,582	3.77	%			$	26,660	4.06	%	Net interest income and margin											$	30,139	3.81					3.81	%										$	32,729		4.36	4.36	%

1~~Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.~~

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.

Six Months Ended June 30,
2023 2022
(Dollars in thousands) Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost
Assets
Interest-bearing balances with banks $ 365,291 $ 8695 4.80 % $ 395,494 $ 518 0.26 %
CDs with banks — — — 1,964 22 2.26
Investment securities:
Taxable 228,587 3,077 2.71 239,849 1,486 1.25
Tax-exempt 2
130,609 2,456 3.79 138,170 2,478 3.62
Loans and loans held-for-sale: 1
Commercial 3
1,628,015 59,065 7.32 1,509,071 37,000 4.94
Tax exempt 2
3,882 85 4.42 4,998 105 4.24
Real estate 607,501 11,992 3.98 366,557 5,014 2.76
Consumer 132,804 6,959 10.57 71,588 5,271 14.85
Total loans 2,372,202 78,101 6.64 1,952,214 47,390 4.90
Total earning assets 3,096,689 92,329 6.01 2,727,691 51,894 3.84
Less: Allowance for loan losses (32,653) (19,139)
Cash and due from banks 3,015 5,822
Other assets 314,279 242,875
Total assets $ 3,381,330 $ 2,957,249
Liabilities
Deposits:
NOW $ 739,273 $ 9,478 2.59 % $ 650,903 $ 449 0.14 %
Money market checking 413,718 3,367 1.64 423,053 386 0.18
Savings 82,735 991 2.42 38,706 2 0.01
IRAs 6,276 72 2.31 6,341 34 1.08
CDs 525,213 12,695 4.87 81,329 446 1.11
Repurchase agreements and federal funds sold 6,514 — — 11,693 3 0.05
FHLB and other borrowings 35,347 888 5.07 1,163 11 1.91
Senior term loan 9,557 392 8.27 — — —
Subordinated debt 73,350 1,600 4.40 73,094 1,513 4.17
Total interest-bearing liabilities 1,891,983 29,483 3.14 1,286,282 2,844 0.45
Noninterest-bearing demand deposits 1,174,965 1,365,037
Other liabilities 37,969 43,594
Total liabilities 3,104,917 2,694,913
Stockholders’ equity
Preferred stock — —
Common stock 13,502 13,373
Paid-in capital 156,009 144,408
Treasury stock (16,741) (16,741)
Retained earnings 157,464 137,815
Accumulated other comprehensive loss (34,022) (17,325)
Total stockholders’ equity 276,212 261,530
Noncontrolling interest 201 806
Total stockholders’ equity attributable to parent 276,413 262,336
Total liabilities and stockholders’ equity $ 3,381,330 $ 2,957,249
Net interest spread (tax-equivalent) 2.87 % 3.39 %
Net interest income and margin (tax-equivalent) 2
$ 62,846 4.09 % $ 49,050 3.63 %
Less: Tax-equivalent adjustments $ (535) $ (542)
Net interest spread 2.84 % 3.35 %
Net interest income and margin $ 62,311 4.06 % $ 48,508 3.59 %

12 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the six months ended June 30, 2023 and 2022, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.

3 ~~Our Small Business Association Paycheck Protection Program loans, totaling $4.5 million at June 30, 2023 and $22.3 million at June 30, 2022, are included in this amount.~~

5447

The following table presents the reconciliation of net interest margin for the periods shown:


		Three Months Ended June 30,						Six Months Ended June 30,
		Three Months Ended March 31,
		Three Months Ended March 31,
		Three Months Ended March 31,
(Dollars in thousands)
(Dollars in thousands)
(Dollars in thousands)	(Dollars in thousands)	2023			2022			2023			2022
Net interest margin - U.S. GAAP basis	Net interest margin - U.S. GAAP basis
Net interest margin - U.S. GAAP basis
Net interest margin - U.S. GAAP basis
Net interest income
Net interest income
Net interest income	Net interest income	$	29,582		$	26,660		$	62,311		$	48,508
Average interest-earning assets	Average interest-earning assets	3,149,924			2,636,131			3,096,689			2,727,691
Average interest-earning assets
Average interest-earning assets
Net interest margin
Net interest margin
Net interest margin	Net interest margin	3.77		%	4.06		%	4.06		%	3.59		%

Net interest margin - non-U.S. GAAP basis	Net interest margin - non-U.S. GAAP basis

Net interest margin - non-U.S. GAAP basis

Net interest margin - non-U.S. GAAP basis
Net interest income
Net interest income
Net interest income	Net interest income	$	29,582		$	26,660		$	62,311		$	48,508
Impact of fully tax-equivalent adjustment	Impact of fully tax-equivalent adjustment	250			292			535			542
Impact of fully tax-equivalent adjustment
Impact of fully tax-equivalent adjustment
Net interest income on a fully tax-equivalent basis
Net interest income on a fully tax-equivalent basis
Net interest income on a fully tax-equivalent basis	Net interest income on a fully tax-equivalent basis	29,832			26,952			62,846			49,050
Average interest-earning assets	Average interest-earning assets	$	3,149,924		$	2,636,131		$	3,096,689		$	2,727,691
Average interest-earning assets
Average interest-earning assets
Net interest margin on a fully tax-equivalent basis	Net interest margin on a fully tax-equivalent basis	3.80		%	4.10		%	4.09		%	3.63		%
Net interest margin on a fully tax-equivalent basis
Net interest margin on a fully tax-equivalent basis

Key Metrics


		As of and for the three months ended June 30,						As of and for the six months ended June 30,
		As of and for the three months ended March 31,
		As of and for the three months ended March 31,
		As of and for the three months ended March 31,
(Dollars in thousands, except per share data)
(Dollars in thousands, except per share data)
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2023			2022			2023			2022
Book value per common share	Book value per common share	$	21.57		$	20.63		$	21.57		$	20.63
Book value per common share
Book value per common share
Tangible book value per common share 5	Tangible book value per common share 5	$	21.31		$	20.14		$	21.31		$	20.14
Efficiency ratio 1 3 5 6		84.1		%	77.3		%	70.9		%	81.2		%
Tangible book value per common share 5
Tangible book value per common share 5
Efficiency ratio 1 5
Efficiency ratio 1 5
Efficiency ratio 1 5
Overhead ratio 2 3 5
Overhead ratio 2 3 5
Overhead ratio 2 3 5	Overhead ratio 2 3 5	3.6		%	4.2		%	3.5		%	4.0		%
Net loan charge-offs to total loans 4	Net loan charge-offs to total loans 4	0.2		%	0.2		%	0.3		%	0.2		%
Allowance for credit losses to total loans 7		1.31		%	1.03		%	1.31		%	1.03		%
Net loan charge-offs to total loans 4
Net loan charge-offs to total loans 4
Allowance for credit losses to total loans 6
Allowance for credit losses to total loans 6
Allowance for credit losses to total loans 6
Nonperforming loans
Nonperforming loans
Nonperforming loans	Nonperforming loans	$	13,646		$	19,295		$	13,646		$	19,295
Nonperforming loans to total loans	Nonperforming loans to total loans	0.6		%	0.9		%	0.6		%	0.9		%
Nonperforming loans to total loans
Nonperforming loans to total loans
Equity to assets
Equity to assets
Equity to assets	Equity to assets	8.2		%	8.5		%	8.2		%	8.5		%
Community Bank Leverage Ratio	Community Bank Leverage Ratio	10.0		%	11.6		%	10.0		%	11.6		%
Community Bank Leverage Ratio
Community Bank Leverage Ratio

1 Noninterest expense as a percentage of net interest income and noninterest income

2 Annualized for the quarterly periods presented

3 Noninterest expense as a percentage of average assets

4 Charge-offs less recoveries

5 Non-U.S. GAAP metric

6 ~~Includes net income from discontinued operations~~

7Excludes loans held-for-sale

Tangible book value (“TBV”) per common share was ~~$21.31~~$22.48 and ~~$20.14~~$21.17 as of ~~June 30,~~March 31, 2024 and March 31, 2023, ~~and June 30, 2022,~~ respectively. TBV per common share is a non-U.S. GAAP measure that we believe is helpful to interpreting financial results. A reconciliation of TBV per common share is included below.


			As of June 30,
		As of March 31,								As of March 31,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)		2023		2022		(Dollars in thousands, except per share data)	2024	2023
Goodwill	Goodwill		$	2,838	$	3,988
Intangibles	Intangibles		397		1,981
Total intangibles	Total intangibles		3,235		5,969

Total equity attributable to parent	Total equity attributable to parent		274,349		252,300
Total equity attributable to parent
Total equity attributable to parent

Less: Total intangibles
Less: Total intangibles
Less: Total intangibles	Less: Total intangibles		(3,235)		(5,969)
Tangible common equity	Tangible common equity		271,114		246,331

Tangible common equity	Tangible common equity		$	271,114	$	246,331
Tangible common equity
Tangible common equity
Common shares outstanding (000s)	Common shares outstanding (000s)		12,720		12,229		Common shares outstanding (000s)	12,841	12,653
Tangible book value per common share	Tangible book value per common share		$	21.31	$	20.14

Net Interest Income

Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities. Interest-earning assets include loans, investment securities and certificates of deposit in banks. Interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts, repurchase agreements, subordinated debt and the senior term loan. Net interest income, which is the primary source of revenue for the Bank, is also impacted by changes in market interest rates and the mix of interest-earning assets and interest-bearing liabilities.

Net interest margin is calculated by dividing net interest income by average interest-earning assets and measures the net revenue stream generated by the Bank’s balance sheet. Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest income, while maintaining an appropriate level of interest rate risk.

In 2023, the Federal Reserve raised its key interest rate ~~from~~to a range of 4.25% to 4.5% as of December 31, ~~2022 to a range of 5.00% to 5.25%~~2023 and remains at this rate as of ~~June 30, 2023.~~March 31, 2024. We continually analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin.

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Net interest margin on a tax-equivalent basis was~~3.80%~~ 3.83% for the three months ended ~~June 30, 2023~~March 31, 2024 compared to~~4.10%~~ 4.40% for the three months ended ~~June 30, 2022.~~March 31, 2023. The decrease in net interest margin on a tax-equivalent basis primarily reflects higher funding costs and a shift in the mix of earnings assets, partially offset by ~~higher loan~~investment yields. ~~Net~~Tax-equivalent net interest spread ~~(tax-equivalent)~~ was ~~2.73%~~2.12% for the three months ended ~~June 30, 2023~~March 31, 2024 compared to ~~3.85%~~3.05% for the three months ended ~~June 30, 2022.~~March 31, 2023. The difference between the tax-equivalent net interest margin ~~(tax-equivalent)~~ and tax-equivalent net interest spread ~~(tax-equivalent)~~ was~~107~~ 171 basis points in the three months ended ~~June 30, 2023~~March 31, 2024 compared to 25135 basis points in the three months ended ~~June 30, 2022~~March 31, 2023 driven by the increase in interest expense outpacing the increase in average assets.

During the three months ended ~~June 30, 2023,~~March 31, 2024, net interest income ~~increased~~decreased by ~~$2.9~~$2.6 million, or ~~11.0%~~7.9%, to ~~$29.6~~$30.1 million from ~~$26.7~~$32.7 million during the three months ended June 30, 2022. This increase is largely due to strong loan growth at favorable interest rates, primarily driven by the Company's strategic lending partnership growth vehicle and broad-based growth throughout CoRe banking business, as well as the effects of higher interest rates on earning assets, including investment securities and interest

~~bearing deposits with other banks, partially offset by an increase in cost of funds.~~March 31, 2023. Average total earning assets were ~~$3.15~~$3.19 billion in the three months ended ~~June 30, 2023~~March 31, 2024 compared to ~~$2.64~~$3.04 billion in the three months ended ~~June 30, 2022.~~March 31, 2023. Total interest incomeincreased by ~~$18.9~~$5.3 million, or ~~67.4%~~11.8%, to ~~$47.0 millionin the three months ended June 30, 2023 from $28.1~~$50.0 million in the three months ended ~~June 30, 2022~~March 31, 2024 from $44.8 million in the three months ended March 31, 2023 driven by ~~higher yields from new loan production at favorable~~an increase in total earning assets, including interest ~~rates.~~bearing deposits with other banks. Average total loans ~~increased~~decreased to ~~$2.36~~$2.28 billion in the three months ended ~~June 30, 2023~~March 31, 2024 from ~~$2.05~~$2.38 billion in the three months ended ~~June 30, 2022,~~March 31, 2023, primarily as the result of a ~~$199.8~~$45.2 million ~~increase~~decrease in average real estate loans ~~a $71.2 million increase in average commercial loans~~ and an ~~$39.7~~$60.2 million ~~increase~~decrease in average consumer loans. The yield on total loans increased ~~1.63%.~~50 basis points.

Average investment securities decreased ~~$41.2~~$22.0 million as the result of a~~$24.1~~ $31.5 million decrease in tax-exempt investments, ~~and~~partially offset by a ~~$17.1~~$9.5 million ~~decrease~~increase in taxable investments during three months ended ~~June 30, 2023,~~March 31, 2024, compared to three months ended ~~June 30, 2022.~~March 31, 2023. The yield on tax-exempt securities~~increased eight~~ decreased 49 basis points, and the taxable securities yield ~~increased 82~~decreased 32 basis points. driven by a decline in interest income associated with available-for-sale investment security fair value hedges.

Average interest-bearing liabilitiesincreased by ~~$896.6~~$240.0 million for three months ended ~~June 30, 2023~~March 31, 2024 from three months ended ~~June 30, 2022.~~March 31, 2023. Theincreasewas primarily the result of average balance increases of ~~$587.3~~$288.5 million in certificates of deposit and ~~$235.7~~$199.5 million in money market checking ~~deposits.~~deposits, partially offset by a decrease of $241.4 million in NOW accounts.

Average interest-bearing deposits were~~$2.04 billionfor the three months ended June 30, 2023 and$1.14~~ $1.81 billion for the three months ended ~~June 30, 2022.~~March 31, 2024 and $1.49 billion for the three months ended March 31, 2023. Total interest expense increased by ~~$16.0~~$7.9 million, caused primarily by a ~~$15.8~~$8.8 million increase in deposit interest. The result was a ~~282~~127 basis point increase in the cost of interest-bearing liabilities, primarily driven by increases in interest ~~rates and liquidity actions taken during the second quarter of 2023 in response to market conditions.~~

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~Net interest margin on a tax-equivalent basis was4.09%for the six months ended June 30, 2023 compared to 3.63% for the six months ended June 30, 2022.~~The increase in net interest margin on a tax-equivalent basis primarily reflects higher funding costs and a shift in the mix of earnings assets, partially offset by higher loan yields. Net interest spread (tax-equivalent) was~~2.87%for the six months ended June 30, 2023 compared to3.39% for the six months ended June 30, 2022.The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was122basis points in the six months ended June 30, 2023 compared to24 basis points in the six months ended June 30, 2022. This was driven by the driven by the increase in interest expense outpacing the increase in average assets.~~

~~During the six months ended June 30, 2023,~~net interest income increased by $13.8 million, or 28.5%, to $62.3 million from $48.5 million during the six months ended June 30, 2022. This increase is largely due to strong loan growth at favorable interest rates, primarily driven by the Company's strategic lending partnership growth vehicle and broad-based growth throughout CoRe banking business, as well as the effects of higher interest rates on earning assets, including investment securities and interest bearing deposits with other banks, partially offset by an increase in cost of funds. Average total earning assets were~~$3.10 billion~~in the six months ended June 30, 2023 compared to $2.73 billion in the six months ended June 30, 2022. Total interest income increased by $40.4 million, or 78.8%, to $91.8 million in the six months ended June 30, 2023 from $51.4 million in the six months ended June 30, 2022 driven by higher yields from new loan production at favorable interest rates. ~~Average total loansincreased to $2.37 billion in the six months ended June 30, 2023 from $1.95 billion in the six months ended June 30, 2022, primarily as the result ofa $240.9 million increase in average real estate loans and a $118.9 million increase in average commercial loans. The yield on total loans increased 174 basis points.~~

~~Average investment securities~~decreased $18.8 million as the result of a $7.6 million decrease in tax-exempt investments and an $11.3 million decrease in taxable investments during the six months ended June 30, 2023, compared to the six months ended June 30, 2022.~~The yield on tax-exempt securities increased 17 basis points and the taxable securities yieldincreased 146 basis points.~~

Average interest-bearing liabilities increased by $605.7 million for the six months ended June 30, 2023 from the six months ended June 30, 2022. The increase was primarily the result of average balance increases of $443.9 million in certificates of deposit, $88.4 million in negotiable order of withdrawal accounts, $44.0 million in savings accounts, and $34.2 million in FHLB and other borrowings.

~~The cost of interest-bearing liabilities increased to 3.14%in the six months ended June 30, 2023 from~~0.45% in the six months ended June 30, 2022. This increase is primarily the result of an increase of 282 basis points in the cost of deposits, as well as the cost of the senior term loan, which was entered into during October 2022. Average interest-bearing deposits were $1.77 billion~~for the six months ended June 30, 2023 and $1.20 billion for the six months ended June 30, 2022. Total interest expenseincreased by $26.6 million, primarily driven by increases in interest rates and liquidity actions taken during 2023 in response to market conditions.~~

~~Further discussion on borrowings is included in~~ ~~Note 7 – Borrowed Funds~~ ~~accompanying the consolidated financial statements included elsewhere in this report.~~

Provision for Credit Losses

The provision for credit losses, which is a product of management’s analysis, is recorded in response to inherent losses in the loan portfolio. ~~Release of allowance and credit~~Credit loss provisions were ~~$4.2~~$2.0 million for the three months ended ~~June 30, 2023~~March 31, 2024 and ~~$5.1~~$4.6 million for the three months ended ~~June 30, 2022,~~March 31, 2023, respectively. The decrease in credit loss provision is the result of ~~both decreasing~~lower calculated loss rates and lower portfolio balances across most of the pooled loan segments. The Bank did see an increase in loss rates in the other construction loan segment, ~~balances across the entire loan portfolio, specifically concentrated within the subprime automobile segment.~~

~~Further discussion on new accounting standards is included in~~ ~~Note 1 – Nature~~which had an amortized cost basis of ~~Operations and Basis of Presentation~~ ~~accompanying the consolidated financial statements included elsewhere in this report.~~$128.9 million at March 31, 2024.

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Total loans decreased ~~$48.8~~$50.3 million during the three months ended ~~June 30, 2023,~~March 31, 2024, compared to an ~~increase~~decrease of ~~$317.3~~$11.4 million in the three months ended ~~June 30, 2022.~~March 31, 2023. The decline in loan balances compared to the prior quarters primarily reflects amortization of the loan portfolio and the Bank’s purposeful effort to improve the overall strength of the loan portfolio through selective originations. The commercial loan portfolio ~~increased~~decreased by ~~$12.2~~$34.0 million during the three months ended ~~June 30, 2023,~~March 31, 2024, as compared to an ~~increase~~decrease of ~~$150.1~~$55.1 million in the three months ended ~~June 30, 2022,~~March 31, 2023, while the residential mortgage loan portfolio decreased by ~~$33.4~~$12.1 million during the three months ended ~~June 30, 2023,~~March 31, 2024, as compared to a ~~$125.8~~$98.0 million increase during the three months ended ~~June 30, 2022.~~March 31, 2023. Additionally, our consumer loan portfolio decreased by ~~$26.9~~$2.7 million during the three months ended ~~June 30, 2023,~~March 31, 2024, while it ~~increased~~decreased by ~~$41.9~~$52.9 million in the three months ended ~~June 30, 2022.~~March 31, 2023. Net charge-offs totaled ~~$1.2~~$1.3 million and $1.7 million during ~~both~~ the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and the three months ended June 30, 2022.~~

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

Total loans decreased $60.3 million during the six months ended June 30, 2023 versus an increase of $345.3 million in the six months ended June 30, 2022. The commercial loan portfolio decreased by $42.9 million during the six months ended June 30, 2023, as compared to an increase of $148.8 million in the six months ended June 30, 2022, while the residential mortgage loan portfolio increased by $64.6 million during the six months ended June 30, 2023, while increasing by $132.7 million in the six months ended June 30, 2022. Additionally, our consumer loan portfolio decreased by $79.8 million during the six months ended June 30, 2023, while it increased by $63.6 million in the six months ended June 30, 2022. In addition, net charge-offs during the six months ended June 30, 2023 totaled $2.9 million compared to net charge-offs of $1.9 million in the six months ended June 30, 2022.respectively.

Noninterest Income

Payment card and service charge income, consulting compliance income, equity method investment income or loss and gains on ~~securities~~sale of loans generally account for the majority of our noninterest income. From time to time, we also recognize gains or losses on acquisition and divestiture ~~activity.~~activity, sales of assets or our investment portfolio.

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Noninterest income for the three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ totaled ~~$6.4~~$7.8 million and ~~$9.4~~$3.1 million,, respectively.The ~~decrease~~increase in noninterest income for thethree months ended ~~June 30, 2023~~March 31, 2024 compared to the three months ended ~~June 30, 2022~~March 31, 2023 was primarily the result of ~~a decrease~~an increase of ~~$2.4~~$2.2 million in gain on sale of ~~loans and $1.0 million in loss on acquisition and divestiture activity, partially offset by~~available-for-sale investment securities, an increase of ~~$1.3~~$1.2 million in ~~equity method investment~~payment card and service charge income and an increase of $0.6 million in other operating income.

~~Gain~~ Loss on sale of loans decreased ~~$2.4~~$0.4 million, ~~primarily~~ as a result of losses on the sale of subprime automobile loans ~~as we reduce that portfolio~~ during the three months ended ~~June 30, 2023. Looking forward, we expect to continue to evaluate ways to further reduce our portfolio of subprime automobile loans. Gains on acquisition and divestiture activity decreased due to~~March 31, 2023, with no comparable losses in the $1.1 million loss resulting from divestiture of our investment in Flexia. For more information regarding the Flexia transaction, see Note 14 - Acquisition and Divestiture Activity. Equity method investment income increased $1.3 million due to income from our equity method investment in Warp Speed, which was purchased in October 2022.

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~Noninterest income for the six months ended June 30, 2023 and 2022 totaled$9.5 millionand $18.7 million,respectively. The decrease in noninterest income for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily the result ofdecreases of $3.8 million in gain on sale of loans, $2.2 million in gain on sale of available-for-sale securities and $1.9 million in equity method investment gains.~~

Gain on sale of loans decreased $3.8 million, primarily as a result of losses on the sale of subprime automobile loans as we reduce that portfolio. Gain on sale of available-for-sale securities decreased $2.2 million due to losses on the sale of securities as a result of repositioning our investment portfolio during the first quarter of 2023. The $1.9 million decrease in equity method investment gains reflected an in substance sale of an equity method investment from our portfolio during second quarter of 2022.current quarter.

Noninterest Expense

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Noninterest expense was~~$30.3~~ $30.2 millionand ~~$28.0~~$28.3 million in the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. ~~The increase from the prior period primarily reflects higher other operating expenses, specifically higher professional fees, partially offset by a decrease in salaries and employee benefits expense.~~ Approximately~~52%~~ 55% and 59% of noninterest expense for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively, was

related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to financial services organizations.

The ~~decrease~~increase of noninterest expense relative to the ~~prior year period~~three months ended March 31 2023 primarily reflects ~~the implementation~~an increase of ~~expense reduction initiatives~~.

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~Noninterest expense was $58.6 million and$55.2 million in the six months ended June 30, 2023 and 2022, respectively.The increase from the prior period primarily reflects higher other operating expenses, specifically higher~~ professional fees ~~partially offset by a decrease~~of $2.8 million attributable to actions taken in ~~salaries and employee benefits expense. Approximately~~55% and 59% of noninterest expense for the six months ended June 30, 2023 and 2022, respectively, was related to personnel costs. Personnel costs are a significant part of our noninterest expense, as such costs are critical to financial services organizations. The decrease relativeresponse to the ~~prior year period primarily reflects the implementation of expense reduction initiatives~~.

~~Discontinued Operations~~

~~In February~~market events in March 2023 ~~we completed the sale of Chartwell for total consideration of $14.4 million in the form of a loan issued~~ to ~~the buyer, resulting in a gain on sale of $11.8 million. To facilitate a transition of the Chartwell services~~further enhance risk management and support the onboarding and conversion of systems, we entered into a 60 day Employee Lease and Service Agreement, whereby we provided the purchaser with finance and accounting, human capital, information technology, marketing and record/data retention services. In addition, we entered into a contract with the purchaser to continue to provide services and support from Chartwell for three years following the sale.

~~Net income from discontinued operations for the six months ended June 30, 2023 and 2022 totaled$8.8 millionand $1.3 million, respectively.~~The increase in net income from discontinued operations was driven primarily by the $11.8 million gain on sale, partially offset by a decrease of $5.9 million in compliance and consulting income during the six months ended June 30, 2023.compliance-related infrastructure.

Return on Assets and Equity

Assets

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Our return on average assets was ~~1.0%~~ 0.5%for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~0.4%~~1.4% for the three months ended ~~June 30, 2022.~~March 31, 2023. The ~~increased~~decreased return in the three months ended ~~June 30, 2023~~March 31, 2024 is the result of a~~$5.1~~ $6.9 million ~~increase in earnings,~~while average total assets increased by $550.9 million, mainly as the result of a $309.6 million increase in average total loans and $247.0 million increase in average interest-bearing deposits with banks.

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~Our return on average assets was 1.2% for the six months ended June 30, 2023, compared to 0.4% for the six months ended June 30, 2022~~. ~~The increased return for the six months ended June 30, 2023 is the result of a $13.7 million increase~~decrease in earnings, while average total assets increased by ~~$424.1~~$150.9 million, mainly as the result of a ~~$420.0~~$264.8 million increase in average interest-bearing balances with banks, partially offset by a $100.3 million decrease in average total loans.

Equity

Three Months Ended ~~June 30, 2023~~March 31, 2024 vs. Three Months Ended ~~June 30, 2022~~March 31, 2023

Our return on average stockholders’ equity was ~~12.0%~~6.2% for the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~4.6%~~16.1% for the three months ended ~~June 30, 2022~~. March 31, 2023. The ~~increased~~decreased return in the three months ended ~~June 30, 2023~~March 31, 2024 is a result of an ~~$5.1~~$6.9 million ~~increase~~decrease in earnings, while average equity increased by ~~$16.3~~$7.3 million.

~~Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022~~

~~Our return on average stockholders’ equity was 14.1% for the six months ended June 30, 2023~~, ~~compared to 4.4% for the six months ended June 30, 2022~~. ~~The increased return for the six months ended June 30, 2023 is a result of a$13.7 million increase in earnings, while average equity increased by $14.1 million~~.

Statement of Financial Condition

Cash and Cash Equivalents

Cash and cash equivalents totaled ~~$455.8~~$640.4 millionat ~~June 30, 2023,~~March 31, 2024, compared to ~~$40.3~~$398.2 million at December 31, ~~2022.~~2023. The increase in cash and cash equivalents reflects ~~actions taken in 2023~~seasonal increases due to ~~ensure liquidity in response to recent conditions in the banking industry.~~tax season driven by a BaaS relationship. We believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity ~~demands~~.demands.

Investment Securities

Investment securities, including equity securities, totaled~~$370.2~~ $390.7 millionat ~~June 30, 2023,~~March 31, 2024, compared to~~$418.6~~ $386.4 million at December 31, ~~2022.~~2023. The following table presents a summary of the investment securities portfolio as of the periods shown. The available-for-sale securities are reported at estimated fair value.


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	March 31, 2024	December 31, 2023
Available-for-sale securities:	Available-for-sale securities:
United States government agency securities
United States government agency securities
United States government agency securities	United States government agency securities	$	38,474	$	44,814
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	54,366		56,571
United States treasury securities	United States treasury securities	98,029		120,909
Municipal securities	Municipal securities	121,066		138,636
Corporate debt securities	Corporate debt securities	8,901		10,560
Other debt securities	Other debt securities	7,500		7,500
Other securities	Other securities	801		824
Total investment securities available-for-sale		$	329,137	$	379,814
Investment securities available-for-sale

Equity securities	Equity securities	$	41,082	$	38,744
Equity securities
Equity securities

Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through the Asset and

Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in the management of interest rate ~~risk for us.~~risk. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity is maintained to satisfy depositor requirements and the various credit needs of our customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.

60Our equity securities primarily consist of investments in private entities within the Fintech industry and these investments may not be as liquid as our investments in other types of securities.

Loans

Our loan portfolio totaled ~~$2.31~~$2.27 billion as of ~~June 30, 2023~~March 31, 2024 and ~~$2.37~~$2.32 billion as of December 31, ~~2022.~~2023. The Bank’s lending is primarily focused in North Central West Virginia, Northern Virginia, North Carolina and ~~Northern Virginia.~~South Carolina. The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending.

For more information regarding our loans, see Note 3 – Loans and Allowance for Credit Losses accompanying the consolidated financial statements included elsewhere in this report.

Loan Concentration

At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers in numerous different industries, generally located in our primary market areas. Additionally, within the commercial portfolio, loans within the healthcare industry, which include loans to physicians, nursing homes and pharmacies, represent 22% of our total loan portfolio as of ~~June 30, 2023.~~March 31, 2024.

Allowance for Credit Losses

The ACL was ~~$30.3~~$22.8 million, or ~~1.31%~~1.01% of loans receivable, at ~~June 30, 2023,~~March 31, 2024, compared to ~~$23.8~~$22.1 million, or 1.00% of loans receivable, at December 31, ~~2022.~~2023. The $0.7 million increase in the ACL ~~of $6.5 million~~ was primarily ~~the result of the adoption of ASC 326, which required~~impacted by an increase in ~~the allowance~~provision needed for ~~credit losses~~individually analyzed loans of ~~$8.9 million as of January 1, 2023.~~$1.5 million. Additionally, over the ~~course of the six~~three months ended ~~June 30, 2023~~March 31, 2024, changes to the loan portfolio balances, qualitative factor adjustments and expected loss forecasts within the expected credit loss calculation resulted in allowance increases of $0.4 million ~~and $0.3~~to the other construction segment. These increases have been offset by allowance decreases of $0.5 million to the ~~Other Construction~~consumer auto and ~~Residential Real Estate portfolio~~$0.4 million to the commercial and industrial segments, respectively, offset by a decrease of $4.8 million for the Consumer Auto portfolio segment, which was primarily driven by the sale of subprime automobile loans as we reduce that portfolio during the three months ended June 30, 2023.respectively. All other segments combined experienced an allowance ~~increase~~decrease of ~~$1.6~~$0.4 million. ~~In general, the increased allowance for the various segments was the result of the~~ Bank management's expectations are that the markets in which it lends will experience an economic ~~decline~~improvements over the next 12 to 24 ~~months.~~months, and most decreases in estimated loss rates have been further buoyed by decreases in loan balances in the three months ended March 31, 2024. This results in marginally lower allocation rates, against slightly lower loan balances, resulting in an overall lower allowance needed for the pooled loan portfolio. However, this has been more than offset by the increase in allowance needed by the individually analyzed loans. The ~~changes~~increases to the ~~allowance for credit losses~~ACL totaled ~~$2.4~~$0.6 million and combined with net charge offs to date of ~~$2.9~~$1.3 million, resulted in total credit loss provision of $0.7 million over the three months ended March 31, 2024. Net charge-offs for the three months ended March 31, 2024 included $0.6 million related to a SBA loan secured by business assets, $0.5 million ~~through six months ended June 30, 2023.~~related to the subprime consumer automotive segment and $0.4 million related to a commercial client in the energy industry.

Management continually monitors the risk in the loan portfolio through the review of the monthly delinquency reports and the Loan Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the ACL. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquent status, related deposit account activity, where applicable and changes in the local and national economy. When appropriate, we also consider public knowledge and verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.

Funding Sources

The Bank considers a number of alternatives including, but not limited to, deposits, short-term borrowings and long-term borrowings when evaluating funding sources.~~Traditional deposits~~ Deposits remain the most significant source of funds, totaling ~~$2.96~~$3.15 billion, or ~~97.1%~~97.4% of funding sources at ~~June 30, 2023.~~ March 31, 2024.This same information at December 31, ~~2022~~2023 reflected ~~$2.57~~$2.90 billion in deposits representing ~~92.9%~~97.1% of funding ~~sources~~.sources. Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented ~~2.7%~~2.5% of funding sources at ~~June 30, 2023,~~March 31, 2024, versus ~~6.7%~~2.7% at December 31, ~~2022~~.2023. Repurchase agreements, which are available to large corporate customers, represented ~~0.2%~~0.1% of funding sources at ~~June 30, 2023~~March 31, 2024 and ~~0.4%~~0.2% at December 31, ~~2022.~~2023.

At ~~June 30, 2023,~~March 31, 2024, noninterest-bearing balances totaled ~~$987.6 million,~~$1.39 billion, compared to ~~$1.23~~$1.20 billion at December 31, ~~2022,~~2023, or ~~33.4%~~44.2% and ~~47.9%~~41.3%, respectively, of total deposits.Interest-bearing deposits totaled ~~$1.97~~$1.75 billion at ~~June 30, 2023,~~ March 31, 2024,compared to ~~$1.34~~$1.70 billion at December 31, ~~2022, or 66.6% and 52.1%, respectively, of total deposits.~~2023.

The following table presents the balance of each of the deposit categories as of the periods shown:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2023		December 31, 2022		(Dollars in thousands)	March 31, 2024	December 31, 2023
Demand deposits of individuals, partnerships and corporations	Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand	Noninterest-bearing demand	$	987,555	$	1,231,544
Interest-bearing demand		639,814		720,074
Noninterest-bearing demand
Noninterest-bearing demand
NOW
Savings and money markets	Savings and money markets	624,276		284,447
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	707,294		334,417
Total deposits	Total deposits	$	2,958,939	$	2,570,482

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	2,414	$	4,386
Time deposits that meet or exceed the FDIC insurance limit
Time deposits that meet or exceed the FDIC insurance limit

Average interest-bearing deposits were ~~$2.04~~$1.81 billion during the three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$1.14~~$1.49 billion during the same time period in ~~2022~~2023 and ~~and~~ average noninterest-bearing deposits were ~~$971.4 million~~$1.28 billion during the three months ended ~~June 30, 2023~~March 31, 2024 compared to ~~$1.33~~$1.38 billion during the same time period in ~~2022.~~2023.

~~Average interest-bearing~~We utilize a custodial deposit transference structure for certain deposit programs whereby we, acting as custodian of account holder funds, places a portion of such account holder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a program bank). Accounts opened at program banks are established in our name as custodian, for the benefit of our account holders. We remain the issuer of all accounts under the applicable account holder agreements and has sole custodial control and transaction authority over the accounts opened at program banks. We maintain the records of each account holders' deposits ~~were $1.77 billion during the six months ended June 30, 2023 compared~~maintained at program banks. Program banks undergo robust due diligence prior to ~~$1.20 billion during the same time period in 2022~~becoming a program bank and ~~average noninterest-bearing deposits were $1.17 billion during the six months ended June 30, 2023compared~~are also subject to ~~$1.37 billion during the same time period in 2022.~~

~~Off-balance~~continuous monitoring. These off-balance sheet deposits ~~totaling~~totaled $1.5 billion at March 31, 2024 and $1.1 billion at ~~June 30,~~December 31, 2023 and ~~$724.0 million at December 31, 2022~~ represent ~~the~~ gaming, banking-as-a-service and digital asset clients.

Along with traditional deposits, the Bank has access to both short-term borrowings from FHLB, Federal Reserve Bank and overnight repurchase agreements to fund its operations and investments. For details on our borrowings, refer to Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.

Deposit Concentration

Our ~~noninterest bearing~~four primary Fintech deposit verticals are gaming, payments, banking-as-a-service and digital assets, with deposits ~~totaled $987.6~~totaling $257.6 million, $417.9 million, $357.6 million and $339.1 million as of ~~June 30, 2023,~~March 31, 2024, respectively, compared to ~~$1.23 billion as of December 31, 2022. The decline in noninterest bearing deposits reflects the use of off-balance sheet deposit networks to manage liquidity~~$354.1 million, $449.8 million, $251.6 million and concentration risk, enhance capital and generate fee income. Off-balance sheet deposits totaling $1.1 billion at June 30, 2023 and $724.0 million at December 31, 2022 represent the gaming, banking-as-a-service and digital asset clients.

~~Gaming deposits totaled $362.8 million as of June 30, 2023, compared to $652.1~~$188.4 million as of December 31, ~~2022.~~2023, respectively. Of the gaming deposits, ~~$268.7~~$199.3 million is with our three largest gaming clients at ~~June 30, 2023.~~March 31, 2024. Of the digital asset deposits, $309.5 million is with our largest digital asset client at March 31, 2024.

Capital Resources

During the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, stockholders’ equity increased ~~$12.9~~$2.5 million to ~~$274.3~~$291.8 million. This increase consists of net income of ~~$19.5~~$4.5 million, ~~other comprehensive income~~common stock options exercised of ~~$3.2~~$1.2 million and stock based compensation of ~~$1.8~~ $0.9

million, ~~and $0.2 million related to the redemption of noncontrolling interests partially~~ offset by ~~the impact to retained earnings of adopting ASC 326 of $6.6 million,~~ cash dividends paid of ~~$4.3~~$2.2 million and ~~minimum tax withholding on restricted stock units issued~~other comprehensive loss of ~~$0.7~~$2.0 million.

The growth in assets of ~~$283.0~~$233.5 million in the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 outpaced the growth in stockholders' equity, and the equity to assets ratio decreased from ~~8.5%~~8.7% at December 31, ~~2022~~2023 to 8.2% at ~~June 30, 2023.~~March 31, 2024. We paid dividends to common shareholders of ~~$4.3~~$2.2 million and ~~$4.1~~$2.1 million in the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively, compared to earnings of ~~$19.5~~$4.5 million and ~~$5.8~~$11.3 million in the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively, resulting in the dividend payout ratio ~~decreasing~~increasing to ~~22.1%~~48.7% in the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 from ~~71.0%~~18.9% in the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

We and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. The Bank is required to comply with applicable capital adequacy standards established by the federal banking agencies. West Virginia state chartered banks, such as

the Bank, are subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets companies hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, 100% or 150% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning our risk-based capital ratios can be found in Supervision and Regulation in Item 1, Business and Note 16 – Regulatory Capital Requirements to the consolidated financial statements included in Item 8, Financial Statements and ~~accompanying notes contained in~~Supplementary Data, of the ~~2022~~2023 Form 10-K.

The optional community bank leverage ratio (“CBLR”) framework, which is issued through interagency guidance, intends to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds a 9% threshold, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.

The Bank elected to begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:

● Total assets of less than $10 billion;

● Total trading assets plus liabilities of 5% or less of consolidated assets;

● Total off-balance sheet exposures of 25% or less of consolidated assets;

● Cannot be an advanced approaches banking organization; and

● Leverage ratio greater than 9% ~~or temporarily prescribed threshold established in response to COVID-19.~~.

The Bank's CBLR at ~~June 30, 2023~~March 31, 2024 was ~~10.0%~~10.1%, which is above the well-capitalized standard of 9%. Management believes that capital continues to provide a strong base for profitable growth.

Liquidity

Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated operating cash needs, loan demand and deposit withdrawals without incurring a sustained negative impact on net interest income. It is our policy to optimize the funding of the balance sheet, continually balancing the stability and cost factors of various funding sources. We believe liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. Our liquid assets totaled $737.3 million and $711.8 million as of March 31, 2024 and 2023, respectively. These sources of funds should enable us to meet cash obligations as they come due.

The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from loans and income from loans and investment securities. For the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024,cash used in operating activities totaled $25.3 million, while cash from ~~operating,~~ investing and financing activities totaled ~~$30.6 million, $110.0~~$25.8 million and ~~$275.0~~$241.7 million, respectively. Significant changes in cash flows during the quarter include inflows from the net increase in deposits of ~~$388.5~~$243.9 million, net change in loans of $49.3 million and sales of available-for-sale investment securities of ~~$54.5~~$11.7 million, partially offset by ~~cash outflows~~an outflow of ~~$102.3~~$34.8 million to ~~pay down FHLB and other borrowings.~~ purchase available-for-sale investment securities.

When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, the Federal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. Additionally, on March 12, 2023, the Federal Reserve implemented the Bank Term Funding Program to support federally-insured depository institutions in response to prevailing market uncertainty about the banking industry resulting from the insolvencies of certain regional depository institutions. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity.

We have an effective shelf registration covering $75 million of debt and equity securities, all of which is available, subject to authorization from the Board of Directors and market conditions, to issue debt or equity securities at our discretion. While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to sell securities on acceptable terms or at all.

Current Economic Conditions

We consider our primary market area for CoRe banking services to be comprised of North Central West Virginia and Northern Virginia. We consider our Fintech banking market to be customers located throughout the entire United States.

We believe that the current economic climate in our primary market areas reflect economic climates that are consistent with the general national economic climate. Unemployment in the United States was 3.9% for March 2024 and 3.6% for ~~June 2023 and 3.8% for June 2022.~~March 2023.

Commitments and Contingent Liabilities

In the ordinary course of business, we offer financial instruments with off-balance sheet risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by us upon extension of credit, varies and is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third-party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Our policy for obtaining collateral, and the nature of such collateral, is substantially the same as that involved in making commitments to extend credit.

Concentration of Credit Risk

We grant a majority of our commercial, financial, agricultural, real estate and installment loans to customers throughout the North Central West Virginia and Northern Virginia markets. Collateral for loans is primarily residential and commercial real estate, personal property and business equipment. We evaluate the credit worthiness of each of our customers on a case-by-case basis and the amount of collateral it obtains is based upon management’s credit evaluation.

Contingent Liability

The Bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.

Off-Balance Sheet Commitments

The Bank has entered into certain agreements that represent off-balance sheet arrangements that could significantly impact the consolidated financial statements and could have a significant impact in future periods. Specifically, the Bank has entered into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds deposits.

Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

Critical Accounting Policies and Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

~~Beginning January 1, 2023, we adopted ASU 2016-13. For accounting policies and underlying accounting assumptions used in estimating our allowance for credit losses under ASU 2016-13, refer to~~ ~~Note 1 – Nature of Operations and Basis of Presentation.~~

~~Except as related to the adoption of ASU 2016‑13, there~~There have been no significant changes to our critical accounting policies and estimates or in the underlying accounting assumptions and estimates used in these critical accounting policies from those disclosed in the consolidated financial statements and accompanying notes contained in the ~~2022~~2023 Form 10-K.

Recent Accounting Pronouncements and Developments

Recent accounting pronouncements and developments applicable us are described further in Note 1 – Nature of Operations and Basis of Presentation accompanying the consolidated financial statements included elsewhere in this report.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The objective of the asset/liability management function is to structure the balance sheet in ways that maintain consistent growth in net interest income and minimize exposure to market risks within our policy guidelines. This objective is accomplished through management of balance sheet liquidity and interest rate risk exposure based on changes in economic conditions, interest rate levels and customer preferences. We manage balance sheet liquidity through the investment portfolio, sales of commercial and residential real estate loans and through the utilization of diversified funding sources, including retail deposits, a variety of wholesale funding sources and borrowings through the FHLB. Interest rate risk is managed through the use of interest rate caps, commercial loan swap transactions and interest rate lock commitments on mortgage loans held-for-sale, as well as the structuring of loan terms that provide cash flows to be consistently re-invested along the rate cycle.

Our primary market risk is ~~composed primarily~~interest rate fluctuation. Interest rate risk results from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic conditions, financial conditions, movements in interest rates and consumer preferences affect the difference between interest earned on assets and interest paid on liabilities. Our interest rate risk represents the levels of exposure our income and market values have to fluctuations in interest rates. Interest rate risk is measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The ALCO oversees the management of interest rate ~~risk.~~risk and our objective is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs and protect us from any material financial consequences associated with changes in interest rates.

Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); changing rate relationships across yield curves that affect bank activities (basis risk); changing rate relationships across the spectrum of maturities (yield curve risk); and interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The ~~ALCO~~values of a bank’s assets, liabilities and interest-rate related, off-balance sheet contracts are affected by changes in rates because the present values of future cash flows, and in some cases the cash flows themselves, are changed when discounting by different rates.

We believe that accepting some level of interest rate risk is ~~responsible for reviewing~~necessary in order to achieve realistic profit goals. Management and the Board of Directors have chosen an interest rate risk profile that is consistent with our strategic business plan. While management carefully monitors the exposure to changes in interest rates and takes actions as warranted to decrease any adverse impact, there can be no assurance about the actual effect of interest rate changes on net interest income.

Our Board of Directors has established a comprehensive interest rate risk management policy, which is administered by the ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity, or “EVE”, at risk) resulting from a hypothetical change in interest rates. We measure the potential adverse impacts that changing interest rates may have on short-term earnings, long-term value and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology employed. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to service their debts or the impact of rate changes on demand for loan and deposit products.

A base case forecast is prepared using market consensus rate forecasts and alternative simulations reflecting more and less extreme behavior of rates each quarter. The analysis is presented to the ALCO and the Board of Directors. In addition, more frequent forecasts are produced when interest rates are particularly uncertain, when other business conditions so dictate or when necessary to model potential balance sheet changes.

The balance sheet is subject to quarterly testing for interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, 300 and 400 basis points (“bp”). The goal is to structure the balance sheet so that net interest-earnings at risk over 12-month and 24-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels and scenarios.

As of March 31, 2024, we are shown in an asset sensitive position in down rate environments after rate shocks. Management continuously strives to reduce higher cost fixed rate funding instruments, while increasing assets that are more fluid in their repricing. Theoretically, an asset sensitive position is more favorable in a rising rate environment, since more assets than liabilities will reprice in a given time frame as interest rates rise. Similarly, a liability sensitive position is theoretically favorable in a declining interest rate environment, since more liabilities than assets will reprice in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.


Estimated Changes in Net Interest Income
Change in interest rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Policy Limit	(25.0)	%	(20.0)	%	(15.0)	%	(10.0)	%	(10.0)	%	(15.0)	%	(20.0)	%	(25.0)	%
March 31, 2024	25.7	%	19.3	%	12.9	%	6.6	%	(7.6)	%	(15.1)	%	(22.8)	%	(30.5)	%
March 31, 2023	37.0	%	26.9	%	16.7	%	7.0	%	(12.5)	%	(23.2)	%	(34.2)	%	(38.4)	%

Net interest income sensitivity ~~position~~is tested by using shocking a forward rate curve. The change in income is then examined in scenarios where the rate curve is shocked up or down in a parallel shock. Deposit repricing during the last year lagged the movement of the Fed Funds Rate. As these increases have been realized, interest expense is higher in a flat rate scenario. However, the betas for deposit repricing allow interest expense to increase more in up rates and ~~establishing policies~~decrease more in down rates in 2024 than during 2023.

At March 31, 2024, the expectation is for rates to ~~monitor~~remain stable, or see very small drops, throughout the rest of the year, with potential rate drops occurring in year two, with another stabilization moving forward. There is impact in a down rate environment as the bank deals heavily in variable rate loans and ~~coordinate~~deposits.

Net interest income at risk exceeded policy limits in the -200 bp, -300 bp and -400 bp parallel instantaneous interest rate shock scenarios. The policy violations in these scenarios are driven largely by the general level or market interest rates described in the preceding paragraph as well as our ~~sources, uses~~cost of funding. Our deposit costs are low and ~~pricing~~have little room to reprice to a lower interest rate in a falling rate environment. However, our floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling rate environment.

The paragraph above discusses net interest income at risk in various shock scenarios; scenarios in which interest rates immediately move by a large margin. Our net interest income profile exhibits declining net interest income when rates fall gradually, but the impact is not as extreme as is suggested in a shock scenario. A gradual interest rate decline scenario generally

smooths the impact of falling rates over a 12-month and 24-month period. Our expectation is that over any given one to two year period, interest rates will likely move at a gradual pace.

As interest rates fall, mortgage companies expect to experience a higher volume of loan originations and refinance activity. This benefit is not reflected in measures of net interest income at risk, as origination and refinance activity are classified as income from an equity method investment. This increase in equity method investment income represents a benefit to net income that offsets the losses to net interest income experienced in a falling rate environment.

The measures of equity value at risk indicate the ongoing economic value of us by considering the effects of changes in interest rates on all of our cash flows and by discounting the cash flows to estimate the present value of assets and liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which theoretically approximates the fair value of our net assets


Estimated Changes in EVE
Change in interest rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Policy Limit	(35.0)	%	(25.0)	%	(17.0)	%	(12.0)	%	(12.0)	%	(17.0)	%	(25.0)	%	(35.0)	%
March 31, 2024	13.3	%	9.9	%	6.5	%	3.0	%	(6.9)	%	(13.3)	%	(21.1)	%	(29.0)	%
March 31, 2023	3.2	%	2.0	%	0.3	%	0.6	%	(2.5)	%	(5.5)	%	(9.9)	%	(14.1)	%

The EVE was stable across rate changing scenarios for 2023. The Fed Funds Rate increased significantly during 2022. The full effect of this rate movement was not fully realized in the deposit portfolio until 2023. Throughout 2023, in the rising rate environment, interest-bearing deposits were repriced, leading to increased cost of funds. The significant change in rates also drove previously noninterest-bearing deposits into new interest-bearing account types. This migration of noninterest-bearing deposits to interest-bearing impacted the cost of interest-bearing liabilities. This impact drove the cost of interest-bearing liabilities up, allowing the cost to behave similar to the discount rate applied to cash flows. These changes in rates took place in 2023. Any further deposit repricing would also be a major driver in the EVE calculation differences.

Credit Risk

We have counter-party risk which may arise from the possible inability of third-party investors to meet the terms of their forward sales ~~contracts.~~contracts, including derivative contracts such as interest rate swaps and fair value hedges. We work with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk. We monitor the financial condition of these third parties on an annual basis and we do not currently expect these third parties to fail to meet their obligations.

Item 4 – Controls and Procedures

As of ~~June 30, 2023,~~March 31, 2024, we carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the results of this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June 30, 2023.~~

Beginning January 1, 2023, we adopted ASU 2016-13. We implemented changes to the policies, processes and controls over the estimation of the allowance for credit losses to support the adoption of ASU 2016-13. While many controls in operation under this new pronouncement mirror controls under prior GAAP, there were some new controls implemented.March 31, 2024.

During the three months ended ~~June 30, 2023,~~March 31, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6558

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

From time to time in the ordinary course of business, we and our subsidiaries may be subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation, in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty, and in the case of more complex legal proceedings, the results can be difficult to predict. We are not aware of any material pending legal proceedings to which we or any of our subsidiaries is a party or of which any of their property is the subject.

Item 1A – Risk Factors

Our operations are subject to many risks that could adversely affect our future financial condition and performance, including the risk factors that are described in the ~~2022~~2023 Form 10-K. There have been no material changes in our risk factors from those disclosed.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

During the three months ended ~~June 30, 2023,~~March 31, 2024, none of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.

Item 6 – Exhibits


Exhibit Number	Description	Exhibit Location
~~Exhibit 10.1~~	~~Termination Agreement, dated as of May 9, 2023, by and among MVB Financial Corp., Integrated Financial Holdings, Inc., West Town Bank & Trust, and MVB Bank, Inc.~~	~~Form 8-K, File No. 001-38314, filed May 9, 2023, and incorporated by reference herein~~
Exhibit 31.1	Certificate of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 31.2	Certificate of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 32.1	Certificate of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 32.2	Certificate of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 101.INS	XBRL Instance Document	Filed herewith
Exhibit 101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith
Exhibit 104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)	Filed herewith

6759


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MVB Financial Corp.

Date:	~~August 8, 2023~~May 7, 2024	By:	/s/ Larry F. Mazza
			Larry F. Mazza
			CEO and Director
			(Principal Executive Officer)

Date:	~~August 8, 2023~~May 7, 2024	By:	/s/ Donald T. Robinson
			Donald T. Robinson
			President and CFO
			(Principal Financial and Accounting Officer)

6860


		Page
PART I	FINANCIAL INFORMATION	5

Item 1	Financial Statements	5

	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	8
	Consolidated Statements of Changes in Stockholders’ Equity	9
	Consolidated Statements of Cash Flows	1110
	Notes to the Consolidated Financial Statements	1312

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5145

Item 3	Quantitative and Qualitative Disclosures About Market Risk	6556

Item 4	Controls and Procedures	6558

PART II	OTHER INFORMATION	6659

Item 1	Legal Proceedings	6659

Item 1A	Risk Factors	6659

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6659

Item 3	Defaults Upon Senior Securities	6659

Item 4	Mine Safety Disclosures	6659

Item 5	Other Information	6659

Item 6	Exhibits	6759

	SIGNATURES	6860


	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance

December 31, 2022
Commercial
Business	$	3,436	$	1,253	$	7,015	$	10,451	$	15,324
Real estate	1,240		222		125		1,365		1,470
Acquisition, development and construction	—		—		—		—		1,415

Total commercial	4,676		1,475		7,140		11,816		18,209
Residential real estate	—		—		2,603		2,603		2,671
Home equity lines of credit	—		—		90		90		94
Consumer	1,347		268		4		1,351		1,351
Total impaired loans	$	6,023	$	1,743	$	9,837	$	15,860	$	22,325


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial
Business	$	11,015	$	—	$	—	$	10,741	$	—	$	—
Real estate	1,597		16		15		1,681		33		33
Acquisition, development and construction	306		—		—		314		—		—

Total commercial	12,918		16		15		12,736		33		33
Residential	8,374		5		4		8,372		10		9
Home equity	159		—		—		174		—		—
Consumer	754		—		—		593		—		—
Total	$	22,205	$	21	$	19	$	21,875	$	43	$	42


(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 89 Days Past Due		Total Past Due
June 30, 2023
Commercial
Business	$	—	$	2,075	$	—	$	2,075


Total commercial	—		2,075		—		2,075
Residential	—		—		—		—
Home equity lines of credit	—		—		—		—
Consumer	—		—		—		—
Total	$	—	$	2,075	$	—	$	2,075