MVBF 10-Q Quarterly Report Sept. 30, 2023

MVB FINANCIAL CORP

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mvbf-20230930


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 September 30, 2023
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 November 6, 2023, there were 12,736,623 shares of our common stock outstanding with a par value of $1.00 per share.

TABLE OF CONTENTS


		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	11
	Notes to the Consolidated Financial Statements	13

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52

Item 3	Quantitative and Qualitative Disclosures About Market Risk	66

Item 4	Controls and Procedures	66

PART II	OTHER INFORMATION	67

Item 1	Legal Proceedings	67

Item 1A	Risk Factors	67

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	67

Item 3	Defaults Upon Senior Securities	67

Item 4	Mine Safety Disclosures	67

Item 5	Other Information	67

Item 6	Exhibits	67

	SIGNATURES	68

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			industry factors and general economic and political conditions and events (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 and heightened regulatory scrutiny in financial technology (“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 turmoil in the banking industry, 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.
l			our ability to adapt to technological change and to successfully execute business plans, manage risks and achieve objectives, including strategies related to investments in 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, wars, climate change and natural disasters, epidemics and pandemics and any governmental or societal responses thereto, military actions, terrorist attacks and geopolitical conflict, including the ongoing Ukraine and Israel wars;
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 in our deposit base, including risk of losing large clients and concentration in certain industries, such as gaming deposits;
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., 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;
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 or critical third parties, including without limitation, with respect to data processing, information systems, 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 and the potential impact of geopolitical events;
l			failure or circumvention of internal controls;
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 losses standard; and
l			costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation (“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 (the “2022 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 16, 2023, 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)


	September 30, 2023		December 31, 2022
	(Unaudited)		(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	8,108	$	5,290
Interest-bearing balances with banks	578,992		34,990
Total cash and cash equivalents	587,100		40,280

Investment securities available-for-sale	311,537		379,814
Equity securities	40,835		38,744
Loans held-for-sale	7,603		23,126
Loans receivable	2,270,433		2,372,645
Allowance for credit losses	( 24,276 )		( 23,837 )
Loans receivable, net	2,246,157		2,348,808
Premises and equipment, net	21,468		23,630
Bank-owned life insurance	44,109		43,239
Equity method investments	76,967		76,223
Accrued interest receivable and other assets	98,969		87,833
Assets from discontinued operations	—		4,315
Goodwill	2,838		2,838
TOTAL ASSETS	$	3,437,583	$	3,068,850

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	1,093,903	$	1,231,544
Interest-bearing	1,944,986		1,338,938
Total deposits	3,038,889		2,570,482

Accrued interest payable and other liabilities	40,872		36,112
Repurchase agreements	4,502		10,037
FHLB and other borrowings	—		102,333
Subordinated debt	73,478		73,286
Senior term loan	8,473		9,765
Liabilities from discontinued operations	—		5,444
Total liabilities	3,166,214		2,807,459

STOCKHOLDERS’ EQUITY

Common stock - par value $ 1 ; 40,000,000 and 20,000,000 shares authorized as of September 30, 2023 and December 31, 2022, respectively; 13,574,239 and 12,726,223 shares issued and outstanding, respectively, as of September 30, 2023 and 13,466,281 and 12,618,265 shares issued and outstanding, respectively, as of December 31, 2022	13,574		13,466
Additional paid-in capital	159,717		157,152
Retained earnings	155,117		144,911
Accumulated other comprehensive loss	( 40,251 )		( 37,704 )
Treasury stock - 848,016 shares as of September 30, 2023 and December 31, 2022, at cost	( 16,741 )		( 16,741 )
Total equity attributable to parent	271,416		261,084
Noncontrolling interest	( 47 )		307
Total stockholders' equity	271,369		261,391
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,437,583	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
INTEREST INCOME
Interest and fees on loans	$	40,030	$	31,789	$	118,046	$	79,074
Interest on deposits with banks	6,404		114		15,099		654
Interest on investment securities	1,056		897		4,133		2,383
Interest on tax-exempt loans and securities	835		1,103		2,841		3,144
Total interest income	48,325		33,903		140,119		85,255

INTEREST EXPENSE
Interest on deposits	17,460		2,974		44,063		4,291
Interest on short-term borrowings	—		312		888		326
Interest on subordinated debt	809		771		2,409		2,284
Interest on senior term loan	191		—		583		—
Total interest expense	18,460		4,057		47,943		6,901

NET INTEREST INCOME	29,865		29,846		92,176		78,354
Provision (release of allowance) for credit losses	( 159 )		5,120		182		11,500
Net interest income after provision (release of allowance) for credit losses	30,024		24,726		91,994		66,854

NONINTEREST INCOME
Payment card and service charge income	2,852		3,313		9,965		9,970

Insurance and investment services income	81		195		251		667
Gain (loss) on sale of available-for-sale securities, net	—		—		( 1,536 )		650
Gain (loss) on sale of equity securities, net	25		( 156 )		( 269 )		( 56 )

Gain (loss) on sale of loans, net	330		1,298		( 1,015 )		3,786
Holding gain (loss) on equity securities	219		( 61 )		71		( 146 )
Compliance and consulting income	1,314		966		3,326		3,380
Equity method investments income (loss)	( 750 )		( 1,021 )		( 70 )		666
Loss on divestiture activity	—		—		( 986 )		—
Equity method investments gain	—		—		—		1,874
Other operating income	1,720		933		5,540		3,339
Total noninterest income	5,791		5,467		15,277		24,130

NONINTEREST EXPENSES
Salaries and employee benefits	16,016		15,905		48,508		48,217
Occupancy expense	921		1,130		2,803		3,009
Equipment depreciation and maintenance	1,439		1,502		4,347		3,966
Data processing and communications	1,257		1,039		3,523		3,110


Professional fees	5,682		3,911		12,581		11,654
Insurance, tax and assessment expense	1,397		622		3,432		1,772
Travel, entertainment, dues and subscriptions	1,362		1,708		5,421		5,421
Other operating expenses	2,651		2,359		8,709		6,256
Total noninterest expense	30,725		28,176		89,324		83,405
Income from continuing operations before income taxes	5,090		2,017		17,947		7,579
Income taxes	1,218		184		3,639		1,563


Net income from continuing operations	3,872		1,833		14,308		6,016
Income from discontinued operations before income taxes	—		935		11,831		2,599
Income taxes from discontinued operations	—		213		3,049		598
Net income from discontinued operations	—		722		8,782		2,001
Net income	3,872		2,555		23,090		8,017
Net (income) loss attributable to noncontrolling interest	( 5 )		163		231		521


Net income attributable to parent	$	3,867	$	2,718	$	23,321	$	8,538

Earnings per share from continuing operations - basic	$	0.30	$	0.16	$	1.15	$	0.54
Earnings per share from discontinued operations - basic	$	—	$	0.06	$	0.69	$	0.16
Earnings per common shareholder - basic	$	0.30	$	0.22	$	1.84	$	0.70
Earnings per share from continuing operations - diluted	$	0.29	$	0.16	$	1.12	$	0.51
Earnings per share from discontinued operations - diluted	$	—	$	0.05	$	0.67	$	0.15
Earnings per common shareholder - diluted	$	0.29	$	0.21	$	1.79	$	0.66
Weighted-average shares outstanding - basic	12,722,010		12,238,505		12,678,708		12,170,028
Weighted-average shares outstanding - diluted	13,116,629		12,854,951		13,012,834		12,852,574

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income before noncontrolling interest	$	3,872	$	2,555	$	23,090	$	8,017

Other comprehensive loss:
Unrealized holding losses on securities available-for-sale	( 7,748 )		( 14,437 )		( 5,131 )		( 48,587 )
Reclassification adjustment for gain (loss) recognized in income	—		—		1,536		( 650 )
Change in defined benefit pension plan	100		156		443		845
Reclassification adjustment for amortization of net actuarial loss recognized in income	29		107		87		321
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	—		56		( 289 )		( 141 )
Other comprehensive loss, before tax	( 7,619 )		( 14,118 )		( 3,354 )		( 48,212 )

Income taxes related to items of other comprehensive loss:
Unrealized holding losses on securities available-for-sale	1,863		3,641		1,234		11,939
Reclassification adjustment for gain (loss) recognized in income	—		—		( 369 )		152
Change in defined benefit pension plan	( 24 )		( 39 )		( 106 )		( 206 )
Reclassification adjustment for amortization of net actuarial loss recognized in income	( 7 )		( 27 )		( 21 )		( 79 )
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	—		( 14 )		69		35
Income taxes related to items of other comprehensive loss:	1,832		3,561		807		11,841

Total other comprehensive loss, net of tax	( 5,787 )		( 10,557 )		( 2,547 )		( 36,371 )

Comprehensive (income) loss attributable to noncontrolling interest	( 5 )		163		231		521

Comprehensive income (loss)	$	( 1,920 )	$	( 7,839 )	$	20,774	$	( 27,833 )

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

Net income			—	—		—		3,867		—			—	—		3,867		5			3,872
Other comprehensive loss			—	—		—		—		( 5,787 )			—	—		( 5,787 )		—			( 5,787 )
Dividends on common stock ($ 0.17 per share)			—	—		—		( 2,164 )		—			—	—		( 2,164 )		—			( 2,164 )
Stock-based compensation			—	—		949		—		—			—	—		949		—			949
Stock-based compensation related to equity method investment			—	—		104		—		—			—	—		104		—			104
Common stock options exercised			6,400	6		92		—		—			—	—		98		—			98
Balance at September 31, 2023			13,574,239	$	13,574	$	159,717	$	155,117	$	( 40,251 )		848,016	$	( 16,741 )	$	271,416	$	( 47 )		$	271,369


	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




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

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

Stock-based compensation			—	—		757		—		—			—	—		757		—			757
Stock-based compensation related to equity method investments			—	—		173		—		—			—	—		173		—			173
Common stock options exercised			30,200	30		362		—		—			—	—		392		—			392
Restricted stock units vested			73,300	73		( 73 )		—		—			—	—		—		—			—
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

Net income (loss)			—	—		—		2,718		—			—	—		2,718		( 163 )			2,555
Other comprehensive loss			—	—		—		—		( 10,557 )			—	—		( 10,557 )		—			( 10,557 )
Dividends on common stock ($ 0.17 per share)			—	—		—		( 2,076 )		—			—	—		( 2,076 )		—			( 2,076 )
Stock-based compensation			—	—		671		—		—			—	—		671		—			671
Common stock options exercised			55,853	56		662		—		—			—	—		718		—			718
Restricted stock units vested			2,054	2		( 2 )		—		—			—	—		—		—			—
Stock-based compensation related to equity method investment			—	—		139		—		—			—	—		139		—			139
Balance at September 31, 2022			13,134,951	$	13,135	$	146,950	$	140,546	$	( 39,977 )		848,016	$	( 16,741 )	$	243,913	$	447		$	244,360

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


	Nine Months Ended September 30,
	2023		2022
OPERATING ACTIVITIES
Net income before noncontrolling interest	$	23,090	$	8,017
Adjustments to reconcile net income to net cash from operating activities:

Net amortization and accretion of investments	1,521		2,020
Net amortization of deferred loan costs	1,133		1,877
Provision for credit losses	182		11,500
Depreciation and amortization	3,894		3,241
Stock-based compensation	2,572		2,102
Stock-based compensation related to equity method investments	277		416
Loans originated for sale	( 402 )		( 69,907 )
Proceeds of loans held-for-sale sold	23,562		58,933
Holding (gain) loss on equity securities	( 71 )		146

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

Loss on sale of equity securities, net	269		56

Gain on sale of loans held-for-sale	( 256 )		( 3,786 )
Loss on sale of loans held for investment	1,271		—
Gain on sale of discontinued operations	( 11,800 )		—

Loss on divestiture activity	986		—
Gain on sale of other real estate owned	( 176 )		( 38 )
Income on bank-owned life insurance	( 870 )		( 735 )
Deferred income taxes	65		16
Equity method investments (income) loss	70		( 666 )
Equity method investments gain	—		( 1,874 )
Return on equity method investments	( 846 )		4,682
Other assets	( 11,495 )		401
Other liabilities	4,963		( 11,970 )
Net cash from operating activities	39,475		3,781
INVESTING ACTIVITIES
Purchases of available-for-sale investment securities	( 70,413 )		( 77,464 )
Net maturities/paydowns of available-for-sale investment securities	75,098		18,751
Sales of available-for-sale investment securities	54,531		60,635
Purchases of premises and equipment	( 1,441 )		( 2,730 )
Disposals of premises and equipment	425		—

Net change in loans	87,505		( 611,972 )
Proceeds of loans held for investment sold	12,556		—
Purchases of restricted bank stock	—		( 38,779 )
Redemptions of restricted bank stock	—		31,924
Proceeds from maturities of certificates of deposit with banks	—		2,719

Proceeds from sale of other real estate owned	464		1,256


Purchase of equity securities	( 169 )		( 2,972 )
Proceeds from sale of equity securities	566		1,261
Net cash transferred for sale of discontinued operations	( 3,935 )		—
Net cash transferred in divestiture activity	( 8 )		—

Net cash from investing activities	155,179		( 617,371 )
FINANCING ACTIVITIES
Net increase in deposits	468,407		319,353
Net change in repurchase agreements	( 5,535 )		( 1,475 )
Net change in FHLB and other borrowings	( 102,333 )		73,328



Principal payments on senior term loan	( 1,331 )		—



Common stock options exercised	211		1,835

Withholding cash issued in lieu of restricted stock	( 680 )		( 691 )
Cash dividends paid on common stock	( 6,473 )		( 6,211 )


Redemption of noncontrolling interest	( 100 )		—
Stock purchase from noncontrolling interest	—		( 40 )
Net cash from financing activities	352,166		386,099
Net change in cash and cash equivalents	546,820		( 227,491 )
Cash and cash equivalents, beginning of period	40,280		307,437
Cash and cash equivalents, end of period	$	587,100	$	79,946

Cash payments for:
Interest on deposits, repurchase agreements and borrowings	$	48,378	$	6,299
Income taxes	12,211		418





Supplemental disclosure of cash flow information:

Loans transferred to other real estate owned	—		70
Change in unrealized holding losses on securities available-for-sale	( 3,594 )		51,242
Restricted stock units vested	131		75
Employee stock-based compensation tax withholding obligations	( 36 )		( 17 )
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	8,487		268

See accompanying notes to unaudited consolidated financial statements.

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”).

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, we entered into an agreement with Flexia, to facilitate the divestiture of our interests in the ongoing business of Flexia. Refer to Note 15 – 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;
l			Safe deposit rental facilities; and
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 on operational risk management and compliance. Managing banking relationships with clients in the payments, digital savings, digital assets, crowd funding, lottery and gaming industries is complex, from both an operational and regulatory perspective. We believe that the complexity of serving these industries causes them to be underserved with quality banking services and provides us with a significantly 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 has been derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 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 Form 10-K. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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 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 September 30, 2023, 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 Accounting Pronouncements

In March 2020, the FASB issued 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 September 30, 2023, all loans and other relevant financial instruments that referenced LIBOR have been transitioned to the SOFR.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . The amendments clarify that 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. 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 is effective for fiscal years beginning after December 15, 2023. We do not currently expect these amendments to have a material impact our consolidated financial statements .

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 . 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. We do not currently expect these amendments to have a material impact on our consolidated financial statements.

Adoption of New Accounting Pronouncement

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, 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 the incurred loss impairment methodology in current U.S. GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit deteriorated (“PCD”) loans will receive 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 recorded through an allowance for credit losses, 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 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 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with the incurred loss model.

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); and
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, an 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 2023 as further described in Note 11 - Derivatives . There were no instruments on the balance sheet that were subject to this ASU prior to 2023.

Note 2 – Investment Securities

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


	September 30, 2023
(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
United States government agency securities	$	44,360	$	8	$	( 7,228 )	$	37,140
United States sponsored mortgage-backed securities	73,911		—		( 13,430 )		60,481
United States treasury securities	106,476		—		( 8,376 )		98,100
Municipal securities	118,872		1,064		( 21,312 )		98,624
Corporate debt securities	9,073		—		( 172 )		8,901
Other debt securities	7,500		—		—		7,500
Total debt securities	360,192		1,072		( 50,518 )		310,746
Other securities	791		—		—		791
Total investment securities available-for-sale	$	360,983	$	1,072	$	( 50,518 )	$	311,537


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

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


	September 30, 2023
(Dollars in thousands)	Amortized Cost		Fair Value
Within one year	$	4,794	$	4,793
After one year, but within five years	111,991		103,552
After five years, but within ten years	40,598		35,557
After ten years	202,809		166,844
Total	$	360,192	$	310,746

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 $ 215.6 million and $ 91.3 million at September 30, 2023 and December 31, 2022, 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 September 30, 2023, the details of which are included in the following table. 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 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 $ 50.5 million if sold at September 30, 2023, declines in the fair value 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 losses as of September 30, 2023.

The following tables show available-for-sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of September 30, 2023 and December 31, 2022, aggregated by investment category and length of time that the individual securities have been in a continuous loss position:


	September 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 )	$	356	$	—	$	35,155	$	( 7,228 )
United States sponsored mortgage-backed securities ( 48 )	2,249		( 90 )		48,493		( 13,340 )
United States treasury securities ( 23 )	—		—		98,100		( 8,376 )
Municipal securities ( 196 )	10,036		( 3,828 )		80,624		( 17,484 )
Corporate debt securities ( 7 )	1,971		( 102 )		1,930		( 70 )

Total	$	14,612	$	( 4,020 )	$	264,302	$	( 46,498 )


	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 )

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


	Three Months Ended September 30,				Nine Months Ended September 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	$	360	$	161	$	566	$	1,261
Gain, gross	25		58		25		158
Losses, gross	—		214		294		214

Unrealized holding gains (losses) on equity securities	219		( 61 )		71		( 146 )

Note 3 – Loans and Allowance for Credit Losses

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


(Dollars in thousands)	September 30, 2023		December 31, 2022
Commercial:
Business	$	811,203	$	851,072
Real estate	640,167		632,839
Acquisition, development and construction	121,758		126,999
Total commercial	1,573,128		1,610,910
Residential real estate	650,321		606,970
Home equity lines of credit	14,862		18,734
Consumer	30,341		131,566
Total loans, excluding purchased credit impaired loans	2,268,652		2,368,180
Purchased credit impaired loans:





Residential real estate	—		2,482


Total purchased credit impaired loans	—		2,482
Total loans	2,268,652		2,370,662
Deferred loan origination costs, net	1,781		1,983
Loans receivable	$	2,270,433	$	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 loan portfolio segmentation to be 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 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 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 September 30, 2022						Nine Months Ended September 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	$	12,390	$	1	$	2	$	11,378	$	6	$	6
Real estate	1,372		14		18		1,491		43		47
Acquisition, development and construction	282		—		—		303		—		—

Total commercial	14,044		15		20		13,172		49		53
Residential	8,425		4		3		8,390		12		11
Home equity	157		—		—		169		—		—
Consumer	1085		—		—		757		—		—
Total	$	23,711	$	19	$	23	$	22,488	$	61	$	64

As of September 30, 2023, the Bank’s other real estate owned balance totaled $ 0.9 million, all of which was related to our acquisition of The First State Bank (“First State”) in 2020. The Bank held $ 0.8 million of other real estate owned as a result of the foreclosure of two unrelated commercial loans. The remaining $ 0.1 million consists of one foreclosed residential real estate property. As of September 30, 2023, there were two residential mortgages 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 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 of $ 3.0 million or criticized relationships. The Bank's 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
September 30, 2023
Commercial business:
Risk rating:
Pass	$	49,607	$	293,000	$	84,060	$	28,735	$	15,491	$	60,635	$	219,201	$	—	$	750,729
Special Mention	—		5,231		13		842		10		4,418		510		—		11,024
Substandard	—		1		35,353		—		5,362		4,525		—		—		45,241
Doubtful	—		2,071		468		264		—		1,406		—		—		4,209
Total commercial business loans	$	49,607	$	300,303	$	119,894	$	29,841	$	20,863	$	70,984	$	219,711	$	—	$	811,203
Gross charge-offs	$	—	$	228	$	975	$	141	$	—	$	2,953	$	—	$	—	$	4,297

Commercial real estate:
Risk rating:
Pass	$	60,509	$	158,327	$	222,770	$	12,094	$	26,592	$	110,857	$	—	$	—	$	591,149
Special Mention	—		—		8,010		—		6,801		14,994		—		—		29,805
Substandard	—		—		—		—		—		19,213		—		—		19,213
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial real estate loans	$	60,509	$	158,327	$	230,780	$	12,094	$	33,393	$	145,064	$	—	$	—	$	640,167
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial acquisition, development and construction:
Risk rating:
Pass	$	2,987	$	46,062	$	30,768	$	22,016	$	3,128	$	1,551	$	—	$	—	$	106,512
Special Mention	—		—		14,476		—		—		5		—		—		14,481
Substandard	—		—		—		—		—		765		—		—		765
Doubtful	—		—		—		—		—		—		—		—		—
Total commercial acquisition, development and construction loans	$	2,987	$	46,062	$	45,244	$	22,016	$	3,128	$	2,321	$	—	$	—	$	121,758
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	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
September 30, 2023
Residential Real Estate:
Risk rating:
Pass	$	51,593	$	417,420	$	100,007	$	38,942	$	7,031	$	23,923	$	—	$	—	$	638,916
Special Mention	—		—		—		—		414		725		—		—		1,139
Substandard	—		991		3,789		4,240		136		899		—		—		10,055
Doubtful	—		—		—		—		—		211		—		—		211
Total residential real estate loans	$	51,593	$	418,411	$	103,796	$	43,182	$	7,581	$	25,758	$	—	$	—	$	650,321
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	381	$	—	$	—	$	381

Home equity lines of credit:
Risk rating:
Pass	$	—	$	37	$	—	$	—	$	170	$	780	$	13,486	$	—	$	14,473
Special Mention	—		—		—		—		—		76		148		—		224
Substandard	—		—		—		—		—		165		—		—		165
Doubtful	—		—		—		—		—		—		—		—		—
Total home equity lines of credit loans	$	—	$	37	$	—	$	—	$	170	$	1,021	$	13,634	$	—	$	14,862
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Risk rating:
Pass	$	2,460	$	20,613	$	6,225	$	—	$	48	$	23	$	29	$	—	$	29,398
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	198		576		169		—		—		—		—		—		943
Doubtful	—		—		—		—		—		—		—		—		—
Total consumer loans	$	2,658	$	21,189	$	6,394	$	—	$	48	$	23	$	29	$	—	$	30,341
Gross charge-offs	$	866	$	9,543	$	1,522	$	—	$	—	$	2	$	—	$	—	$	11,933

Total:
Risk rating:
Pass	$	167,156	$	935,459	$	443,830	$	101,787	$	52,460	$	197,769	$	232,716	$	—	$	2,131,177
Special Mention	—		5,231		22,499		842		7,225		20,218		658		—		56,673
Substandard	198		1,568		39,311		4,240		5,498		25,567		—		—		76,382
Doubtful	—		2,071		468		264		—		1,617		—		—		4,420
Total consumer loans	$	167,354	$	944,329	$	506,108	$	107,133	$	65,183	$	245,171	$	233,374	$	—	$	2,268,652
Gross charge-offs	$	866	$	9,771	$	2,497	$	141	$	—	$	3,336	$	—	$	—	$	16,611

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

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.

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
September 30, 2023
Commercial
Business	$	802,899	$	789	$	64	$	7,451	$	8,304	$	811,203	$	7,451	$	—	$	3,782	$	—
Real estate	640,167		—		—		—		—		640,167		—		—		—		—
Acquisition, development and construction	120,993		—		—		765		765		121,758		765		—		—		—
Total commercial	1,564,059		789		64		8,216		9,069		1,573,128		8,216		—		3,782		—
Residential real estate	648,511		414		127		1,269		1,810		650,321		1,269		—		—		—
Home equity lines of credit	14,807		48		7		—		55		14,862		165		—		—		—
Consumer	26,995		1,821		582		943		3,346		30,341		943		—		—		—
Total loans	$	2,254,372	$	3,072	$	780	$	10,428	$	14,280	$	2,268,652	$	10,593	$	—	$	3,782	$	—

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












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

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

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 - Current Expected Credit Losses .

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 September 30, 2023, 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, 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)	Real Estate		Vehicles and Equipment		Assignment of Cash Flow		Accounts Receivable		Other		Totals		Allowance for Credit Losses
September 30, 2023
Commercial
Business	$	1,141	$	4,058	$	1	$	462	$	264	$	5,926	$	1,491


Total commercial	$	1,141	$	4,058	$	1	$	462	$	264	$	5,926	$	1,491
Residential	1,088		—		—		—		—		1,088		36

Consumer	—		943		—		—		—		943		159
Total	$	2,229	$	5,001	$	1	$	462	$	264	$	7,957	$	1,686

Collateral value	$	4,301	$	5,309	$	—	$	906	$	320	$	10,836

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 September 30, 2023 and December 31, 2022.

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 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 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 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 September 30, 2023 and December 31, 2022, the liability for unfunded commitments related to loans held for investment was $ 1.4 million and $ 0.5 million, respectively.

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
(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial
June 30, 2023	$	11,308	$	3,051	$	1,707	$	16,066	$	7,168	$	114	$	6,946	$	30,294
Provision (release of allowance) for credit losses	1,584		183		343		2,110		( 242 )		( 15 )		( 2,012 )		( 159 )
Charge-offs	( 4,028 )		—		—		( 4,028 )		( 359 )		—		( 3,677 )		( 8,064 )
Recoveries	4		7		—		11		—		1		2,193		2,205
ACL at September 30, 2023	$	8,868	$	3,241	$	2,050	$	14,159	$	6,567	$	100	$	3,450	$	24,276

(Dollars in thousands)
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
Provision (release of allowance) for credit losses	3,770		363		698		4,831		( 328 )		( 29 )		( 4,165 )		309
Initial allowance on loans purchased with credit deterioration	710		—		—		710		507		—		—		1,217
Charge-offs	( 4,297 )		—		—		( 4,297 )		( 381 )		—		( 11,933 )		( 16,611 )
Recoveries	40		20		—		60		—		3		7,779		7,842
ACL at September 30, 2023	$	8,868	$	3,241	$	2,050	$	14,159	$	6,567	$	100	$	3,450	$	24,276

During the three and nine months ended September 30, 2023, there were charge offs totaling $ 8.1 million and $ 16.6 million, respectively. For the three months ended September 30, 2023, $ 3.7 million, or 46 %, of charge offs were related to the subprime consumer automotive segment, $ 2.4 million, or 30 %, was related to a commercial note secured by accounts receivable, $ 0.9 million, or 11 %, was related to a commercial note funding a government lease transaction and the remaining $ 1.1 million was for multiple unrelated commercial and consumer notes. For the nine months ended September 30, 2023, $ 12.0 million, or 72 %, was related to the subprime consumer automotive segment. Outside of the loans described above, there were an additional four unrelated commercial notes totaling $ 0.3 million that were charged over the nine months ended September 30, 2023. During the three and nine months ended September 30, 2023, the allowance related to unfunded commitments was not significant.

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 June 30, 2022	$	8,077	$	6,641	$	967	$	15,685	$	1,772	$	141	$	5,136	$	22,734
Charge-offs	—		—		—		—		—		—		( 3,652 )		( 3,652 )
Recoveries	41		65		—		106		—		1		2,206		2,313
Provision (release)	1,626		( 310 )		191		1,507		1,165		( 6 )		2,454		5,120
ALL balance at September 30, 2022	$	9,744	$	6,396	$	1,158	$	17,298	$	2,937	$	136	$	6,144	$	26,515

(Dollars in thousands)
ALL balance at December 31, 2021	$	8,027	$	5,091	$	982	$	14,100	$	1,492	$	128	$	2,546	$	18,266
Charge-offs	—		—		—		—		—		—		( 7,304 )		( 7,304 )
Recoveries	51		127		—		178		—		5		3,870		4,053
Provision	1,666		1,178		176		3,020		1,445		3		7,032		11,500
ALL balance at September 30, 2022	$	9,744	$	6,396	$	1,158	$	17,298	$	2,937	$	136	$	6,144	$	26,515
Individually evaluated for impairment	$	2,078	$	221	$	—	$	2,299	$	84	$	—	$	248	$	2,631
Collectively evaluated for impairment	$	7,666	$	6,175	$	1,158	$	14,999	$	2,853	$	136	$	5,896	$	23,884

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
September 30, 2022
Individually evaluated for impairment	$	15,349	$	1,090	$	278	$	16,717	$	8,421	$	157	$	1246	$	26,541
Collectively evaluated for impairment	856,919		700,395		131,107		1,688,421		596,214		19,219		140,043		2,443,897
Total loans	$	872,268	$	701,485	$	131,385	$	1,705,138	$	604,635	$	19,376	$	141,289	$	2,470,438

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.

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 summarize the amortized cost basis of loans that were modified during three and nine months ended September 30, 2023:


(Dollars in thousands)	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Total		Total Class of Financing Receivable
September 30, 2023
Commercial
Business	$	—	$	7,681	$	—	$	—	$	7,681	1	%
Real estate	—		11,321		—		—		11,321		2	%

Total commercial	—		19,002		—		—		19,002		1	%
Residential	—				—		—		—		—	%
Home equity lines of credit	—				—		—		—		—	%
Consumer	—				—		—		—		—	%
Total	$	—	$	19,002	$	—	$	—	$	19,002	1	%

The above table presents the amortized cost basis of loans at September 30, 2023 that were experiencing financial difficulty and modified during the three and nine months ended September 30, 2023, 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. Fourteen loans to 13 borrowers received payment delay modifications in the nine months ended September 30, 2023, including one secured by commercial office real estate totaling $ 11.3 million, one commercial loan secured by accounts receivable totaling $ 0.2 million, and 12 commercial loans with government guarantees totaling $ 7.5 million.

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
September 30, 2023
Commercial
Business	$	—	$	2,071	$	—	$	2,071
Real estate	—		—		—		—

Total commercial	—		2,071		—		2,071
Residential	—		—		—		—
Home equity lines of credit	—		—		—		—
Consumer	—		—		—		—
Total	$	—	$	2,071	$	—	$	2,071

As of September 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 September 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
September 30, 2023
Commercial
Business	$	—	$	2,071	$	—	$	—	$	2,071
Real estate	—		—		—		—		—

Total commercial	—		2,071		—		—		2,071
Residential	—		—		—		—		—
Home equity lines of credit	—		—		—		—		—
Consumer	—		—		—		—		—
Total	$	—	$	2,071	$	—	$	—	$	2,071

As of September 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 September 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 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 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 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 borrower 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 nine months ended September 30, 2022, no additional loans were classified as TDRs 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.

Note 4 – Premises and Equipment

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


(Dollars in thousands)	September 30, 2023		December 31, 2022
Land	$	3,465	$	3,465
Buildings and improvements	13,393		13,393
Furniture, fixtures and equipment	18,147		17,549
Software	6,740		6,019
Construction in progress	124		508
Leasehold improvements	2,836		2,836
	44,705		43,770
Accumulated depreciation	( 23,237 )		( 20,140 )
Premises and equipment, net	$	21,468	$	23,630

We lease certain premises and equipment under operating and finance leases. At September 30, 2023, we had lease liabilities totaling $ 14.2 million and right-of-use assets totaling $ 13.0 million, substantially all of which was related to operating leases. At

September 30, 2023, the weighted-average remaining lease term for operating leases was 10.9 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.1 %.

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

Lease liabilities and right-of-use assets are reflected in other liabilities and other assets , respectively.

The following table presents lease costs for the periods shown:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Amortization of right-of-use assets, finance leases	$	1	$	13	$	9	$	42
Operating lease cost	435		445		1,331		1,335
Short-term lease cost	—		8		8		22
Variable lease cost	6		10		26		29
Sublease income	( 114 )		—		( 288 )		—

Total lease cost	$	328	$	476	$	1,086	$	1,428

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


(Dollars in thousands)	Operating Leases
2024	$	403
2025	1,621
2026	1,618
2027	1,594
2028	1,625
2029 and thereafter	10,111
Total future minimum lease payments	$	16,972
Less: Amounts representing interest	( 2,816 )
Present value of net future minimum lease payments	$	14,156

Future minimum payments on finance leases as of September 30, 2023 were not material.

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.

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Total revenues	$	9,943	$	13,818	$	31,588	$	57,997
Net income (loss)	( 1,520 )		( 1,986 )		$	( 5,691 )	$	3,183

Gain on loans sold	$	5,880	$	9,785	$	18,568	$	39,746
Gain (loss) on loans held for sale	( 745 )		( 1,636 )		( 165 )		( 3,457 )
Volume of loans sold	359,791		619,059		1,071,795		1,999,706

In 2020, we acquired a 40 % interest in ICM by contributing certain assets and liabilities associated with our mortgage operations as a capital contribution, as well as $ 7.5 million of our preferred units. It was determined that our ownership percentage of ICM provides that we have significant influence over its operations and decision making. Accordingly, the investment is accounted for as an equity method investment. Our share of ICM's net loss totaled $ 0.6 million and $ 2.3 million for the three and nine months ended September 30, 2023, respectively and our share of ICM's net loss and income totaled $ 0.8 million and $ 1.2 million for the three and nine months ended September 30, 2022 , respectively. As of September 30, 2023 and December 31, 2022 , the mortgage pipeline was $ 544.4 million an d $ 678.3 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 September 30, 2023		Nine Months Ended September 30, 2023
Total revenues	$	28,672	$	104,005
Net income (loss)	( 218 )		8,707

Gain on loans sold	$	3,985	$	11,915
Gain (loss) on loans held for sale	( 4,735 )		12,480
Volume of loans sold	381,486		979,692

In October 2022, we acquired a 37.5 % interest in Warp Speed with $ 38.4 million in cash, plus 313,030 shares of our common stock with an aggregate value of $ 9.6 million. It was determined that o ur ownership percentage of Warp Speed provides that we have significant influence over its operations and decision making. Accordingly, the investment 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 $ 0.1 million and $ 3.3 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2023 and December 31, 2022 , the mortgage pipeline was $ 99.1 million and $ 116.9 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 nine months ended September 30, 2023 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)	September 30, 2023		December 31, 2022
Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand	$	1,093,903	$	1,231,544
Interest-bearing demand	696,538		720,074
Savings and money markets	618,781		284,447
Time deposits, including CDs and IRAs	629,667		334,417
Total deposits	$	3,038,889	$	2,570,482

Time deposits that meet or exceed the FDIC insurance limit	$	3,435	$	4,386

The following table presents the maturities of time deposits for the twelve month periods ended September 30:


(Dollars in thousands)
2024	$	325,464
2025	301,107
2026	635
2027	1,530
2028	908
Thereafter	23
Total	$	629,667

As of September 30, 2023, overdrawn deposit accounts totaling $ 3.1 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 September 30, 2023, the Bank's maximum borrowing capacity with the FHLB was $ 721.2 million and the remaining borrowing capacity was $ 707.8 million, with the difference being deposit letters of credit of $ 11.9 million and credit enhancement recourse obligations related to the master commitments through the FHLB's Mortgage Partnership Finance program of $ 1.4 million.

Short-term borrowings

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

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


(Dollars in thousands)	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Balance at end of period	$	—		$	102,333
Average balance during the period	23,449			15,494
Maximum month-end balance	—			102,333
Weighted-average rate during the period	5.06		%	2.82		%
Weighted-average rate at end of period	—		%	4.45		%

Long-term borrowings

As of September 30, 2023 and December 31, 2022, 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 September 30, 2023 and December 31, 2022, all of our repurchase agreements were overnight agreements. These borrowings were collateralized with investment securities with a carrying value of $ 4.6 million and $ 10.4 million at September 30, 2023 and December 31, 2022, 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)	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Balance at end of period	$	4,502		$	10,037
Average balance during the period	5,974			10,987
Maximum month-end balance	10,041			12,680
Weighted-average rate during the period	—		%	0.05		%
Weighted-average rate at end of period	0.01		%	0.06		%

Subordinated debt

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


(Dollars in thousands)	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Balance at end of period	$	73,478		$	73,286
Average balance during the period	73,383			73,159
Maximum month-end balance	73,478			73,286
Weighted-average rate during the period	4.39		%	4.20		%
Weighted-average rate at end of period	4.01		%	3.97		%

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)	Nine Months Ended September 30, 2023			Year Ended December 31, 2022
Balance at end of period	$	8,473		$	9,765
Average balance during the period	9,285			2,328
Maximum month-end balance	9,768			9,886
Weighted-average rate during the period	8.39		%	7.00		%
Weighted-average rate at end of period	8.48		%	7.44		%

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 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 during the first year and $ 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 September 30, 2023 and 2022 for the periods shown:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022

Interest cost	$	113	$	85	339		255
Expected return on plan assets	( 164 )		( 167 )		( 492 )		( 501 )
Amortization of net actuarial loss	29		107		87		321

Net periodic benefit (income) cost	$	( 22 )	$	25	$	( 66 )	$	75
Contributions paid	$	—	$	—	$	—	$	—

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

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. The liability is calculated by discounting the anticipated future cash flows at 4.0 % . The liability accrued for this obligation was $ 1.4 million and $ 1.3 million as of September 30, 2023 and December 31, 2022, respectively. Service costs were not material for any periods covered by this report.

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)	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)
September 30, 2023
Financial Assets:
Cash and cash equivalents	$	587,100	$	587,100	$	587,100	$	—	$	—

Securities available-for-sale	311,537		311,537		98,100		188,797		24,640
Equity securities	40,835		40,835		4,647		—		36,188
Loans held-for-sale	7,603		7,603		—		7,603		—
Loans receivable, net	2,246,157		2,139,689		—		—		2,124,865
Servicing rights	1,736		1,753		—		—		1,753
Interest rate swaps	12,974		12,974		—		12,974		—
Fair value hedge	204		204		—		204		—
Accrued interest receivable	15,630		15,630		—		2,190		13,440
FHLB Stock	2,122		2,122		—		2,122		—
Bank-owned life insurance	44,109		44,109		—		44,109		—
Embedded derivative	648		648		—		—		648

Financial Liabilities:
Deposits	$	3,038,889	$	2,670,272	$	—	$	2,670,272	$	—
Repurchase agreements	4,502		4,502		—		4,502		—

Interest rate swaps	10,609		10,609		—		10,609		—
Accrued interest payable	2,123		2,123		—		2,123		—

Senior term loan	8,473		8,363		—		8,363		—
Subordinated debt	73,478		56,417		—		56,417		—

December 31, 2022
Financial assets:
Cash and cash equivalents	$	40,280	$	40,280	$	40,280	$	—	$	—
Securities available-for-sale	379,814		379,814		—		344,471		35,343
Equity securities	38,744		38,744		5,382		—		33,362
Loans held-for-sale	23,126		24,898		—		24,898		—
Loans receivable, net	2,348,808		2,285,427		—		—		2,285,427
Servicing rights	1,616		1,634		—		—		1,634
Interest rate swaps	8,427		8,427		—		8,427		—
Accrued interest receivable	12,617		12,617		—		2,778		9,839
Bank-owned life insurance	43,239		43,239		—		43,239		—
FHLB Stock	9,966		9,966		—		9,966		—
Embedded derivative	787		787		—		—		787

Financial liabilities:
Deposits	$	2,570,482	$	2,226,037	$	—	$	2,226,037	$	—
Repurchase agreements	10,037		10,037		—		10,037		—
Fair value hedge	572		572		—		572		—
Interest rate swaps	8,427		8,427		—		8,427		—
Accrued interest payable	2,558		2,558		—		2,558		—
FHLB and other borrowings	102,333		102,006		—		102,006		—
Senior term loan	9,765		9,765		—		9,765		—
Subordinated debt	73,286		64,330		—		64,330		—

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 included in Item 8, Financial Statements and Supplementary Data , of the 2022 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 nine months ended September 30, 2023. 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 nine months ended September 30, 2023. Valuation techniques are consistent with techniques used in prior periods.

Interest rate 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.

Fair value 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.

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.

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:


	September 30, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	—	$	37,140	$	—	$	37,140
United States sponsored mortgage-backed securities	—		60,481		—		60,481
United States treasury securities	98,100		—		—		98,100
Municipal securities	—		81,484		17,140		98,624
Corporate debt securities	—		8,901		—		8,901

Other securities	—		791		—		791
Equity securities	4,647		—		—		4,647
Loans held-for-sale	—		7,603		—		7,603
Interest rate swaps	—		12,974		—		12,974
Fair value hedge	—		204		—		204
Bank-owned life insurance	—		44,109		—		44,109
Embedded derivative	—		—		648		648
Liabilities:
Interest rate swaps	—		10,609		—		10,609


	December 31, 2022
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	—	$	44,814	$	—	$	44,814
United States sponsored mortgage-backed securities	—		56,571		—		56,571
United States treasury securities	—		120,909		—		120,909
Municipal securities	—		103,293		35,343		138,636
Corporate debt securities	—		10,560		—		10,560
Other securities	—		824		—		824
Equity securities	5,382		—		—		5,382

Interest rate swaps	—		8,427		—		8,427
Bank-owned life insurance	—		43,239		—		43,239
Embedded derivative	—		—		787		787
Liabilities:
Interest rate swaps	—		8,427		—		8,427
Fair value hedge	—		572		—		572

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


(Dollars in thousands)	Municipal Securities		Embedded Derivatives		Total
Balance at June 30, 2023	$	34,418	$	648	$	35,066
Realized and unrealized income included in earnings	45		—		45
Purchase of securities	250		—		250
Maturities/calls	( 17,389 )		—		( 17,389 )
Unrealized loss included in other comprehensive income (loss)	( 184 )		—		( 184 )
Balance at September 30, 2023	$	17,140	$	648	$	17,788

Balance at December 31, 2022	$	35,343	$	787	$	36,130
Realized and unrealized income (loss) included in earnings	46		( 139 )		( 93 )
Purchase of securities	250		—		250
Maturities/calls	( 18,156 )		—		( 18,156 )

Unrealized loss included in other comprehensive income (loss)	( 343 )		—		( 343 )
Balance at September 30, 2023	$	17,140	$	648	$	17,788

Balance at June 30, 2022	$	37,035	$	—	$	37,035
Realized and unrealized gain included in earnings	—		—		—
Purchase of securities	—		—		—
Maturities/calls	( 66 )		—		( 66 )
Unrealized loss included in other comprehensive income (loss)	( 1,840 )		—		( 1,840 )
Balance at September 30, 2022	$	35,129	$	—	$	35,129

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
Maturities/calls	( 3,141 )		—		( 3,141 )
Unrealized loss included in other comprehensive income	( 4,550 )		—		( 4,550 )
Balance at September 30, 2022	$	35,129	$	—	$	35,129

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) 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 and 2022 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 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:


	September 30, 2023
(Dollars in thousands)	Level I		Level II		Level III		Total
Collateral-dependent loans	$	—	$	—	$	3,113	$	3,113
Other real estate owned	—		—		906		906
Other debt securities	—		—		7,500		7,500
Equity securities	—		—		36,188		36,188


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

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
September 30, 2023
Nonrecurring measurements:
Collateral-dependent loans	$	3,113	Appraisal of collateral 1	Appraisal adjustments 2	0 % - 20 %
				Liquidation expense 2	6 %

Other real estate owned	$	906	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	$	36,188	Net asset value	Cost, less impairment	0 %

Recurring measurements:
Municipal securities 5	$	17,140	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 %

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 2023, we entered into three fixed portfolio layer method fair value swaps, designated as hedging instruments, to manage exposure to changes in fair value on these instruments attributable to the designated interest rate. 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 swaps was $ 145.7 million as of September 30, 2023, one of which is amortizing and included a $ 4.29 million amortization adjustment to the notional amount at September 30, 2023. Under this method, the hedged items are designated as a hedged layer of closed portfolios of financial loans that are anticipated to remain outstanding for the designated hedged periods. Adjustments will be made to record the swaps at fair value on the consolidated balance sheets, with changes in fair value recognized in interest income. These instruments are included in loans receivable on the consolidated balance sheet. The carrying values of the fair value swaps on the consolidated balance sheets will 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 September 30, 2023 and December 31, 2022:


	September 30, 2023						December 31, 2022
(Dollars in thousands)	Amortized Cost Basis		Hedged Asset		Basis Adjustment		Amortized Cost Basis		Hedged Asset		Basis Adjustment
Fixed Rate Assets	$	486,167	$	145,709	$	( 2,809 )	$	—	$	—	$	—

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.

Pay Fixed Interest Rate Swaps. During the three months ended September 30, 2023, we entered into a pay fixed swap with a notional amount of $ 250.0 million. The interest rate swap involves the payment of fixed-rate amounts to a counterparty in exchange for us receiving variable-rate payments over the life of the agreement, without the exchange of the underlying notional amount. This swap was not designated as a hedging instrument and changes in fair value are recognized in earnings.

The following tables summarize outstanding financial derivative instruments as of September 30, 2023 and December 31, 2022:


		September 30, 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	$	145,709	$	2,814	$	2,814

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	265,286		10,160		—
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	132,643		( 10,160 )		—
Pay fixed rate swaps with counterparty	Accrued interest payable and other liabilities	250,000		( 449 )		( 449 )

Total derivatives		$	793,638	$	2,365	$	2,365


		December 31, 2022
(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	$	—	$	—	$	—

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	275,478		8,427		—
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	137,739		( 8,427 )		—
Pay fixed rate swaps with counterparty	Accrued interest payable and other liabilities	—		—		—

Total derivatives		$	413,217	$	—	$	—

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 and $ 0.8 million at September 30, 2023 and December 31, 2022, respectively, with a loss of $ 0.1 million as of September 30, 2023.

Note 12 – 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands except shares and per share data)	2023		2022		2023		2022
Numerator for earnings per share:
Net income from continuing operations	$	3,872	$	1,833	$	14,308	$	6,016
Net (income) loss attributable to noncontrolling interest	( 5 )		163		231		521

Net income available to common shareholders from continuing operations	3,867		1,996		14,539		6,537
Net income from discontinued operations available to common shareholders - basic and diluted	—		722		8,782		2,001
Net income available to common shareholders	$	3,867	$	2,718	$	23,321	$	8,538







Denominator:
Weighted-average shares outstanding - basic	12,722,010		12,238,505		12,678,708		12,170,028


Effect of dilutive instruments	394,619		616,446		334,126		682,546
Weighted-average shares outstanding - diluted	13,116,629		12,854,951		13,012,834		12,852,574

Earnings per share from continuing operations - basic	$	0.30	$	0.16	$	1.15	$	0.54
Earnings per share from discontinued operations - basic	$	—	$	0.06	$	0.69	$	0.16
Earnings per common share - basic	$	0.30	$	0.22	$	1.84	$	0.70
Earnings per share from continuing operations - diluted	$	0.29	$	0.16	$	1.12	$	0.51
Earnings per share from discontinued operations - diluted	$	—	$	0.05	$	0.67	$	0.15
Earnings per share common share - diluted	$	0.29	$	0.21	$	1.79	$	0.66

Instruments not included in the computation of diluted EPS because the effect would be antidilutive	228,243		564,604		250,893		533,543

Note 13 – 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
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
Available-for-sale securities
Realized gain (loss) recognized in income	$	—	$	—	$	( 1,536 )	$	650	Gain (loss) on sale of available-for-sale securities

Income tax effect	—		—		369		( 152 )		Income taxes
Realized gain (loss) recognized in income, net of tax	—		—		( 1,167 )		498
Defined benefit pension plan items
Amortization of net actuarial loss	( 29 )		$	( 107 )	$	( 87 )	$	( 321 )	Salaries and employee benefits

Income tax effect	7		27		21		79		Income taxes
Defined benefit pension plan items, net of tax	( 22 )		( 80 )		( 66 )		( 242 )
Investment hedge
Carrying value adjustment	—		( 56 )		289		141		Interest on investment securities

Income tax effect	—		14		( 69 )		( 35 )		Income taxes
Investment hedge, net of tax	—		( 42 )		220		106

Total reclassifications	$	( 22 )	$	( 122 )	$	( 1,013 )	$	362


(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment hedge		Total
Balance at June 30, 2023	$	( 31,674 )	$	( 2,824 )	$	34	$	( 34,464 )
Other comprehensive income (loss) before reclassification	( 5,885 )		76		—		( 5,809 )
Amounts reclassified from accumulated other comprehensive income (loss)	—		22		—		22
Net current period other comprehensive income (loss)	( 5,885 )		98		—		( 5,787 )
Balance at September 30, 2023	$	( 37,559 )	$	( 2,726 )	$	34	$	( 40,251 )

Balance at December 31, 2022	$	( 34,829 )	$	( 3,129 )	$	254	$	( 37,704 )
Other comprehensive income (loss) before reclassification	( 3,897 )		337		—		( 3,560 )
Amounts reclassified from accumulated other comprehensive income (loss)	1,167		66		( 220 )		1,013
Net current period other comprehensive income (loss)	( 2,730 )		403		( 220 )		( 2,547 )
Balance at September 30, 2023	$	( 37,559 )	$	( 2,726 )	$	34	$	( 40,251 )

Balance at June 30, 2022	$	( 26,203 )	$	( 3,385 )	$	168	$	( 29,420 )
Other comprehensive income (loss) before reclassification	( 10,796 )		117		—		( 10,679 )
Amounts reclassified from accumulated other comprehensive income (loss)	—		80		42		122
Net current period other comprehensive income (loss)	( 10,796 )		197		42		( 10,557 )
Balance at September 30, 2022	$	( 36,999 )	$	( 3,188 )	$	210	$	( 39,977 )

Balance at December 31, 2021	$	147	$	( 4,069 )	$	316	$	( 3,606 )
Other comprehensive income (loss) before reclassification	( 36,648 )		639		—		( 36,009 )
Amounts reclassified from accumulated other comprehensive income (loss)	( 498 )		242		( 106 )		( 362 )
Net current period other comprehensive income (loss)	( 37,146 )		881		( 106 )		( 36,371 )
Balance at September 30, 2022	$	( 36,999 )	$	( 3,188 )	$	210	$	( 39,977 )

Note 14 – Segment Reporting

We have identified three reportable segments: CoRe Banking; Mortgage Banking; and Financial Holding Company. All other operating segments are summarized in an 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 banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts.

Revenue from our 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 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 September 30, 2023	CoRe Banking		Mortgage Banking		Financial Holding Company		Other		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	48,268	$	103	$	2	$	—	$	( 48 )	$	48,325
Interest expense	17,454		—		1,000		54		( 48 )		18,460
Net interest income (expense)	30,814		103		( 998 )		( 54 )		—		29,865
Release of allowance for credit losses	( 159 )		—		—		—		—		( 159 )
Net interest income (expense) after release of allowance for credit losses	30,973		103		( 998 )		( 54 )		—		30,024




Noninterest income	4,980		( 742 )		2,576		3,099		( 4,122 )		5,791

Noninterest Expenses:
Salaries and employee benefits	9,787		—		4,129		2,100		—		16,016
Other expenses	14,701		13		1,992		2,125		( 4,122 )		14,709
Total noninterest expenses	24,488		13		6,121		4,225		( 4,122 )		30,725

Income (loss) before income taxes	11,465		( 652 )		( 4,543 )		( 1,180 )		—		5,090
Income taxes	2,628		( 153 )		( 978 )		( 279 )		—		1,218




Net income (loss)	8,837		( 499 )		( 3,565 )		( 901 )		—		3,872

Net income attributable to noncontrolling interest	—		—		—		( 5 )		—		( 5 )


Net income (loss) available to common shareholders	$	8,837	$	( 499 )	$	( 3,565 )	$	( 906 )	$	—	$	3,867

Capital expenditures for the three months ended September 30, 2023	$	163	$	—	$	17	$	48	$	—	$	228
Total assets as of September 30, 2023	$	3,378,789	$	85,017	$	330,634	$	18,895	$	( 375,752 )	$	3,437,583
Total assets as of December 31, 2022	$	3,014,475	$	34,248	$	375,171	$	27,075	$	( 382,119 )	$	3,068,850
Goodwill as of September 30, 2023	$	—	$	—	$	—	$	2,838	$	—	$	2,838
Goodwill as of December 31, 2022	$	—	$	—	$	—	$	2,838	$	—	$	2,838


Three Months Ended September 30, 2022	CoRe Banking		Mortgage Banking		Financial Holding Company		Other		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	33,777	$	103	$	33	$	—	$	( 10 )	$	33,903
Interest expense	3,286		—		771		10		( 10 )		4,057
Net interest income (expense)	30,491		103		( 738 )		( 10 )		—		29,846
Provision for loan losses	5,120		—		—				—		5,120
Net interest income (expense) after provision for loan losses	25,371		103		( 738 )		( 10 )		—		24,726




Noninterest income	5,356		( 817 )		2,366		1,370		( 2,808 )		5,467

Noninterest Expenses:
Salaries and employee benefits	9,354		8		4,274		2,269		—		15,905
Other expenses	11,523		25		1,810		1,721		( 2,808 )		12,271
Total noninterest expenses	20,877		33		6,084		3,990		( 2,808 )		28,176

Income (loss) before income taxes	9,850		( 747 )		( 4,456 )		( 2,630 )		—		2,017
Income taxes	1,817		( 192 )		( 840 )		( 601 )		—		184
Net income (loss) from continuing operations	8,033		( 555 )		( 3,616 )		( 2,029 )		—		1,833
Income from discontinued operations, before income taxes	—		—		—		935		—		935
Income taxes - discontinued operations	—		—		—		213		—		213
Net income from discontinued operations	—		—		—		722		—		722
Net income (loss)	8,033		( 555 )		( 3,616 )		( 1,307 )		—		2,555

Net income attributable to noncontrolling interest	—		—		—		163		—		163


Net income (loss) available to common shareholders	$	8,033	$	( 555 )	$	( 3,616 )	$	( 1,144 )	$	—	$	2,718

Capital expenditures for the three months ended September 30, 2022	$	244	$	—	$	4	$	373	$	—	$	621


Nine Months Ended September 30, 2023	CoRe Banking		Mortgage Banking		Financial Holding Company		Other		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	139,859	$	313	$	38	$	—	$	( 91 )	$	140,119
Interest expense	44,934		—		2,992		108		( 91 )		47,943
Net interest income (expense)	94,925		313		( 2,954 )		( 108 )		—		92,176
Provision for credit losses	182		—		—		—		—		182
Net interest income (expense) after provision for credit losses	94,743		313		( 2,954 )		( 108 )		—		91,994


Noninterest income	12,111		( 56 )		8,102		5,934		( 10,814 )		15,277

Noninterest Expenses:
Salaries and employee benefits	27,891		7		13,702		6,908		—		48,508
Other expenses	39,903		65		6,072		5,590		( 10,814 )		40,816
Total noninterest expenses	67,794		72		19,774		12,498		( 10,814 )		89,324

Income (loss) before income taxes	39,060		185		( 14,626 )		( 6,672 )		—		17,947
Income taxes	8,380		( 14 )		( 3,127 )		( 1,600 )		—		3,639
Net income (loss) from continuing operations	30,680		199		( 11,499 )		( 5,072 )		—		14,308
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)	30,680		199		( 11,499 )		3,710		—		23,090
Net loss attributable to noncontrolling interest	—		—		—		231		—		231


Net income (loss) available to common shareholders	$	30,680	$	199	$	( 11,499 )	$	3,941	$	—	$	23,321

Capital expenditures for the nine months ended September 30, 2023	$	655	$	—	$	17	$	769	$	—	$	1,441


Nine Months Ended September 30, 2022	CoRe Banking		Mortgage Banking		Financial Holding Company		Other		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	84,858	$	309	$	113	$	—	$	( 25 )	$	85,255
Interest expense	4,617		—		2,284		25		( 25 )		6,901
Net interest income (expense)	80,241		309		( 2,171 )		( 25 )		—		78,354
Provision for credit losses	11,500		—		—		—		—		11,500
Net interest income (expense) after provision for credit losses	68,741		309		( 2,171 )		( 25 )		—		66,854




Noninterest income	19,347		1,193		8,265		4,490		( 9,165 )		24,130

Noninterest Expenses:
Salaries and employee benefits	28,810		8		12,769		6,630		—		48,217
Other expenses	33,484		119		6,262		4,488		( 9,165 )		35,188
Total noninterest expenses	62,294		127		19,031		11,118		( 9,165 )		83,405

Income (loss) before income taxes	25,794		1,375		( 12,937 )		( 6,653 )		—		7,579
Income taxes	5,219		356		( 2,524 )		( 1,488 )		—		1,563
Net income (loss) from continuing operations	20,575		1,019		( 10,413 )		( 5,165 )		—		6,016
Income from discontinued operations, before income taxes	—		—		—		2,599		—		2,599
Income taxes - discontinued operations	—		—		—		598		—		598
Net income from discontinued operations	—		—		—		2,001		—		2,001
Net income (loss) before noncontrolling interest	20,575		1,019		( 10,413 )		( 3,164 )		—		8,017
Net loss attributable to noncontrolling interest	—		—		—		521		—		521


Net income (loss) available to common shareholders	$	20,575	$	1,019	$	( 10,413 )	$	( 2,643 )	$	—	$	8,538

Capital expenditures for the nine months ended September 30, 2022	$	494	$	—	$	389	$	1,847	$	—	$	2,730

Note 15 – 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 nine months ended September 30, 2023, we have paid $ 2.5 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 September 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. Chartwell's depreciation and amortization expense was $ 0.1 million and $ 0.5 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Compliance consulting income	$	—	$	4,411	$	2,369	$	12,719
Gain on sale of discontinued operations	—		—		11,800		—
Total income	$	—	$	4,411	$	14,169	$	12,719

Salaries and employee benefits	$	—	$	2,411	$	2,082	$	7,043
Other expenses	—		1,065		256		3,077
Total expenses	$	—	$	3,476	$	2,338	$	10,120

Income before income taxes	$	—	$	935	$	11,831	$	2,599
Income taxes	—		213		3,049		598
Net income from discontinued operations	$	—	$	722	$	8,782	$	2,001

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 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 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 that occurred during the first half of 2023. We remain committed to our key Fintech industries of gaming and 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.

Current Market Conditions

In March 2023, 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.

Financial Results

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

During the three months ended September 30, 2023, net interest income increased $0.1 million, noninterest income increased $0.3 million and noninterest expenses increased by $2.5 million compared to the three months ended September 30, 2022. Our tax- equivalent yield on earning assets in the three months ended September 30, 2023 was 6.29% compared to 4.83% in the three months ended September 30, 2022. Loans receivable decreased by $42.0 million to $2.27 billion during the three months ended September 30, 2023. Our overall cost of interest-bearing liabilities was 3.58% in the three months ended September 30, 2023 compared to 1.15% in the three months ended September 30, 2022. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a tax-equivalent net interest margin of 3.90% in the three months ended September 30, 2023, compared to 4.25% in the three months ended September 30, 2022.

Our net income for the three months ended September 30, 2023 was $3.9 million compared to $2.7 million in the three months ended September 30, 2022. Earnings for the three months ended September 30, 2023 equated to a return on average assets of 0.5% and a return on average equity of 5.8%, compared to the three months ended September 30, 2022 results of 0.4% and 4.2%, respectively. Basic and diluted earnings per share were $0.30 and $0.29, respectively, for the three months ended September 30, 2023, compared to $0.22 and $0.21, respectively, for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

During the nine months ended September 30, 2023, net interest income increased $13.8 million, noninterest income decreased $8.9 million and noninterest expenses increased by $5.9 million compared to the nine months ended September 30, 2022. Our

yield on tax-equivalent earning assets in the nine months ended September 30, 2023 was 6.10% compared to 4.18% in the nine months ended September 30, 2022. Loans receivable decreased by $102.2 million to $2.27 billion during the nine months ended September 30, 2023. Our overall cost of interest-bearing liabilities was 3.30% in the nine months ended September 30, 2023 compared to 0.70% in the nine months ended September 30, 2022. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a tax-equivalent net interest margin of 4.03% in the nine months ended September 30, 2023, compared to 3.84% in the nine months ended September 30, 2022.

Our net income for the nine months ended September 30, 2023 was $23.1 million compared to $8.5 million in the nine months ended September 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 nine months ended September 30, 2023 equated to a return on average assets of 0.9% and a return on average equity of 11.41%, compared to the nine months ended September 30, 2022 results of 0.4% and 4.4%, respectively. Basic and diluted earnings per share were $1.84 and $1.79, respectively, for the nine months ended September 30, 2023, compared to $0.70 and $0.66, respectively, for the nine months ended September 30, 2022.

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

The following tables present information regarding (1) average balances, the total dollar amount of interest income from interest earning assets and the resultant average yields; (2) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (3) the interest rate spread; (4) net interest income and margin; and (5) 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.


	Three Months Ended September 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	$	483,158	$	6,404	5.26	%	$	32,552	$	111	1.35	%
CDs with banks	—		—		—		232		2		3.42
Investment securities:
Taxable	206,340		1,056		2.03		231,953		897		1.53
Tax-exempt 2	107,490		1,016		3.75		144,719		1,346		3.69
Loans and loans held-for-sale: 1
Commercial	1,593,875		31,348		7.80		1,687,383		22,898		5.38
Tax exempt 2	3,678		40		4.31		4,498		51		4.50
Real estate	573,579		6,351		4.39		579,685		4,707		3.22
Consumer	95,032		2,331		9.73		129,464		4,183		12.82
Total loans	2,266,164		40,070		7.02		2,401,030		31,839		5.26
Total earning assets	3,063,152		48,546		6.29		2,810,486		34,195		4.83
Less: Allowance for loan losses	(29,693)						(23,083)
Cash and due from banks	6,686						5,399
Other assets	281,504						227,337
Total assets	$	3,321,649					$	3,020,139

Liabilities
Deposits:
NOW	$	674,745	$	4,970	2.92	%	$	734,271	$	1,394	0.75	%
Money market checking	537,592		3,294		2.43		258,527		422		0.65
Savings	72,206		438		2.41		71,370		153		0.85
IRAs	6,788		56		3.27		6,132		17		1.10
CDs	664,281		8,702		5.20		202,299		988		1.94
Repurchase agreements and federal funds sold	4,911		—		—		10,627		1		0.04
FHLB and other borrowings	278		—		—		48,058		311		2.57
Senior term loan	8,751		191		8.66		—		—		—
Subordinated debt	73,446		809		4.37		73,190		771		4.18
Total interest-bearing liabilities	2,042,998		18,460		3.58		1,404,474		4,057		1.15
Noninterest-bearing demand deposits	975,164						1,321,982
Other liabilities	38,021						37,019
Total liabilities	3,056,183						2,763,475

Stockholders’ equity

Common stock	13,570						13,086
Paid-in capital	159,050						145,877
Treasury stock	(16,741)						(16,741)
Retained earnings	146,504						144,816
Accumulated other comprehensive loss	(36,865)						(30,915)
Total stockholders’ equity	265,518						256,123
Noncontrolling interest	(52)						541
Total stockholders’ equity attributable to parent	265,466						256,664
Total liabilities and stockholders’ equity	$	3,321,649					$	3,020,139

Net interest spread (tax-equivalent)					2.71	%					3.68	%
Net interest income and margin (tax-equivalent) 2			$	30,086	3.90	%			$	30,138	4.25	%
Less: Tax-equivalent adjustments			$	(221)					$	(292)
Net interest spread					2.68	%					3.64	%
Net interest income and margin			$	29,865	3.87	%			$	29,846	4.21	%

1 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 September 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.

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


	Nine Months Ended September 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	$	405,012	$	15,099	4.98	%	$	273,184	$	630	0.31	%
CDs with banks	—		—		—		1,381		24		2.32
Investment securities:
Taxable	221,089		4,133		2.50		237,188		2,383		1.34
Tax-exempt 2	122,818		3,471		3.78		140,377		3,824		3.64
Loans and loans held-for-sale: 1
Commercial	1,616,510		90,413		7.48		1,569,161		59,899		5.10
Tax exempt 2	3,813		125		4.38		4,829		156		4.32
Real estate	596,070		18,343		4.11		438,380		9,722		2.97
Consumer	120,075		9,290		10.34		91,092		9,454		13.88
Total loans	2,336,468		118,171		6.76		2,103,462		79,231		5.04
Total earning assets	3,085,387		140,874		6.10		2,755,592		86,092		4.18
Less: Allowance for loan losses	(31,656)						(20,468)
Cash and due from banks	4,252						5,680
Other assets	303,233						237,637
Total assets	$	3,361,216					$	2,978,441

Liabilities
Deposits:
NOW	$	717,527	$	14,448	2.69	%	$	678,991	$	1,844	0.36	%
Money market checking	455,463		6,661		1.96		367,608		807		0.29
Savings	79,187		1,430		2.41		49,714		155		0.42
IRAs	6,448		128		2.65		6,271		52		1.11
CDs	572,078		21,396		5.00		122,095		1,433		1.57
Repurchase agreements and federal funds sold	5,974		—		—		11,334		4		0.05
FHLB and other borrowings	23,449		888		5.06		16,966		322		2.54
Senior term loan	9,285		583		8.39		—		—		—
Subordinated debt	73,383		2,409		4.39		73,126		2,284		4.18
Total interest-bearing liabilities	1,942,794		47,943		3.30		1,326,105		6,901		0.70
Noninterest-bearing demand deposits	1,107,712						1,350,533
Other liabilities	37,987						41,379
Total liabilities	3,088,493						2,718,017

Stockholders’ equity

Common stock	13,525						13,276
Paid-in capital	157,034						144,903
Treasury stock	(16,741)						(16,741)
Retained earnings	153,769						140,174
Accumulated other comprehensive loss	(34,980)						(21,905)
Total stockholders’ equity	272,607						259,707
Noncontrolling interest	116						717
Total stockholders’ equity attributable to parent	272,723						260,424
Total liabilities and stockholders’ equity	$	3,361,216					$	2,978,441

Net interest spread (tax-equivalent)					2.80	%					3.48	%
Net interest income and margin (tax-equivalent) 2			$	92,931	4.03	%			$	79,191	3.84	%
Less: Tax-equivalent adjustments			$	(755)					$	(837)
Net interest spread					2.77	%					3.44	%
Net interest income and margin			$	92,176	3.99	%			$	78,354	3.80	%

1 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 nine months ended September 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.

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2023			2022			2023			2022
Net interest margin - U.S. GAAP basis
Net interest income	$	29,865		$	29,846		$	92,176		$	78,354
Average interest-earning assets	3,063,152			2,810,486			3,085,387			2,755,592
Net interest margin	3.87		%	4.21		%	3.99		%	3.80		%

Net interest margin - non-U.S. GAAP basis
Net interest income	$	29,865		$	29,846		$	92,176		$	78,354
Impact of fully tax-equivalent adjustment	221			292			755			837
Net interest income on a fully tax-equivalent basis	$	30,086		$	30,138		$	92,931		$	79,191
Average interest-earning assets	$	3,063,152		$	2,810,486		$	3,085,387		$	2,755,592
Net interest margin on a fully tax-equivalent basis	3.90		%	4.25		%	4.03		%	3.84		%

Key Metrics


	As of and for the three months ended September 30,						As of and for the nine months ended September 30,
(Dollars in thousands, except per share data)	2023			2022			2023			2022
Book value per common share	$	21.33		$	19.85		$	21.33		$	19.85
Tangible book value per common share 5	$	21.08		$	19.38		$	21.08		$	19.38
Efficiency ratio 1 5 6	86.2		%	78.8		%	75.4		%	80.4		%
Overhead ratio 2 3 5	3.7		%	4.0		%	3.5		%	4.0		%
Net loan charge-offs to total loans 4	1.0		%	0.2		%	0.5		%	0.2		%
Allowance for credit losses to total loans 7	1.07		%	1.07		%	1.07		%	1.07		%
Nonperforming loans	$	10,593		$	22,350		$	10,593		$	22,350
Nonperforming loans to total loans	0.5		%	0.9		%	0.5		%	0.9		%
Equity to assets	7.9		%	7.8		%	7.9		%	7.8		%
Community Bank Leverage Ratio	10.4		%	11.1		%	10.4		%	11.1		%

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

7 Excludes loans held-for-sale

Tangible book value (“TBV”) per common share was $21.08 and $19.38 as of September 30, 2023 and September 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 September 30,
(Dollars in thousands, except per share data)	2023		2022
Goodwill	$	2,838	$	3,988
Intangibles	375		1,806
Total intangibles	3,213		5,794

Total equity attributable to parent	271,416		243,913

Less: Total intangibles	(3,213)		(5,794)
Tangible common equity	268,203		238,119

Tangible common equity	$	268,203	$	238,119
Common shares outstanding (000s)	12,726		12,287
Tangible book value per common share	$	21.08	$	19.38

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 a range of 4.25% to 4.5% as of December 31, 2022 to a range of 5.25% to 5.50% as of September 30, 2023. We continually analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin.

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Net interest margin on a tax-equivalent basis was 3.90% for the three months ended September 30, 2023 compared to 4.25% for the three months ended September 30, 2022. 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 yields. Tax-equivalent net interest spread was 2.71% for the three months ended September 30, 2023 compared to 3.68% for the three months ended September 30, 2022. The difference between the tax-equivalent net interest margin and tax-equivalent net interest spread was 119 basis points in the three months ended September 30, 2023 compared to 57 basis points in the three months ended September 30, 2022 driven by the increase in interest expense outpacing the increase in average assets.

During the three months ended September 30, 2023, net interest income increased by $0.1 million, or 0.1%, to $29.9 million from $29.8 million during the three months ended September 30, 2022. Average total earning assets were $3.06 billion in the three months ended September 30, 2023 compared to $2.81 billion in the three months ended September 30, 2022. Total interest income increased by $14.4 million, or 42.5%, to $48.3 million in the three months ended September 30, 2023 from $33.9 million in the three months ended September 30, 2022 driven by higher yields from new loan production at favorable interest rates. Average total loans decreased to $2.27 billion in the three months ended September 30, 2023 from $2.40 billion in the three months ended September 30, 2022, primarily as the result of a $6.1 million decrease in average real estate loans, a $93.5 million

decrease in average commercial loans and an $34.4 million decrease in average consumer loans. The yield on total loans increased 1.76%.

Average investment securities decreased $62.8 million as the result of a $37.2 million decrease in tax-exempt investments and a $25.6 million decrease in taxable investments during three months ended September 30, 2023, compared to three months ended September 30, 2022. The yield on tax-exempt securities increased six basis points and the taxable securities yield increased 50 basis points.

Average interest-bearing liabilities increased by $638.5 million for three months ended September 30, 2023 from three months ended September 30, 2022. The increase was primarily the result of average balance increases of $462.0 million in certificates of deposit and $279.1 million in money market checking deposits.

Average interest-bearing deposits were $1.96 billion for the three months ended September 30, 2023 and $1.27 billion for the three months ended September 30, 2022. Total interest expense increased by $14.4 million, caused primarily by a $14.5 million increase in deposit interest. The result was a 243 basis point increase in the cost of interest-bearing liabilities, primarily driven by increases in interest rates and liquidity actions taken during the third quarter of 2023 in response to market conditions.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Net interest margin on a tax-equivalent basis was 4.03% for the nine months ended September 30, 2023 compared to 3.84% for the nine months ended September 30, 2022. The increase in net interest margin on a tax-equivalent basis primarily reflects higher loan yield and a shift in the mix of earnings assets, partially offset by higher funding costs. Tax-equivalent net interest spread was 2.80% for the nine months ended September 30, 2023 compared to 3.48% for the nine months ended September 30, 2022. The difference between the tax-equivalent net interest margin and tax-equivalent net interest spread was 123 basis points in the nine months ended September 30, 2023 compared to 36 basis points in the nine months ended September 30, 2022. This was driven by the driven by the increase in interest expense outpacing the increase in average assets.

During the nine months ended September 30, 2023, net interest income increased by $13.8 million, or 17.6%, to $92.2 million from $78.4 million during the nine months ended September 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 $3.09 billion in the nine months ended September 30, 2023 compared to $2.76 billion in the nine months ended September 30, 2022. Total interest income increased by $54.9 million, or 64.4%, to $140.1 million in the nine months ended September 30, 2023 from $85.3 million in the nine months ended September 30, 2022 driven by higher yields from new loan production at favorable interest rates. Average total loans increased to $2.34 billion in the nine months ended September 30, 2023 from $2.10 billion in the nine months ended September 30, 2022, primarily as the result of a $157.7 million increase in average real estate loans and a $47.3 million increase in average commercial loans. The yield on total loans increased 172 basis points.

Average investment securities decreased $33.7 million as the result of a $17.6 million decrease in tax-exempt investments and an $16.1 million decrease in taxable investments during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The yield on tax-exempt securities increased 14 basis points and the taxable securities yield increased 116 basis points.

Average interest-bearing liabilities increased by $616.7 million for the nine months ended September 30, 2023 from the nine months ended September 30, 2022. The increase was primarily the result of average balance increases of $450.0 million in certificates of deposit, $38.5 million in negotiable order of withdrawal accounts, $87.9 million in money market checking accounts and $29.5 million in saving accounts.

The cost of interest-bearing liabilities increased to 3.30% in the nine months ended September 30, 2023 from 0.70% in the nine months ended September 30, 2022. This increase is primarily the result of an increase of 275 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 $1.83 billion for the nine months ended September 30, 2023 and $1.22 billion for the nine months ended September 30, 2022. Total interest expense increased by $41.0 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 loss provisions were $0.2 million for the three months ended September 30, 2023 and $5.1 million for the three months ended September 30, 2022, respectively. The decrease in credit loss provision is the result of both decreasing loss rates and loan segment balances across the entire loan portfolio, specifically concentrated within the subprime automobile segment. Subsequent to our latest sale of subprime automobile loans, we have a total of $11.2 million of such loans outstanding at September 30, 2023.

Further discussion on new accounting standards is included in Note 1 – Nature of Operations and Basis of Presentation accompanying the consolidated financial statements included elsewhere in this report.

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Total loans decreased $42.0 million during the three months ended September 30, 2023, compared to an increase of $256.3 million in the three months ended September 30, 2022. The decline in loan balances compared to the prior quarters primarily reflects amortization of the loan portfolio and the slowing of loan originations as part of steps we have taken to manage liquidity in light of events within the banking industry during the first half 2023. The commercial loan portfolio increased by $5.1 million during the three months ended September 30, 2023, as compared to an increase of $61.8 million in the three months ended September 30, 2022, while the residential mortgage loan portfolio decreased by $23.8 million during the three months ended September 30, 2023, as compared to a $161.4 million increase during the three months ended September 30, 2022. Additionally, our consumer loan portfolio decreased by $21.4 million during the three months ended September 30, 2023, while it increased by $33.4 million in the three months ended September 30, 2022. Net charge-offs totaled $5.9 million and $1.3 million during the three months ended September 30, 2023 and 2022, respectively.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Total loans decreased $102.2 million during the nine months ended September 30, 2023 versus an increase of $601.6 million in the nine months ended September 30, 2022. The commercial loan portfolio decreased by $37.8 million during the nine months ended September 30, 2023, as compared to an increase of $210.7 million in the nine months ended September 30, 2022, while the residential mortgage loan portfolio increased by $40.8 million during the nine months ended September 30, 2023, while increasing by $294.1 million in the nine months ended September 30, 2022. Additionally, our consumer loan portfolio decreased by $101.2 million during the nine months ended September 30, 2023, while it increased by $97.0 million in the nine months ended September 30, 2022. In addition, net charge-offs during the nine months ended September 30, 2023 totaled $8.8 million compared to net charge-offs of $3.3 million in the nine months ended September 30, 2022.

Noninterest Income

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

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Noninterest income for the three months ended September 30, 2023 and 2022 totaled $5.8 million and $5.5 million, respectively. The increase in noninterest income for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was primarily the result of an increase of $0.3 million in equity method investment income and an increase of $0.8 million in other operating income, partially offset by a decrease of $1.0 million in gain on sale of loans.

Gain on sale of loans decreased $1.0 million, primarily as a result of losses on the sale of subprime automobile loans as we reduce that portfolio during the three months ended September 30, 2023. Equity method investment income increased $0.3 million due to income from our equity method investment in Warp Speed, which was purchased in October 2022, partially offset by a loss from our equity method investment in ICM.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Noninterest income for the nine months ended September 30, 2023 and 2022 totaled $15.3 million and $24.1 million, respectively. The decrease in noninterest income for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily the result of decreases of $4.8 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 $4.8 million, primarily as a result of losses on the sale of subprime automobile loans as we reduced 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 third quarter of 2022.

Noninterest Expense

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Noninterest expense was $30.7 million and $28.2 million in the three months ended September 30, 2023 and 2022, respectively. The increase from the prior period primarily reflects higher other operating expenses, specifically higher professional fees related to recent actions taken in response to the market events in March 2023 and to enhance risk management and compliance-related infrastructure. This increase was partially offset by a decrease in travel, entertainment, dues and subscriptions expenses. Approximately 52% and 61% of noninterest expense for the three months ended September 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.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Noninterest expense was $89.3 million and $83.4 million in the nine months ended September 30, 2023 and 2022, respectively. The increase from the prior period primarily reflects higher other operating expenses, specifically higher professional fees related to recent actions taken in response to the market events in March 2023 and to enhance risk management and compliance-related infrastructure. This increase was partially offset by a decrease in occupancy expense. Approximately 54% and 62% of noninterest expense for the nine months ended September 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.

Discontinued Operations

In February 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 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.

Return on Assets and Equity

Assets

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Our return on average assets was 0.5% for the three months ended September 30, 2023, compared to 0.4% for the three months ended September 30, 2022. The increased return in the three months ended September 30, 2023 is the result of a $1.2 million increase in earnings, while average total assets increased by $300.9 million, mainly as the result of a $450.6 million increase in average interest-bearing deposits with banks, partially offset by a $130.0 million decrease in average total loans.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Our return on average assets was 0.9% for the nine months ended September 30, 2023, compared to 0.4% for the nine months ended September 30, 2022. The increased return for the nine months ended September 30, 2023 is the result of a $14.8 million increase in earnings, while average total assets increased by $384.1 million, mainly as the result of a $233.0 million increase in

average total loans and a $131.8 million increase in average interest-bearing deposits with banks.

Equity

Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

Our return on average stockholders’ equity was 5.8% for the three months ended September 30, 2023, compared to 4.2% for the three months ended September 30, 2022. The increased return in the three months ended September 30, 2023 is a result of an $1.2 million increase in earnings, while average equity increased by $8.8 million.

Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

Our return on average stockholders’ equity was 11.4% for the nine months ended September 30, 2023, compared to 4.4% for the nine months ended September 30, 2022. The increased return for the nine months ended September 30, 2023 is a result of a $14.8 million increase in earnings, while average equity increased by $12.3 million.

Statement of Financial Condition

Cash and Cash Equivalents

Cash and cash equivalents totaled $587.1 million at September 30, 2023, compared to $40.3 million at December 31, 2022. The increase in cash and cash equivalents reflects actions taken in 2023 to ensure liquidity in response to recent conditions in the banking industry. 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.

Investment Securities

Investment securities, including equity securities, totaled $352.4 million at September 30, 2023, compared to $418.6 million at December 31, 2022. 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)	September 30, 2023		December 31, 2022
Available-for-sale securities:
United States government agency securities	$	37,140	$	44,814
United States sponsored mortgage-backed securities	60,481		56,571
United States treasury securities	98,100		120,909
Municipal securities	98,624		138,636
Corporate debt securities	8,901		10,560
Other debt securities	7,500		7,500
Other securities	791		824
Total investment securities available-for-sale	$	311,537	$	379,814

Equity securities	$	40,835	$	38,744

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. 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.

Our equity securities are primarily made up 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 $2.27 billion as of September 30, 2023 and $2.37 billion as of December 31, 2022. The Bank’s lending is primarily focused in North Central West Virginia and Northern Virginia. 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 September 30, 2023 and December 31, 2022, 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 23% of our total loan portfolio as of September 30, 2023.

Allowance for Credit Losses

The ACL was $24.3 million, or 1.07% of loans receivable, at September 30, 2023, compared to $23.8 million, or 1.00% of loans receivable, at December 31, 2022. The increase in the ACL of $0.4 million was primarily impacted by two items, the adoption of ASC 326 and significant loan sales within subprime auto subcategory, within the Consumer loans segment. The adoption of ASC 326 required an increase in the allowance for credit losses of $8.9 millions of January 1, 2023. However, two significant loan sales in the Consumer segment, and subsequent loss rate adjustments, have generated a decrease of $8.2 million. Additionally, over the nine months ended September 30, 2023, changes to the loan portfolio balances, qualitative factor adjustments and expected loss forecasts within the expected credit loss calculation resulted in allowance increases of $0.7 million and $0.4 million million to the Other Construction and C&I portfolio segments, respectively. These increases have been offset by Individually Analyzed loans experiencing an allowance decrease of $1.1 million. All other segments combined experienced an allowance decrease of $0.2 million. While Bank management's expectations are that the markets in which it lends will experience an economic decline over the next 12 to 24 months, most increases in estimated loss rates have been offset by decreases in loan balances in the nine months ending September 30, 2023. This results in marginally higher allocation rates, against significantly lower loan balances, resulting in an overall lower allowance needed for the entire portfolio. The decreases to the allowance for credit losses totaled $8.5 million and combined with net charge offs to date of $8.8 million, resulted in total credit loss provision of $0.3 million over the nine months ended September 30, 2023.

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 remain the most significant source of funds, totaling $3.04 billion, or 97.3% of funding sources at September 30, 2023. This same information at December 31, 2022 reflected $2.57 billion in deposits representing 92.9% of funding sources. Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 2.6% of funding sources at September 30, 2023, versus 6.7% at December 31, 2022. Repurchase agreements, which are available to large corporate customers, represented 0.1% of funding sources at September 30, 2023 and 0.4% at December 31, 2022.

At September 30, 2023, noninterest-bearing balances totaled $1.09 billion, compared to $1.23 billion at December 31, 2022, or 36.0% and 47.9%, respectively, of total deposits. Interest-bearing deposits totaled $1.94 billion at September 30, 2023, compared to $1.34 billion at December 31, 2022, or 64.0% and 52.1%, respectively, of total deposits.

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


(Dollars in thousands)	September 30, 2023		December 31, 2022
Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand	$	1,093,903	$	1,231,544
Interest-bearing demand	696,538		720,074
Savings and money markets	618,781		284,447
Time deposits, including CDs and IRAs	629,667		334,417
Total deposits	$	3,038,889	$	2,570,482

Time deposits that meet or exceed the FDIC insurance limit	$	3,435	$	4,386

Average interest-bearing deposits were $1.96 billion during the three months ended September 30, 2023, compared to $1.27 billion during the same time period in 2022 and average noninterest-bearing deposits were $975.2 million during the three months ended September 30, 2023 compared to $1.32 billion during the same time period in 2022.

Average interest-bearing deposits were $1.83 billion during the nine months ended September 30, 2023 compared to $1.22 billion during the same time period in 2022 and average noninterest-bearing deposits were $1.11 billion during the nine months ended September 30, 2023 compared to $1.35 billion during the same time period in 2022.

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 maintained at program banks. Program banks undergo robust due diligence prior to becoming a program bank and are also subject to continuous monitoring. These off-balance sheet deposits totaled $1.1 billion at September 30, 2023 and $724.0 million at December 31, 2022 and represent 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 four primary Fintech deposit verticals are gaming, payments, banking-as-a-service and digital assets, with deposits totaling $451.5 million, $326.7 million, $252.3 million and $225.2 million as of September 30, 2023, respectively, compared to $652.1 million, $213.0 million, $138.7 million and $121.6 million as of December 31, 2022, respectively. Of the gaming deposits, $322.5 million is with our three largest clients at September 30, 2023.

Capital Resources

During the nine months ended September 30, 2023, stockholders’ equity increased $10.0 million to $271.4 million. This increase consists of net income of $23.3 million, stock based compensation of $2.8 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 $6.5 million, other comprehensive loss of $2.5 million and minimum tax withholding on restricted stock units issued of $0.7 million.

The growth in assets of $368.7 million in the nine months ended September 30, 2023 outpaced the growth in stockholders' equity, and the equity to assets ratio decreased from 8.5% at December 31, 2022 to 7.9% at September 30, 2023. We paid dividends to common shareholders of $6.5 million and $6.2 million in the nine months ended September 30, 2023 and 2022, respectively, compared to earnings of $23.3 million and $8.5 million in the nine months ended September 30, 2023 and 2022, respectively, resulting in the dividend payout ratio decreasing to 27.7% in the nine months ended September 30, 2023 from 72.7% in the nine months ended September 30, 2022.

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 and accompanying notes contained in the 2022 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 September 30, 2023 was 10.4%, 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. 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 nine months ended September 30, 2023, cash from operating, investing and financing activities totaled $39.5 million, $155.2 million and $352.2 million, respectively. Significant changes in cash flows during the quarter include inflows from the net increase in deposits of $468.4 million, net maturities/paydowns of available-for-sale investment securities of $75.1 million and sales of available-for-sale investment securities of $54.5 million, partially offset by cash outflows of $102.3 million to pay down FHLB and other borrowings and $70.4 million to 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 3.8% for September 2023 and 3.3% for September 2022.

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 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 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

Our market risk is composed primarily of interest rate risk. The ALCO is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and coordinate our sources, uses and pricing of funds.

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. 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 September 30, 2023, 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 September 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.

During the three months ended September 30, 2023, 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.

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 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 September 30, 2023, 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 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


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:	November 7, 2023	By:	/s/ Larry F. Mazza
			Larry F. Mazza
			CEO and Director
			(Principal Executive Officer)

Date:	November 7, 2023	By:	/s/ Donald T. Robinson
			Donald T. Robinson
			President and CFO
			(Principal Financial and Accounting Officer)

TABLE OF CONTENTS

Part I Financial Information Item 1 Financial Statements Note 1 Nature Of Operations and Basis Of Presentation Note 15 Acquisition & Divestiture Activity Note 5 Equity Method Investments Note 11 - Derivatives Note 2 Investment Securities Note 3 Loans and Allowance For Credit Losses Note 1 - Summary Of Significant Accounting Policies Note 3 - Loans and Allowance For Loan Losses Item 8, Financial Statements and Supplementary Data Note 4 Premises and Equipment Note 6 Deposits Note 7 Borrowed Funds Note 8 Pension and Supplemental Executive Retirement Plans Note 9 Fair Value Of Financial Instruments Note 10 Fair Value Measurements Note 11 Derivatives Note 12 Earnings Per Share Note 13 Comprehensive Income Note 14 Segment Reporting Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 1, Business Note 16 Regulatory Capital Requirements Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Item 1A Risk Factors Item 2 Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3 Defaults Upon Senior Securities Item 4 Mine Safety Disclosures Item 5 Other Information Item 6 Exhibits

Exhibits

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

MVBF 10-Q Quarter ended Sept. 30, 2023

Exhibits