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What changed in MVB FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MVB FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+344 added−367 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-16)

Top changes in MVB FINANCIAL CORP's 2023 10-K

344 paragraphs added · 367 removed · 261 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

84 edited+20 added−25 removed144 unchanged
Biggest changeWhen serviced in a safe and efficient manner, we believe these industries provide a source of stable, low 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.
Biggest changeWe 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. Edge Ventures Edge Ventures, a wholly-owned subsidiary of the Bank, acts as a holding company for Victor and MVB Technology. Victor Victor is a wholly-owned subsidiary of Edge Ventures.
We take time to listen to our team members, to understand areas of opportunity and to provide support that enables us to execute on our business strategy. Diversity Equity and Inclusion Our goal is to create and sustain a visible commitment to diversity, equity and inclusion, recognizable to current and future team members, clients and partners.
We take time to listen to our team members, to understand areas of opportunity and to provide support that enables us to execute on our business strategy. Diversity, Equity and Inclusion Our goal is to create and sustain a visible commitment to diversity, equity and inclusion that is recognizable to current and future team members, clients and partners.
Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied.
Federal and state regulatory agencies also periodically propose and adopt changes to their existing regulations or change the manner in which existing regulations are applied.
In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire 9 and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board).
In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely determined by the Federal Reserve Board).
The Federal Reserve Act, made applicable to the Bank by section 8(j) of the Federal Deposit Insurance Act (the “FDIA”), imposes quantitative and qualitative requirements and collateral requirements on “covered transactions” by the Bank with, or for the benefit of, its affiliates and generally requires those transactions to be on arm's length terms at least as favorable to the Bank as if the transaction were conducted with an unaffiliated 13 third-party.
The Federal Reserve Act, made applicable to the Bank by section 8(j) of the Federal Deposit Insurance Act (the “FDIA”), imposes quantitative and qualitative requirements and collateral requirements on “covered transactions” by the Bank with, or for the benefit of, its affiliates and generally requires those transactions to be on arm's length terms at least as favorable to the Bank as if the transaction were conducted with an unaffiliated third-party.
In addition, the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) was required to raise the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank holding companies that are exempt from consolidated capital requirements, provided that such companies meet certain other conditions such as not engaging in significant non-banking activities.
In addition, the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) was required to raise the asset threshold under 8 its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank holding companies that are exempt from consolidated capital requirements, provided that such companies meet certain other conditions such as not engaging in significant non-banking activities.
Fintech companies also compete with us directly and in partnership with other banks and financial services providers in lending, deposits, contactless payment cards, digital wallets and mobile payments solutions, installment or other buy now pay later methods, real-time payment systems, peer-to-peer payments, card readers and other point of sale technologies, tools that simplify merchant payments and other markets.
Fintech companies also compete with us directly and in partnership with other banks and financial services providers in lending, deposits, contactless payment cards, digital wallets and mobile payments solutions, installment or other buy now pay later methods, real-time payment systems, peer-to-peer payments, card readers and other point of sale technologies, tools that simplify 6 merchant payments and other markets.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to our business strategy or limit our ability to pursue business opportunities in an efficient manner.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of any proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to our business strategy or limit our ability to pursue business opportunities in an efficient manner.
The Capital Rules include a “Common Equity Tier 1” (“CET1”) measure, specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expand the scope of the deductions/adjustments to capital as compared to existing regulations.
The Capital Rules include a “Common Equity Tier 1” (“CET1”) measure, specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, define CET1 narrowly by requiring that most 13 deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expand the scope of the deductions/adjustments to capital as compared to existing regulations.
We believe educating our team members about events and subjects related to diversity, equity and inclusion creates a more inclusive culture and enables leaders across the organization to develop diverse teams and fosters collaboration and innovation. Total Rewards 7 To attract and retain team members, we consistently assess the labor market and seek to improve our benefit and compensation programs.
We believe educating our team members about events and subjects related to diversity, equity and inclusion creates a more inclusive culture, enables leaders across the organization to develop diverse teams and fosters collaboration and innovation. Total Rewards To attract and retain team members, we consistently assess the labor market and seek to improve our benefit and compensation programs.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA.
If, after 15 being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA.
The CFPB has concentrated certain of its rulemaking efforts on a variety of mortgage-related topics required under the Dodd-Frank Act, including mortgage origination disclosures, minimum underwriting standards and ability to repay, high-cost mortgage lending and servicing practices. The CFPB issued final rules changing the reporting requirements for lenders under the HMDA.
The CFPB has concentrated certain of its rulemaking efforts on a variety of home mortgage-related topics required under the Dodd-Frank Act, including mortgage origination disclosures, minimum underwriting standards and ability to repay, high-cost mortgage lending and servicing practices. The CFPB issued final rules changing the reporting requirements for lenders under the HMDA.
As such, we are subject to more stringent standards and requirements with respect to: (i) bank and non-bank acquisitions and mergers; (ii) the “financial activities” in which we engage as a financial holding company; (iii) affiliate transactions; and (iv) proprietary trading and investing in private equity or hedge funds, among other provisions.
As such, we are subject to stringent standards and requirements with respect to: (i) bank and non-bank acquisitions and mergers; (ii) the “financial activities” in which we engage as a financial holding company; (iii) affiliate transactions; and (iv) proprietary trading and investing in private equity or hedge funds, among other provisions.
In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a 15 variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.
In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and 18 to store sensitive data. We employ a variety of preventative and detective tools to monitor, block and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ a variety of preventative and detective tools to monitor, block and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.
The Bank generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan, unless the borrower obtains private mortgage insurance for the percentage exceeding 80%. Occasionally, the Bank may lend up to 100% of the appraised value of the real estate.
The Bank generally requires that a residential real estate loan amount be no more than 80% of the purchase price or the appraised value of the real estate securing the loan unless the borrower obtains private mortgage insurance for the percentage exceeding 80%. Occasionally, the Bank may lend up to 100% of the appraised value of the real estate.
In addition, the ability of a borrower to make payments on commercial loans typically depends on adequate cash flow of a business and thus may be subject to adverse conditions in the general economy or in a specific industry to a greater extent than consumer loans.
In addition, the ability of a borrower to make payments on commercial loans typically depends on adequate cash flow of a business and thus may be subject 5 to adverse conditions in the general economy or a specific industry to a greater extent than consumer loans.
An institution may be downgraded to, or deemed to be within, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
An institution may be downgraded 14 to, or deemed to be within, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
The United States Treasury has issued a number of regulations to implement the Patriot Act under this authority 11 requiring financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing.
The United States Treasury has issued a number of regulations to implement the Patriot Act under this authority requiring financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing.
The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.
The CFPB has broad rulemaking 16 authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.
The Bank remains subject to regulatory capital requirements administered by the federal banking agencies. Federal Securities Regulation 10 We are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.
The Bank remains subject to regulatory capital requirements administered by the federal banking agencies. Federal Securities Regulation We are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.
A depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in the sections captioned Capital Requirements and Prompt Corrective Action included in this item.
A 9 depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in the sections captioned Capital Requirements and Prompt Corrective Action included in this item.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
Regulatory authorities have imposed cease and desist orders and civil money penalties against 11 institutions found to be violating these obligations.
We offer a competitive salary structure with short-term and long-term performance incentives. Our total compensation programs are also designed to promote the interests of our team members and shareholders, while enabling us to attract and retain top-quality executive talent.
We offer a competitive salary structure with short-term and long-term performance incentives. We designed our total compensation programs to promote the interests of our team members and shareholders, while enabling us to attract and retain top-quality executive talent.
The Bank evaluates all new commercial loans and the Bank's Credit Department facilitates an annual loan review process that ensures that a significant portion of the commercial loan portfolio, typically a minimum of 50%, is reviewed each year under a risk-based approach.
The Bank evaluates all new commercial loans and the Bank’s Credit Department facilitates an annual loan review process that ensures that a significant portion of the commercial loan portfolio, typically a minimum of 60%, is reviewed each year under a risk-based approach.
We operate under a “needs-based” selling approach that management believes has proven successful in serving the financial needs of most customers. It is not our strategy to compete solely on the basis of interest rates.
We operate under a “needs-based” selling approach that management believes has proven successful in serving the financial needs of most customers. It is not our strategy to compete solely based on interest rates.
The Dodd-Frank Act imposes prudential regulation on depository institutions and their holding companies, which requires financial firms to control risks and hold adequate capital as defined by capital requirements and liquidity requirements and by the imposition of concentration risk limits.
The Dodd-Frank Act imposed prudential regulation on depository institutions and their holding companies, which requires financial firms to control risks and hold adequate capital as defined by capital requirements and liquidity requirements and by the imposition of concentration risk limits.
Under the Bank Merger Act, the prior approval of the FDIC (in the case of a non-member bank) or other appropriate bank regulatory authority is required for a bank to merge with another bank or purchase substantially all of the assets or assume any deposits of another bank.
Under the Bank Merger Act, the prior approval of the FDIC (in the case of a state chartered non-member bank) or other appropriate bank regulatory authority is required for a bank to merge with another bank or purchase substantially all of the assets or assume any deposits of another bank.
Management believes that a focus on customer relationships and service will promote our customers’ continued use of our financial products and services and will lead to enhanced revenue opportunities. We are also involved in innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments in Fintech companies.
Management believes that focusing on customer relationships and service will promote our customers’ continued use of our financial products and services and will lead to enhanced revenue opportunities. We are also involved in innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments in Fintech companies.
As of July 22, 2019, the effective date for the rulemaking implementing the EGRRCPA exemption, and December 31, 2022, we and the Bank are below these thresholds and thus exempt from the Volcker Rule. Limit on Dividends We are a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries.
As of July 22, 2019, the effective date for the rulemaking implementing the EGRRCPA exemption, and December 31, 2023, we and the Bank are below these thresholds and thus exempt from the Volcker Rule. 12 Limit on Dividends We are a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries.
Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost proves to be inaccurate, we may advance funds beyond the amount originally committed to permit completion of the project.
The risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost (including interest) of construction. If the construction cost estimate proves to be inaccurate, we may advance funds beyond the amount originally committed to permit completion of the project.
Human Capital Resources As of December 31, 2022, we employed 477 team members. We seek to attract, retain and develop the most talented team members possible, regardless of location, by promoting a strong, positive culture, offering competitive compensation, maintaining a safe and healthy workplace, investing in training and education and emphasizing open communication with management.
Human Capital Resources As of December 31, 2023, we employed 445 team members. We seek to attract, retain and develop the most talented team members possible, regardless of location, by promoting a strong, positive culture, offering competitive compensation, maintaining a safe and healthy workplace, investing in training and education and emphasizing open communication with management.
Banks can onboard and manage more programs with Victor’s tailored due diligence, risk assessment and oversight workflow tools. Recognizing the complexity of the Fintech ecosystem, Victor also supports seamless integration with a proven network of value-added technology and service providers. 4 Professional Services Chartwell Chartwell is a wholly-owned subsidiary of the Bank.
Banks can onboard and manage more programs with Victor’s tailored due diligence, risk assessment and oversight workflow tools. Recognizing the complexity of the Fintech ecosystem, Victor also supports seamless integration with a proven network of value-added technology and service providers. Professional Services Paladin Fraud Paladin Fraud is a wholly-owned subsidiary of the Bank.
These modifications, among other changes: (i) exempt banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) eliminate the requirement for appraisals for certain real estate transactions valued at less than $400,000 in rural areas; (iii) exempt banks that originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act’s expanded data disclosures; (iv) clarify that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations; (v) raise eligibility for the 18-month exam cycle from $1 billion to banks with $3 billion in assets; and (vi) simplify capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that upon the election of a bank would replace the risk-based capital requirements.
These modifications, among other changes, include: (i) exempting banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) eliminating the requirement for appraisals for certain real estate transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act’s expanded data disclosures; (iv) clarifying that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered deposit regulations; (v) raising eligibility for the 18-month exam cycle from $1 billion to banks with $3 billion in assets; and (vi) simplifying capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that upon the election of a bank would replace the risk-based capital requirements.
For further discussion of risks related to cybersecurity, please refer to Item 1A – Risk Factors included elsewhere in this report. Monetary Policy and Economic Conditions The business of financial institutions is affected not only by general economic conditions, but also by the policies of various governmental regulatory agencies, including the Federal Reserve Board.
For further discussion of risks related to cybersecurity, please refer to Item 1C - Cybersecurity included elsewhere in this report. Monetary Policy and Economic Conditions The business of financial institutions is affected not only by general economic conditions, but also by the policies of various governmental regulatory agencies, including the Federal Reserve Board.
The bank elected to begin using the CBLR framework for the first quarter of 2021 and intends to use this measure for the foreseeable future.
The bank elected to begin using the CBLR framework for the first quarter of 2022 and intends to use this measure for the foreseeable future.
In June 2010, the Federal Reserve Board, Office of the Comptroller of the Currency, and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking.
The Federal Reserve Board, Office of the Comptroller of the Currency, and FDIC have issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk taking.
Guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits, among other subjects.
Guidelines adopted by the federal bank regulatory agencies establish general standards relating to risk management, legal and regulatory compliance, internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits, among other subjects.
In 2022, team members were assigned position-specific curricula designed to support ongoing compliance requirements and development within their individual positions. Team members experience on the job training, as well as other company organized opportunities.
In 2023 we assigned team members position-specific curricula designed to support ongoing compliance requirements and development within their individual positions. Team members experience on-the-job training, as well as other company organized opportunities.
The MAV is determined by taking line item values for various investment and loan classes and applying an FHLB haircut to each item. At December 31, 2022, the Bank held capital stock of FHLB in the amount of $10.0 million.
The MAV is determined by taking line item values for various investment and loan classes and applying an FHLB haircut to each item. At December 31, 2023, the Bank held capital stock of FHLB in the amount of $2.1 million.
We are subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which imposes numerous reporting, accounting, corporate governance and business practices on companies, as well as financial and other professionals who have involvement with the United States public markets. We are generally subject to these requirements and applicable SEC rules and regulations.
We are subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which imposes numerous reporting, accounting, corporate governance and business practices on companies, as well as financial and other professionals who have involvement with the United States public markets.
Full appraisals are obtained from licensed appraisers for the majority of loans secured by real estate. In addition, the Bank purchases residential real estate loans from ICM. Residential construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.
The Bank obtains full appraisals from licensed appraisers for the majority of loans secured by real estate. In addition, the Bank purchases residential real estate loans from ICM. Lenders generally consider residential construction financing to involve a higher risk of loss than long-term financing on improved, occupied real estate.
We educate, support and empower team members and their dependents to improve and maintain their overall health and well-being through healthy lifestyle choices and to create a culture of wellness. We offer competitive benefits plans, wellness incentives, flexible work arrangements, parental leave and community service opportunities.
We aim to create a culture of wellness by educating, supporting and empowering team members and their dependents to improve and maintain their overall health and well-being through healthy lifestyle choices. We offer competitive benefits plans, wellness incentives, flexible work arrangements, parental leave and community service opportunities.
If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution. 16 Federal Home Loan Bank Membership The Federal Home Loan Bank (“FHLB”) provides credit to its members in the form of advances.
If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
In 2022, we held 156 internal learning events that provided 228 total hours, or an average of 4.76 hours per week, of learning opportunities facilitated by our Learning & Development team. We have a 40 hour annual education requirement for each team member as part of our annual performance evaluation process.
In 2023, we held 105 internal learning events that provided 173 total hours, or an average of 3.32 hours per week, of learning opportunities facilitated by our Learning & Development team. We have a 40-hour annual education requirement for each team member as part of our annual performance evaluation process.
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 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.
Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction to consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office. Cybersecurity In March 2015, federal regulators issued two related statements regarding cybersecurity.
Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction to consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office.
Also, note that with respect to construction loans, the Bank generally makes loans to the homeowner, rather than to the builder. At December 31, 2022, residential mortgage construction loans to individuals totaled approximately $90.6 million with an average remaining life of three months and are generally refinanced to a permanent loan upon completion of the construction.
Also, note that, with respect to construction loans, the Bank generally makes loans to the homeowner, rather than to the builder. At December 31, 2023, residential mortgage construction loans to individuals totaled $53.3 million with an average remaining life of five months. These loans are generally refinanced to a permanent loan upon completion of the construction.
In addition, SEC regulations require public companies, like us, to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.
We adopted a clawback policy pursuant to the NASDAQ listing standards in October 2023. In addition, SEC regulations require public companies, like us, to provide various disclosures about executive compensation in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive compensation.
The Bank's CBLR at December 31, 2022 was 9.83%. Prompt Corrective Action The FDIA requires, among other things, that the federal banking agencies take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements.
Prompt Corrective Action The FDIA requires, among other things, that the federal banking agencies take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements.
ITEM 1. BUSINESS Corporate Overview MVB Financial Corp. is a financial holding company organized as a West Virginia corporation in 2003 that operates principally through its wholly-owned subsidiary, MVB Bank, Inc. (the "Bank"). The Bank’s consolidated subsidiaries include MVB Insurance, LLC, a title insurance company (“MVB Insurance”), ProCo Global, Inc.
ITEM 1. BUSINESS Corporate Overview MVB Financial Corp. is a financial holding company organized as a West Virginia corporation in 2003 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”).
Regulatory Agencies We are a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries. As a financial holding company and a bank holding company, we are regulated under the Bank Holding Company Act of 1956, as amended (“BHCA”), and we and our non-bank subsidiaries are subject to inspection, examination and supervision by the Federal Reserve Board.
As a financial holding company and a bank holding company, we are regulated under the Bank Holding Company Act of 1956, as amended (“BHCA”), and we and our non-bank subsidiaries are subject to inspection, examination and supervision by the Federal Reserve Board.
Victor Victor is a wholly-owned subsidiary of Edge Ventures. Victor was formed to develop technology to make it faster and easier to launch and scale a broad spectrum of Fintech solutions for the gaming, payments, banking-as-a-service and digital asset sectors. Within a matter of weeks, Fintech developers can build solutions to manage and move money with developer-friendly application programming interfaces.
The team at Victor develops technology to make it faster and easier to launch and scale a broad spectrum of Fintech solutions for the gaming, payments, banking-as-a-service and digital asset sectors. 4 Within weeks, Fintech developers can build solutions to manage and move money with developer-friendly application programming interfaces.
The primary factors in competing for loans are interest rates, loan terms and overall lending services. Competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions, as well as from insurance companies and brokerage firms. Competition for deposits also comes from other Fintech-focused banks and neobanks, which are online-only financial institutions.
Competition for deposits comes from other commercial banks, savings associations, money market funds and credit unions, as well as from insurance companies and brokerage firms. Competition for deposits also comes from other Fintech-focused banks and neobanks, which are online-only financial institutions.
Acquisitions The BHCA, the Bank Merger Act, the Change in Bank Control Act (the “CIBCA”), West Virginia banking law, and other federal and state statutes regulate investments in and acquisitions of commercial banks and their parent holding companies.
We are generally subject to these requirements and applicable SEC rules and regulations. 10 Acquisitions The BHCA, the Bank Merger Act, the Change in Bank Control Act (the “CIBCA”), West Virginia banking law, and other federal and state statutes regulate investments in and acquisitions of commercial banks and their parent holding companies.
Residential Mortgage Loans At December 31, 2022, the Bank had approximately $628.2 million of residential real estate loans, home equity lines of credit and construction mortgages outstanding, representing 26% of total loans outstanding.
Residential Mortgage Loans At December 31, 2023, the Bank had $687.1 million of residential real estate loans, home equity lines of credit and construction mortgages outstanding, representing 29.7% of total loans outstanding.
In view of the changing conditions in the economy and the money markets, the activities of monetary and fiscal authorities and the recent reports of a significant growth in inflationary pressures, we cannot predict future changes in interest rates, credit availability or deposit levels. Effect of Environmental Regulation Our primary exposure to environmental risk is through our lending activities.
In view of the changing conditions in the economy and the money markets, the activities of monetary and fiscal authorities and in spite of the recent reports of a significant lessening in inflationary pressures, we cannot predict future changes in interest rates, credit availability or deposit levels.
Primary Market Areas and Customers We consider our primary market area for CoRe banking services to be comprised of North Central West Virginia and Northern Virginia, where we currently operate eight full-service branches: six in West Virginia and two in Virginia. We consider our Fintech banking market to be customers located throughout the entire United States.
Primary Market Areas and Customers Our primary market area for CoRe banking services encompasses North Central West Virginia and Northern Virginia, where we currently operate eight full-service branches, comprising of six in West Virginia and two in Virginia.
If deterioration in credit worthiness has occurred, the Bank takes prompt action designed to assure repayment of the loan. Upon detection of the reduced ability of a borrower to meet original cash flow obligations, the loan is considered for possible downgrading, and may be considered classified and potentially placed on non-accrual status.
Upon detection of the reduced ability of a borrower to meet original cash flow obligations, the loan is considered for possible downgrading, and may be considered classified and potentially placed on non-accrual status.
Paladin Fraud Paladin Fraud is a wholly-owned subsidiary of the Bank. Paladin Fraud provides an extensive and customizable suite of fraud prevention services for merchants, credit agencies, Fintech companies and other vendors to help clients and partners defend against threats. Trabian The Bank owns an 80.8% interest in Trabian.
Paladin Fraud provides an extensive and customizable suite of fraud prevention services for merchants, credit agencies, Fintech companies and other vendors to help clients and partners defend against threats. Trabian The Bank owns an 80.8% interest in Trabian. Trabian builds digital products and web and mobile applications for forward-thinking community banks, credit unions, digital banks and Fintech companies.
We are awaiting required regulatory approvals in order to execute the Merger. 3 Business Overview We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as well as Fintech banking.
Business Overview We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as well as Fintech banking.
Trabian builds digital products and web and mobile applications for forward-thinking community banks, credit unions, digital banks and Fintech companies. Consistent with the Bank's mission to pursue technology to accelerate community finance, Trabian has created technology platforms that have been instrumental to the success of many of today’s leading Fintech companies.
Consistent with the Bank's mission to pursue technology to accelerate community finance, Trabian has created technology platforms that have been instrumental to the success of many of today’s leading Fintech companies.
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 3.3%, 3.7% and 6.5% for December 2022 , 2021 and 2020, respectively.
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 3.5%, 3.3% and 3.7% for December 2023, 2022 and 2021, respectively. Segment Reporting We have identified three reportable segments: CoRe Banking, Mortgage Banking and Financial Holding Company.
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. 14 We have policies and procedures in place to establish internal capital levels and to monitor and stress-test such levels on a regular basis to ensure we remain above regulatory capital limits.
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.
Communication, Recognition and Engagement We believe it is important to provide our team members with open communication with management. Our internal communication structure includes various opportunities for team members to interact with our chief executive officer and other members of the executive leadership team, including monthly all-hands town hall meetings.
Our internal communication structure includes various opportunities for team members to interact with our chief executive officer and other members of the executive leadership team members, including monthly all-hands town hall meetings. At the meetings, our chief executive officer and executive leadership team members present informational topics in sessions open to all team members.
The recent focus on environmental, sustainable and governance and climate change considerations in the business community and among our and the Bank's other constituents may over time affect our and the Bank's approach to evaluating and addressing environmental risk and may increase the costs associated with monitoring and mitigating those risks.
The recent focus on environmental, sustainable and governance and climate change considerations in the business community and among our and the Bank's other constituents may over time affect our and the Bank's approach to evaluating and addressing environmental risk and may increase the costs associated with monitoring and mitigating those risks. 19 Other Regulatory Matters We are subject to examinations and investigations by federal and state banking regulators, as well as the SEC, various taxing authorities and various state regulators.
Please refer to the Prompt Corrective Action section above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties and cease and desist orders. Deposit Insurance The Bank’s deposits are insured by the FDIC up to the limits set forth under applicable law.
Please refer to the Prompt Corrective Action section above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties, cease and desist orders and other similar enforcement measures.
Other Regulatory Matters We are subject to examinations and investigations by federal and state banking regulators, as well as the SEC, various taxing authorities and various state regulators. We periodically receive requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning our business and accounting practices.
We periodically receive requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning our business and accounting practices and concerning other matters as to which we might be in possession of information which is responsive to such information requests.
Fintech Banking We provide innovative strategies to independent banking and corporate clients throughout the United States. Our dedicated Fintech sales team specializes in providing banking services to corporate Fintech clients, with a primary focus on operational risk management and compliance.
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, primarily focusing on operational risk management and compliance. Managing banking relationships with clients in the payments, digital assets, banking-as-a-service and gaming industries is complex, from both an operational and regulatory perspective.
Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. 6 Credit risk for consumer loans 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.
Credit risk for consumer loans 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. Competition Our business experiences significant competition in attracting depositors and borrowers.
The Bank also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”) and MVB Financial Corp. owns equity method investments in Ayers Socure II, LLC ("Ayers Socure II") and Warp Speed Holdings, LLC ("Warp Speed").
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 owns equity method investments in Warp Speed Holdings, LLC (“Warp Speed”) and Ayers Socure II, LLC (“Ayers Socure II”).
This also includes additional courses/content team members experience outside of our Learning Management System. We also offer team member education assistance and tuition reimbursement programs. In 2022, 28 team members participated in education assistance while four team members were approved for the tuition reimbursement program.
This also includes additional courses/content team members experience outside of our Learning Management System. 7 We also offer team member education assistance and tuition reimbursement programs. The education assistance program provides support to team members wanting to acquire training outside of MVB in support of their position and/or annual certification requirements.
Financial Regulatory Reform 8 During the past several years, there has been a significant increase in regulation and regulatory oversight for United States financial services firms such as us, primarily resulting from the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2010.
Financial Regulatory Reform During the past several years, there has been a significant increase in regulation and regulatory oversight for United States financial services firms.
Revenue from CoRe banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Our Fintech division is included in the CoRe banking segment.
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.
A change in statutes, regulations or regulatory policies applicable to us or any of our subsidiaries could have a material, adverse effect on our business, financial condition and results of operations. 19 Corporate and Available Information We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any other filings required by the SEC.
A change in statutes, regulations or regulatory policies applicable to us or any of our subsidiaries could have a material, adverse effect on our business, financial condition and results of operations.
Our earnings are affected by general economic conditions, management policies, changes in state and federal laws and regulations and actions of various regulatory authorities, including those referred to in this section. The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies, banks and their affiliates and contains specific information about us.
Supervision and Regulation We are subject to extensive regulation under federal and state banking laws. Our earnings are affected by general economic conditions, management policies, changes in state and federal laws and regulations and actions of various regulatory authorities, including those referred to in this section.
In May 2018, the EGRRCPA was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks.
The EGRRCPA amended provisions of the Dodd-Frank Act and and eased regulations on all but the largest banks.
The education assistance program provides support to team members wanting to acquire training outside of MVB in support of their position and/or annual certification requirements. Tracking these requests allows us to have visibility into the interest of team members. The tuition reimbursement program provides support to team members who wish to further their education with accredited institutions.
Tracking these requests allows us to have visibility into the interests of team members. The tuition reimbursement program provides support to team members who wish to further their education with accredited institutions. Communication, Recognition and Engagement We believe it is important to provide our team members with open communication with management.
Consumer Loans At December 31, 2022 the Bank had approximately $131.6 million of consumer loans, including installment loans and personal lines of credit, representing 6% of total loans outstanding.
Consumer Loans At December 31, 2023, the Bank had $27.4 million of consumer loans, including installment loans and personal lines of credit, representing 1.2% of total loans outstanding. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles.
As such, these loans are subject to a higher risk of default than the typical consumer loan. Competition Our business experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes principally from other commercial banks, savings associations, insurance companies, governmental agencies, credit unions, brokerage firms and pension funds.
Competition in lending activities comes principally from other commercial banks, savings associations, insurance companies, governmental agencies, credit unions, brokerage firms and pension funds. The primary factors in competing for loans are interest rates, loan terms and overall lending services.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeNew lines of business or new products and services, including FinTech investments and cryptocurrency, may subject us to additional risks. We are focused on our long-term growth and have undertaken various new business initiatives, many of which involve activities that are new to it, or in some cases, are in the early stages of development.
Biggest changeWe are focused on our long-term growth and have undertaken various new business initiatives, many of which involve activities that are new to it, or in some cases, are in the early stages of development. From time to time, we may develop, grow and/or acquire new lines of business or offer new products and services within existing lines of business.
Management conducts a periodic review and consideration of the loan portfolio to determine the amount of the allowance for loan losses based upon general market conditions, credit quality of the loan portfolio and performance of the Bank’s clients relative to their financial obligations with it.
Management conducts a periodic review and consideration of the loan portfolio to determine the amount of the allowance for credit losses based upon general market conditions, credit quality of the loan portfolio and performance of the Bank’s clients relative to their financial obligations with it.
Management performs stress tests on the loan portfolios to estimate future loan losses, but additional provisions for loan losses could be required in the future, including as a result of changes in the economic assumptions underlying management’s estimates and judgments, adverse developments in the economy on a national basis or in the Bank’s market area or changes in the circumstances of particular borrowers.
Management performs stress tests on the loan portfolios to estimate future credit losses, but additional provisions for credit losses could be required in the future, including as a result of changes in the economic assumptions underlying management’s estimates and judgments, adverse developments in the economy on a national basis or in the Bank’s market area or changes in the circumstances of particular borrowers.
As a result, declining real estate values in these markets could negatively impact the value of the real estate collateral securing such loans. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values in satisfaction of any non-performing or defaulted loans, our earnings and capital could be adversely affected.
As a result, declining real estate values in these markets could negatively impact the value of the real 21 estate collateral securing such loans. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values in satisfaction of any non-performing or defaulted loans, our earnings and capital could be adversely affected.
Moreover, the loans included in our interest-earning assets are primarily comprised of variable and adjustable rate loans. Net interest income is subject to interest rate risk in the following ways: 23 l In general, for a given change in interest rates, the amount of change in value (positive or negative) is larger for assets and liabilities with longer remaining maturities.
Moreover, the loans included in our interest-earning assets are primarily comprised of variable and adjustable rate loans. Net interest income is subject to interest rate risk in the following ways: l In general, for a given change in interest rates, the amount of change in value (positive or negative) is larger for assets and liabilities with longer remaining maturities.
Because the techniques used to attack financial services company communications and information systems change frequently (and generally increase in sophistication), attacks are often not recognized until launched against a target and we may be unable to 28 address these techniques in advance of attacks, including by implementing adequate preventative measures.
Because the techniques used to attack financial services company communications and information systems change frequently (and generally increase in sophistication), attacks are often not recognized until launched against a target and we may be unable to address these techniques in advance of attacks, including by implementing adequate preventative measures.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose 27 on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties.
We may also rely on 29 representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.
We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.
For further information, please refer to the section captioned Supervision and Regulation – Limit on Dividends in Item 1 – Business included elsewhere in this report. General Risk Factors We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
For further information, please refer to the section captioned Supervision and Regulation – Limit on Dividends in Item 1 – Business included elsewhere in this report. General Risk Factors 30 We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
Any increase in its allowance for loan losses or loan charge-offs could have a material adverse effect on our financial condition and results of operations. In addition, we cannot guarantee that we will not be required to adjust accounting policies or restate prior financial statements.
Any increase in its allowance for credit losses or loan charge-offs could have a material adverse effect on our financial condition and results of operations. In addition, we cannot guarantee that we will not be required to adjust accounting policies or restate prior financial statements.
In addition, such negative effects on customers could result in defaults on the loans and decrease the value of mortgage-backed securities in which we have invested. We are subject to extensive government regulation and supervision and possible enforcement and other legal actions that could detrimentally affect our business.
In addition, 28 such negative effects on customers could result in defaults on the loans and decrease the value of mortgage-backed securities in which we have invested. We are subject to extensive government regulation and supervision and possible enforcement and other legal actions that could detrimentally affect our business.
Because such loans generally entail greater risk than residential mortgage loans, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable incurred credit losses associated with the growth of such loans, which would reduce net income.
Because such loans generally entail greater risk than residential mortgage loans, we may need to increase our allowance for credit losses in the future to account for the likely increase in probable incurred credit losses associated with the growth of such loans, which would reduce net income.
Any failure, interruption, intrusion or breach in security of these systems could result in failures or disruptions in the customer relationship, management, general ledger, deposit, loan and other systems. There have been several cyberattacks on websites of large financial services companies.
Any failure, interruption, intrusion or breach in security of these systems could result in failures or disruptions in the customer relationship, management, general ledger, deposit, loan and other systems. 26 There have been several cyberattacks on websites of large financial services companies.
A decline in market value associated with these disruptions could result in other-than-temporary or permanent impairments of these assets, which would lead to accounting charges which could have a material negative effect on the our financial condition and results of operations.
A decline in market value associated with these disruptions could result in other-than-temporary or permanent impairments of these assets, which would lead to accounting charges which could have a material negative effect on our financial condition and results of operations.
Failure to maintain compliance with Nasdaq listing requirements could result in the delisting of our shares from trading on the Nasdaq system, which could have a material adverse effect on the trading price, volume and marketability of the common stock. 31 Our stock price can be volatile.
Failure to maintain compliance with Nasdaq listing requirements could result in the delisting of our shares from trading on the Nasdaq system, which could have a material adverse effect on the trading price, volume and marketability of the common stock. Our stock price can be volatile.
If we fail to remedy any material weakness, our financial statements may be inaccurate, we may not have access to the capital markets, and our stock price may be adversely affected. 32 The value of the securities in our investment securities portfolio may be negatively affected by disruptions in securities markets.
If we fail to remedy any material weakness, our financial statements may be inaccurate, we may not have access to the capital markets, and our stock price may be adversely affected. The value of the securities in our investment securities portfolio may be negatively affected by disruptions in securities markets.
These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
These models reflect assumptions that may not be 31 accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation.
Any such losses could have a material adverse effect on our business, financial condition and results of operations. 24 We operate in a highly competitive industry and market area and failure to effectively compete could have a material adverse effect on our business, financial condition and results of operations.
Any such losses could have a material adverse effect on our business, financial condition and results of operations. We operate in a highly competitive industry and market area and failure to effectively compete could have a material adverse effect on our business, financial condition and results of operations.
Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 33
Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Our allowance for loan losses could become inadequate and reduce earnings and capital. The Bank maintains an allowance for loan losses that it believes is adequate for absorbing the estimated future losses inherent in its loan portfolio.
Our allowance for credit losses could become inadequate and reduce earnings and capital. The Bank maintains an allowance for credit losses that it believes is adequate for absorbing the estimated future losses inherent in its loan portfolio.
If the models used for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our probable loan losses are inadequate, the allowance for loan losses may not be sufficient to support future charge-offs.
If the models used for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our probable credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs.
Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, actual outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, the Bank could need to significantly increase its allowance for loan losses if actual losses are more than the amount reserved.
Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, actual outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, the Bank could need to significantly increase its allowance for credit losses if actual losses are more than the amount reserved.
We cannot predict with certainty the amount of losses or guarantee that the allowance for loan losses is adequate to absorb future losses in the loan portfolio. Excessive loan losses could have a material adverse effect on our financial condition and results of operations.
We cannot predict with 22 certainty the amount of losses or guarantee that the allowance for credit losses is adequate to absorb future losses in the loan portfolio. Excessive credit losses could have a material adverse effect on our financial condition and results of operations.
The processes we use to estimate our inherent loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models.
The processes we use to estimate our inherent credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. At December 31, 2022, we have no material weaknesses in our internal control over financial reporting; however, a material weakness could occur in the future.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. At December 31, 2023, we have no material weaknesses in our internal control over financial reporting; however, a material weakness could occur in the future.
Our accounting estimates and risk management processes rely on analytical and forecasting models which may prove to be inadequate or inaccurate which could result in unexpected losses, insufficient allowances for loan losses or unexpected fluctuations in the value of our financial instruments.
Our accounting estimates and risk management processes rely on analytical and forecasting models which may prove to be inadequate or inaccurate which could result in unexpected losses, insufficient allowances for credit losses or unexpected fluctuations in the value of our financial instruments.
Please refer to the section captioned Allowance for Loan Losses in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report for further discussion related to our process for determining the appropriate level of the allowance for loan losses.
Please refer to the section captioned Allowance for Credit Losses in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report for further discussion related to our process for determining the appropriate level of the allowance for credit losses.
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.
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 trade-off. 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.
Similarly, cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile and may be influenced by a wide variety of factors, including speculative activity. This volatility may materially impact us if our clients experience significant losses. This volatility may also materially impact our financial statements and thus affect our common stock market price.
Similarly, digital asset markets and related stocks have been, and are expected to continue to be, volatile and may be influenced by a wide variety of factors, including speculative activity. This volatility may materially impact us if our clients experience significant losses. This volatility may also materially impact our financial statements and thus affect our common stock market price.
Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. All service offerings, including current offerings and those which may be provided in the future, may become more risky due to changes in economic, competitive and market conditions beyond our control.
Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. All service offerings, including current offerings and those which may be provided in the future, may become riskier due to changes in economic, competitive and market conditions beyond our control.
Criticism can come in many forms, including for providing banking services to companies engaged in, for example, the gaming industry or cryptocurrency. Many of these issues are divisive without broad agreement as to the appropriate steps a company should take and often with strong feelings on both sides.
Criticism can come in many forms, including for providing banking services to companies engaged in, for example, the gaming industry or digital assets. Many of these issues are divisive without broad agreement as to the appropriate steps a company should take and often with strong feelings on both sides.
Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results. 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.
Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking industry causing disruptive deposit outflows and other destabilizing results. Throughout 2023, certain banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships.
A significant decline in general economic conditions in West Virginia or Virginia, whether caused by recession, inflation, unemployment, changes in crude oil prices, changes in securities markets, acts of terrorism, outbreak of hostilities or other international or domestic occurrences or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our business, financial condition and results of operations.
A significant decline in general economic conditions in West Virginia or Virginia, whether caused by recession, inflation, unemployment, changes in crude oil prices, changes in securities markets, acts of terrorism, outbreaks of any epidemics or pandemics, outbreak of hostilities or other international or domestic occurrences or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our business, financial condition and results of operations.
Additionally, the Bank is engaged in relationships with clients in the payments, digital savings, cryptocurrency, crowd funding, lottery and gaming industries and any change in regulations could impact us from both an operational and regulatory perspective. Investing in these newer industries presents some risks. For example, earnings from our Fintech investments can be volatile and difficult to predict.
Additionally, the Bank is engaged in relationships with clients in the payments, digital savings, digital assets, crowdfunding, lottery and gaming industries and any change in regulations could impact us from both an operational and regulatory perspective. Investing in these newer industries presents some risks. For example, earnings from our Fintech investments can be volatile and difficult to predict.
If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our business, financial condition and results of operations. As of December 31, 2022 our equity method investment ICM also had $17.7 million of goodwill.
If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our business, financial condition and results of operations. As of December 31, 2023 our equity method investment ICM also had $15.3 million of goodwill.
Our ability to compete successfully depends on a number of factors, including, among other things: l Ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; l Ability to expand our market position; l Scope, relevance and pricing of products and services offered to meet customer needs and demands; l Rate at which we introduce new products and services relative to our competitors; l Customer satisfaction with our level of service; and l Industry and general economic trends.
Our ability to compete successfully depends on a number of factors, including, among other things: l Ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; l Ability to attract or retain senior management or other key customer-facing personnel; l Ability to expand our market position; l Scope, relevance and pricing of products and services offered to meet customer needs and demands; l Rate at which we introduce new products and services relative to our competitors; l Customer satisfaction with our level of service; and l Industry and general economic trends.
Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase 30 the ability of non-banks to offer competing financial services and products, among other things.
Such changes could subject us to additional costs, limit the types of financial services and products we may offer, cause us to exit certain lines of business and/or increase the ability of non-banks to offer competing financial services and products, among other things.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition. Potential acquisitions may disrupt our business and dilute stockholder value.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.
Our gaming initiative has contributed significantly to an increase in our noninterest bearing deposits, and has allowed us to generate attractive returns on lower risk assets through increased investments in securities and loan growth.
Our gaming initiative has contributed significantly to an increase in our deposits and creates concentration risk in our deposit base. 23 Our gaming initiative has contributed significantly to an increase in our deposits, and has allowed us to generate attractive returns on lower risk assets through increased investments in securities and loan growth.
Moreover, approximately 34.3% of the securities in our municipal securities portfolio were issued by political subdivisions or agencies within West Virginia and Virginia.
Moreover, 27.2% of the securities in our municipal securities portfolio were issued by political subdivisions or agencies within West Virginia and Virginia.
There has been limited trading in our shares over the last 12 months. If limited trading in our common stock continues, it may be difficult for investors to sell such shares in the public market at any given time at prevailing prices.
Shares of our common stock are traded on the Nasdaq Capital Market under the symbol “MVBF”. There has been limited trading in our shares over the last 12 months. If limited trading in our common stock continues, it may be difficult for investors to sell such shares in the public market at any given time at prevailing prices.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. The value of our goodwill and other intangible assets may decline in the future.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations. Many of our competitors have substantially greater resources to invest in technological improvements.
Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in operations.
We generally seek merger or acquisition partners that are culturally similar, have experienced management and possess either 26 significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.
Potential acquisitions may disrupt our business and dilute stockholder value. 25 We generally seek merger or acquisition partners that are culturally similar, have experienced management and possess either significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services.
Our business depends upon the general economic conditions and real estate markets of the State of West Virginia and the Commonwealth of Virginia, and may be adversely affected by downturns in these and the other local economies in which we operate. 21 Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate, including the State of West Virginia, the Commonwealth of Virginia and the United States as a whole.
Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate, including the State of West Virginia, the Commonwealth of Virginia and the United States as a whole.
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 materially adversely affect our business. We may continue to face risks and ongoing effects related to the COVID-19 pandemic or other pandemics.
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 materially adversely affect our business.
In addition, since we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of the Bank upon the Bank’s liquidation, reorganization or otherwise will be subject to the prior claims of the Bank’s creditors, which will generally take priority over the Bank’s shareholders.
In addition, since we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of the Bank upon the Bank’s liquidation, reorganization or otherwise will be subject to the prior claims of the Bank’s creditors, which will generally take priority over the Bank’s shareholders. 29 Risks Related to Our Common Stock The trading volume in our common stock is less than that of other larger financial services companies.
Such loans expose us to additional risks because they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by 22 collateral that may depreciate over time.
Such loans expose us to additional risks because they typically are made on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by collateral that may depreciate over time. These loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential mortgage loans.
Risks Related to Our Business Our non-residential real estate loans expose us to greater risks of non-payment and loss than residential mortgage loans, which may cause us to increase our allowance for loan losses, which would reduce net income.
Risks Related to Our Business Our non-residential real estate loans expose us to greater risks of non-payment and loss than residential mortgage loans, which may cause us to increase our allowance for credit losses, which would reduce net income. At December 31, 2023, $1.63 billion, or 70.3%, of our loan portfolio consisted of non-residential real estate and other non-residential loans.
For instance, if the federal funds rate increased 50 basis points, rates on demand deposits may rise by ten basis points; whereas rates on prime-based loans will instantly rise 50 basis points. The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19 pandemic.
For instance, if the federal funds rate increased 50 basis points, rates on demand deposits may rise by ten basis points; whereas rates on prime-based loans will instantly rise 50 basis points.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations. Our acquisition of IFH could be more difficult, costly or time-consuming than expected and may fail to realize the anticipated benefits.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits from an acquisition could have a material adverse effect on our business, financial condition and results of operations. We are subject to liquidity risk, which could disrupt the ability to meet our financial obligations.
Additionally, nearly 69.0% of our total loans are real estate interests (residential and non-residential, including both owner-occupied and investment real estate and construction and land development) mainly concentrated in West Virginia and Virginia, a relatively small geographic area.
Additionally, 72.4% of our total loans are real estate interests (residential and non-residential, including both owner-occupied and investment real estate and construction and land development) mainly concentrated in the West Virginia, Virginia, North Carolina and South Carolina markets.
For example, we are involved in new innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments and depositor relationships in the Fintech industry.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets for these products and services are not fully developed. For example, we are involved in new innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments and depositor relationships in the Fintech industry.
There may be competitive pressures to pay higher interest rates on deposits to our gaming customers, which could increase funding costs and compress net interest margins. Further, even if we are otherwise able to grow and maintain our noninterest bearing deposit base, our deposit balances may still decrease if our gaming customers are offered more attractive returns from our competitors.
Further, even if we are otherwise able to grow and maintain our gaming deposit base, our deposit balances may still decrease if our gaming customers are offered more attractive returns from our competitors.
Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve Board has indicated its intention to raise certain benchmark interest rates in an effort to combat inflation, which rates have increased in 2022 and the first quarter of 2023 .
Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve Board has raised certain benchmark interest rates in an effort to combat inflation. Continued increases in market interest rates could have an adverse effect on our net interest income and profitability.
A future write-down of goodwill at ICM could have a material adverse effect on our results of operations based on our proportionate share of equity method investment income.
A future write-down of goodwill at ICM could have an adverse effect on our results of operations based on our proportionate share of equity method investment income. New lines of business or new products and services, including Fintech investments and digital assets, may subject us to additional risks.
As of December 31, 2022, we had $5.6 million of goodwill and other intangible assets.
The value of our goodwill and other intangible assets may decline in the future. 24 As of December 31, 2023, we had $3.2 million of goodwill and other intangible assets.
Of the gaming deposits, $536.9 million is with our three largest clients at December 31, 2022. Our future growth may be adversely impacted if we are unable to retain and grow this strong, low-cost deposit base.
Our future growth may be adversely impacted if we are unable to retain and grow this strong, low-cost deposit base. There may be competitive pressures to pay higher interest rates on deposits to our gaming customers, which could increase funding costs and compress net interest margins.
Interest rate risk is more fully described in Item 7A – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report. Our gaming initiative has contributed significantly to an increase in our noninterest bearing deposits, which has driven the Bank’s funding costs to levels that may not be sustainable and creates concentration risk in our deposit base.
Interest rate risk is more fully described in Item 7A – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Removed
The full impact of COVID-19 is unknown and continually evolving.
Added
General inflation in the United States has risen to levels not experienced in decades and the Federal Reserve Board has raised certain benchmark interest rates in an effort to combat inflation in 2023. Specifically, the Federal Reserve increased benchmark interest rates multiple times in 2022 and 2023.
Removed
The outbreak of COVID-19, its subsequent variants, and other pandemics in the future and any preventative or protective actions that we, our clients or governmental authorities may take in response to such pandemics may result in a period of disruption in our financial reporting capabilities and our operations, and could potentially impact our clients, providers and third parties.
Added
While the Federal Reserve did not increase benchmark interest rates at the June 2023 or September 2023 meeting, it indicated it may continue to raise benchmark interest rates in 2024 in an effort to curb the upward inflationary pressure on the cost of goods and services across the United States.
Removed
The extent to which the COVID-19 pandemic impacts and future pandemics may impact our future operating results and the broader economy and markets in which we serve are uncertain and will depend on the duration and severity of the pandemic and on future developments.
Added
Our business depends upon the general economic conditions and real estate markets of the State of West Virginia and the Commonwealth of Virginia, and may be adversely affected by downturns in these and the other local economies in which we operate.
Removed
These developments include the availability, efficacy and distribution of vaccines, governmental actions to contain the virus or treat its impact, the ultimate length of any restrictions and accompanying effects and macroeconomic impacts, including lower stock prices for many companies, increased credit risk, market instability, altered labor market due to the transition to remote and hybrid work policies, high inflation rates and continued global disruptions to the supply chain.
Added
On-balance sheet gaming deposits totaled $354.1 million as of December 31, 2023, compared to $652.1 million as of December 31, 2022. Off-balance sheet gaming deposits totaled $277.1 million as of December 31, 2023, compared to $141.2 million as of December 31, 2022. Of the gaming deposits, $292.7 million is with our three largest clients at December 31, 2023.
Removed
These factors could result in further decline in demand for banking products and services and could negatively impact, among other things, liquidity, regulatory capital and future growth. Banking and financial services have been designated essential businesses; therefore, our operations are expected to continue in the event of a pandemic.
Added
These new products and services may include applications or financial-related services that implement artificial intelligence, machine learning, robotics, blockchain, or new approaches to data mining.
Removed
However, even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’ global economic impact, including the availability of credit, adverse impacts on liquidity and any recession that has occurred or may occur in the future.
Added
Our success also depends on our ability to invest in cybersecurity protection systems that will adequately protect our customers as technology continues to evolve. Many of our competitors have substantially greater resources to invest in technological improvements.
Removed
As a result, the ultimate impact of a pandemic is highly uncertain and subject to change.
Removed
At December 31, 2022, $1.74 billion, or approximately 73%, of our loan portfolio consisted of non-residential real estate and other non-residential loans.
Removed
These loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential mortgage loans.
Removed
Our investment in sub-prime automobile loans expose us to greater risks of non-payment, which may cause us to increase our allowance for loan losses, which would reduce net income. As of December 31, 2022, our loan portfolio consisted of $58.1 million of sub-prime automobile loans.
Removed
Considering the higher interest rates of sub-prime automobile loans and lower credit ratings of sub-prime borrowers, these types of loans are generally considered to have a greater risk of delinquency and non-payment than conforming loans and may require greater provisions for loan losses.
Removed
We have experienced slight increases in delinquencies or non-payment in this portfolio compared to our other automobile loans and our loan portfolio may be adversely affected if we continue to experience an increase in delinquencies or non-payment. Consequently, we could sustain loan losses and be required to establish a higher provision for loan losses.
Removed
The Federal Reserve Board is now reversing its policy of near zero interest rates given its concerns over inflation. In recent periods, market interest rates have risen in response to the Federal Reserve Board’s recent rate increases. The increase in market interest rates could have an adverse effect on our net interest income and profitability.
Removed
We have increased our noninterest bearing deposits as a percentage of total deposits from 10.9% as of December 31, 2017 to 47.9% as of December 31, 2022, an increase that is largely attributable to our gaming initiative. Gaming deposits totaled $652.1 million as of December 31, 2022, compared to $911.6 million as of December 31, 2021.
Removed
Transition away from LIBOR to SOFR as the primary interest rate benchmark may adversely impact the Bank, as well as the value of, and the return on, our financial instruments that are indexed to LIBOR. LIBOR and interest rate benchmarks are the subject of recent national, international and other regulatory guidance and reform.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, we operated eight full-service banking branches in the locations further described in Item 1 – Business included elsewhere in this report. Four of the eight full-service banking branches are owned and the remaining four are leased. No one facility is material to us.
Biggest changeAs of December 31, 2023, we operated eight full-service banking branches for our CoRe banking reportable segment in the locations further described in Item 1 – Business included elsewhere in this report. Four of the eight full-service banking branches are owned and the remaining four are leased. No one facility is material to us.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMoreover, 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.
Biggest changeMoreover, the results of legal proceedings cannot be predicted with any certainty, especially in the case of more complex legal proceedings. 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 4.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 PART II
MINE SAFETY DISCLOSURES Not applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIndex 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 MVB Financial Corp. $ 100.00 $ 90.39 $ 125.65 $ 116.29 $ 212.65 $ 118.93 KBW Bank Index 100.00 80.40 106.24 91.76 123.91 94.51 Russell 2000 100.00 87.82 108.65 128.60 146.21 114.69 Equity Compensation Plan Information Information about our equity compensation plan is disclosed below under Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matte rs, in Part III of this Annual Report on Form 10-K. 35 Recent Sales of Unregistered Securities None.
Biggest changeIndex 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 MVB Financial Corp. $ 100.00 $ 139.17 $ 128.75 $ 235.95 $ 131.69 $ 138.45 KBW Bank Index 100.00 132.14 114.13 154.12 117.55 111.92 Russell 2000 100.00 123.72 146.44 166.49 130.60 150.31 Equity Compensation Plan Information Information about our equity compensation plan is disclosed below under Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matte rs, in Part III of this Annual Report on Form 10-K. 34 Recent Sales of Unregistered Securities None.
In 2022, 2021 and 2020, we paid dividends totaling $0.68, $0.51 and $0.36, respectively, per share and currently expect that comparable dividends will continue to be paid in the future. The following five-year performance graph compares the cumulative total shareholder return (assuming reinvestment of dividends) on our common stock to the KBW Bank Index and the Russell 2000 Index.
In 2023, 2022 and 2021, we paid dividends totaling $0.68, $0.68 and $0.51, respectively, per share and currently expect that comparable dividends will continue to be paid in the future. The following five-year performance graph compares the cumulative total shareholder return (assuming reinvestment of dividends) on our common stock to the KBW Bank Index and the Russell 2000 Index.
The stock performance graph assumes $100 was invested on December 31, 2017 and the cumulative return is measured as of each subsequent fiscal year end.
The stock performance graph assumes $100 was invested on December 31, 2018 and the cumulative return is measured as of each subsequent fiscal year end.
Purchases of Equity Securities by Issuer and Affiliated Purchasers There were no repurchases of common stock during the three months ended December 31, 2022. ITEM 6. [RESERVED] 36
Purchases of Equity Securities by Issuer and Affiliated Purchasers There were no repurchases of common stock during the three months ended December 31, 2023. ITEM 6. [RESERVED] 35
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Capital Market under the symbol “MVBF.” As of March 15, 2023, we had approximately 850 stockholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Capital Market under the symbol “MVBF.” As of March 11, 2024, we had 821 stockholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+53 added−37 removed25 unchanged
Biggest changeThe average balances presented are derived from daily average balances. 37 Average Balances and Analysis of Net Interest Income 2022 2021 2020 (Dollars in thousands) Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost Assets Interest-bearing deposits in banks $ 232,935 $ 1,613 0.69 % $ 249,801 $ 305 0.12 % $ 125,259 $ 191 0.15 % CDs with banks 1,033 24 2.32 10,406 201 1.93 12,484 246 1.97 Investment securities: Taxable 236,344 3,496 1.48 $ 231,450 2,405 1.04 121,607 2,448 2.01 Tax-exempt 2 139,353 5,166 3.71 201,532 6,328 3.14 144,389 5,361 3.71 Loans and loans held-for-sale: 1 3 Commercial 1,594,069 87,845 5.51 1,387,273 63,551 4.58 $ 1,136,858 54,434 4.79 Tax-exempt 2 4,661 203 4.36 6,646 300 4.51 $ 8,966 422 4.70 Real estate 487,044 15,721 3.23 307,829 9,662 3.14 $ 403,166 18,100 4.49 Consumer 103,345 13,017 12.60 15,890 2,069 13.02 6,973 465 6.67 Total loans 2,189,119 116,786 5.33 1,717,638 75,582 4.40 1,555,963 73,421 4.72 Total earning assets 2,798,784 127,085 4.54 2,410,827 84,821 3.52 1,959,702 81,667 4.17 Allowance for loan losses (22,248) (25,682) (18,079) Cash and due from banks 5,670 13,874 26,460 Other assets 244,861 201,904 181,439 Total assets $ 3,027,067 $ 2,600,923 $ 2,149,522 Liabilities Deposits: Negotiable order of withdrawal $ 707,282 $ 4,724 0.67 % $ 673,547 $ 1,612 0.24 % $ 408,110 $ 2,521 0.62 % Money market checking 330,208 1,449 0.44 469,010 883 0.19 458,606 2,680 0.58 Savings 56,697 418 0.74 42,800 5 0.01 45,420 6 0.01 IRAs 6,216 71 1.14 9,674 121 1.25 13,691 218 1.59 CDs 170,648 3,814 2.24 134,250 1,355 1.01 349,787 4,869 1.39 Repurchase agreements 10,987 6 0.05 10,821 13 0.12 9,856 23 0.23 FHLB and other borrowings 15,494 437 2.82 25,275 93 0.37 68,407 1,049 1.53 Senior term loan 2,328 163 7.00 — — — — — — Subordinated debt 73,159 3,072 4.20 51,149 2,188 4.28 7,568 261 3.45 Total interest-bearing liabilities 1,373,019 14,154 1.03 1,416,526 6,270 0.44 1,361,445 11,627 0.85 Noninterest-bearing demand deposits 1,357,426 895,024 502,457 Other liabilities 41,098 38,100 61,169 Total liabilities 2,771,543 2,349,650 1,925,071 Stockholders’ equity Preferred stock — 730 7,334 Common stock 13,320 12,614 12,047 Additional paid-in capital 147,728 140,610 130,312 Treasury stock (16,741) (16,741) (2,637) Retained earnings 138,135 112,842 77,044 Accumulated other comprehensive income (loss) (26,918) 534 351 Total stockholders' equity attributable to parent 255,524 250,589 224,451 Noncontrolling interest 637 683 — Total stockholders' equity 256,161 251,272 224,451 Total liabilities and stockholders’ equity $ 3,027,067 $ 2,600,912 $ 2,149,522 Net interest spread (tax-equivalent) 3.51 3.08 3.32 Net interest income and margin (tax-equivalent) 2 $ 112,931 4.04 % $ 78,551 3.26 % $ 70,040 3.57 % Less: Tax-equivalent adjustments (1,128) (1,392) (1,214) Net interest spread 3.47 3.02 3.25 Net interest income and margin $ 111,803 3.99 % $ 77,159 3.20 % $ 68,826 3.51 % 1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate. 2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment 38 securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the twelve months ended December 31, 2022, 2021 and 2020, which is a non-U.S.
Biggest changeThe average balances presented are derived from daily average balances. 36 Average Balances and Analysis of Net Interest Income 2023 2022 2021 (Dollars in thousands) Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost Assets Interest-bearing deposits in banks $ 414,466 $ 21,043 5.08 % $ 232,935 $ 1,613 0.69 % $ 249,801 $ 305 0.12 % CDs with banks — — — 1,033 24 2.32 10,406 201 1.93 Investment securities: Taxable 221,395 5,576 2.52 $ 236,344 3,496 1.48 231,450 2,405 1.04 Tax-exempt 2 116,680 4,347 3.73 139,353 5,166 3.71 201,532 6,328 3.14 Loans and loans held-for-sale: 1 3 Commercial 1,621,299 124,078 7.65 1,594,069 87,845 5.51 $ 1,387,273 63,551 4.58 Tax-exempt 2 3,732 163 4.37 4,661 203 4.36 $ 6,646 300 4.51 Real estate 591,157 24,764 4.19 487,044 15,721 3.23 $ 307,829 9,662 3.14 Consumer 108,988 10,793 9.90 103,345 13,017 12.60 15,890 2,069 13.02 Total loans 2,325,176 159,798 6.87 2,189,119 116,786 5.33 1,717,638 75,582 4.40 Total earning assets 3,077,717 190,764 6.20 2,798,784 127,085 4.54 2,410,827 84,821 3.52 Allowance for credit losses (29,746) (22,248) (25,682) Cash and due from banks 6,659 5,670 13,874 Other assets 302,036 244,861 201,904 Total assets $ 3,356,666 $ 3,027,067 $ 2,600,923 Liabilities Deposits: NOW $ 697,266 $ 19,851 2.85 % $ 707,282 $ 4,724 0.67 % $ 673,547 $ 1,612 0.24 % Money market checking 504,730 10,352 2.05 330,208 1,449 0.44 469,010 883 0.19 Savings 76,908 1,871 2.43 56,697 418 0.74 42,800 5 0.01 IRAs 6,662 194 2.91 6,216 71 1.14 9,674 121 1.25 CDs 576,726 29,392 5.10 170,648 3,814 2.24 134,250 1,355 1.01 Repurchase agreements 5,662 1 0.02 10,987 6 0.05 10,821 13 0.12 FHLB and other borrowings 17,542 889 5.07 15,494 437 2.82 25,275 93 0.37 Senior term loan 9,007 766 8.50 2,328 163 7.00 — — — Subordinated debt 73,415 3,219 4.38 73,159 3,072 4.20 51,149 2,188 4.28 Total interest-bearing liabilities 1,967,918 66,535 3.38 1,373,019 14,154 1.03 1,416,526 6,270 0.44 Noninterest-bearing demand deposits 1,074,292 1,357,426 895,024 Other liabilities 40,435 41,098 38,100 Total liabilities 3,082,645 2,771,543 2,349,650 Stockholders’ equity Preferred stock — — 730 Common stock 13,541 13,320 12,614 Additional paid-in capital 159,523 147,728 140,610 Treasury stock (16,741) (16,741) (16,741) Retained earnings 154,041 137,498 112,842 Accumulated other comprehensive income (loss) (36,419) (26,918) 534 Total stockholders' equity attributable to parent 273,945 254,887 250,589 Noncontrolling interest 76 637 683 Total stockholders' equity 274,021 255,524 251,272 Total liabilities and stockholders’ equity $ 3,356,666 $ 3,027,067 $ 2,600,922 Net interest spread (tax-equivalent) 2.82 3.51 3.08 Net interest income and margin (tax-equivalent) 2 $ 124,229 4.04 % $ 112,931 4.04 % $ 78,551 3.26 % Less: Tax-equivalent adjustments (946) (1,128) (1,392) Net interest spread 2.79 3.47 3.02 Net interest income and margin $ 123,283 4.01 % $ 111,803 3.99 % $ 77,159 3.20 % 1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate. 2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment 37 securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the twelve months ended December 31, 2023, 2022 and 2021, which is a non-U.S.
The Bank elected to begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future.
The Bank elected to begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable 49 future.
In addition to the above judgments and estimates, the specific reserves on impaired loans is an important input to the ALL due to the increased risks inherent in those loans. This evaluation requires significant judgment and estimates related to the amount and timing of expected future cash flows and collateral values.
In addition to the above judgments and estimates, the specific reserves on impaired loans is an important input to the ACL due to the increased risks inherent in those loans. This evaluation requires significant judgment and estimates related to the amount and timing of expected future cash flows and collateral values.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that management believes is necessary to understand our financial condition, results of operations and cash flows for the year ended December 31, 2022, as compared to 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that management believes is necessary to understand our financial condition, results of operations and cash flows for the year ended December 31, 2023 as compared to 2022.
A discussion of changes in our results of operations from 2020 to 2021 may be found in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 10, 2022.
A discussion of changes in our results of operations from 2021 to 2022 may be found in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023.
Our effective tax rate was 22%, 20% and 20% in 2022, 2021 and 2020, respectively. Our effective tax rate is affected by certain permanent tax differences caused by statutory requirements in the tax code. The largest permanent difference relates to tax-exempt interest income related to municipal investments and loans held by us.
Our effective tax rate was 21%, 22% and 20% in 2023, 2022 and 2021, respectively. Our effective tax rate is affected by certain permanent tax differences caused by statutory requirements in the tax code. The largest permanent difference relates to tax-exempt interest income related to municipal investments and loans held by us.
GAAP metric Tangible book value ("TBV") per common share was $20.25 and $22.17 as of December 31, 2022 and 2021, 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.
GAAP metric Tangible book value ("TBV") per common share was $22.43 and $20.25 as of December 31, 2023 and 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.
Commercial and non-residential real estate loans totaled $1.61 billion at December 31, 2022, compared to $1.49 billion at December 31, 2021. Management expects to continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards and risk/price balance.
Commercial and non-residential real estate loans totaled $1.60 billion at December 31, 2023, compared to $1.61 billion at December 31, 2022. Management expects to continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards and risk/price balance.
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, management also considers public knowledge and/or verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.
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.
GAAP financial measure following this table. 3 Our PPP loans, totaling $13.6 million, $131.7 million and $82.0 million at December 31, 2022, 2021 and 2020, respectively, are included in this amount for the years ended December 31, 2022, 2021 and 2020, respectively. Year Ended December 31, (Dollars in thousands) 2022 2021 2020 Net interest margin - U.S.
GAAP financial measure following this table. 3 Our PPP loans, totaling $2.7 million, $13.6 million and $131.7 million at December 31, 2023, 2022 and 2021, respectively, are included in this amount for the years ended December 31, 2023, 2022 and 2021, respectively. Year Ended December 31, (Dollars in thousands) 2023 2022 2021 Net interest margin - U.S.
The Bank's CBLR at December 31, 2022 was 9.83%, which is above the well-capitalized standard of 9%. Management currently 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.
The Bank's CBLR at December 31, 2023 was 10.5%, which is above the well-capitalized standard of 9%. Management currently 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.
In addition, there are 34 loans to various unrelated borrowers totaling $7.2 million in commercial, home equity line of credit ("HELOC"), installment and mortgage loans. These are loans for which information about the borrowers’ possible credit problems causes management to have doubts as to the borrowers’ ability to comply with the loan repayment terms in the future.
In addition, there are 42 loans to various unrelated borrowers totaling $19.6 million in commercial, home equity line of credit ("HELOC"), installment and mortgage loans. These are loans for which information about the borrowers’ possible credit problems causes management to have doubts as to the borrowers’ ability to comply with the loan repayment terms in the future.
Other, smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses. For 2022, we expect to file tax returns in 40 states. Return on Assets and Equity Assets Our return on average assets was 0.5% in 2022, compared to 1.5% in 2021.
Other, smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses. For 2023, we expect to file tax returns in 29 states. Return on Assets and Equity Assets Our return on average assets was 0.9% in 2023, compared to 0.5% in 2022.
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, while maintaining an appropriate level of interest rate risk. Net interest spread (tax-equivalent) was 3.51% in 2022 compared to 3.08% in 2021.
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, while maintaining an appropriate level of interest rate risk. Net interest spread on a tax-equivalent basis was 2.82% in 2023 compared to 3.51% in 2022.
These securities do not have readily determinable fair values; therefore, they are classified as equity securities and are recorded at cost and adjusted for observable price changes for underlying transactions for identical or similar investments. 43 The following table shows the maturities for the available-for-sale investment securities portfolio at December 31, 2022: Within one year After one year, but within five After five years, but within ten After ten years Total investment securities (Dollars in thousands) Amortized Cost Weighted-Avg.
The Fintech equity securities do not have readily determinable fair values and are recorded at cost and adjusted for observable price changes for underlying transactions for identical or similar investments. 42 The following table shows the maturities for the available-for-sale investment securities portfolio at December 31, 2023: Within one year After one year, but within five After five years, but within ten After ten years Total investment securities (Dollars in thousands) Amortized Cost Weighted-Avg.
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.
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.
A portion of the ALL of $1.7 million and $0.5 million was allocated to cover any loss in these loans at December 31, 2022 and 2021, respectively. Loans past due more than 30 days were $15.5 million and $18.1 million, respectively, at December 31, 2022 and 2021.
A portion of the ACL of $1.9 million and $1.7 million was allocated to cover any loss in these loans at December 31, 2023 and 2022, respectively. Loans past due more than 30 days were $14.0 million and $15.5 million, respectively, at December 31, 2023 and 2022.
The municipal securities continue to give us the ability to pledge and to decrease the effective tax rate. At December 31, 2022, equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in 12 companies with a carrying value of $32.9 million.
The municipal securities continue to give us the ability to pledge and to decrease the effective tax rate. At December 31, 2023, equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in 10 companies with a carrying value of $36.4 million.
December 31, 2022 2021 Loans past due more than 30 days to gross loans 0.7 % 1.0 % Loans past due more than 90 days to gross loans 0.1 % 0.5 % For tables reflecting the allocation of the ALL, please refer to Note 3 – Loans and Allowance for Loan Losses accompanying the consolidated financial statements included elsewhere in this report.
December 31, 2023 2022 Loans past due more than 30 days to gross loans 0.6 % 0.7 % Loans past due more than 90 days to gross loans 0.2 % 0.1 % For tables reflecting the allocation of the ACL, please refer to Note 3 – Loans and Allowance for Credit Losses accompanying the consolidated financial statements included elsewhere in this report.
This change is the net effect of multiple factors, primarily the reclassification of $5.9 million of previously reported impaired loans to performing loans, the identification of $3.4 million of recently impaired loans, principal curtailments/payoffs of $1.1 million, normal loan amortization of $2.9 million and $0.1 million in charge offs.
This change is the net effect of multiple factors, primarily the reclassification of $2.0 million of previously reported individually analyzed loans to performing loans, the 46 identification of $4.8 million of recently individually analyzed loans, principal curtailments/payoffs of $3.8 million, normal loan amortization of $3.0 million and $2.4 million in charge offs.
Increasing the risk grade by one for all segments would have resulted in an additional allowance of approximately $3.2 million at December 31, 2022 and decreasing the risk grade by one would have resulted in a reduction to the allowance of approximately $1.7 million.
Increasing the risk rating by one for all segments would have resulted in an additional allowance of $2.1 million at December 31, 2023 and decreasing the risk grade by one would have resulted in a reduction to the allowance of $1.9 million.
Paycheck Protection Program (“PPP”) loans are included in the totals above and have outstanding balances of $13.6 million and $131.7 million as of December 31, 2022 and 2021, respectively. 44 Residential real estate loans to retail customers, including PCI loans, account for the second largest portion of the loan portfolio, comprising 25.7%.
Paycheck Protection Program (“PPP”) loans are included in the totals above and have outstanding balances of $2.7 million and $13.6 million as of December 31, 2023 and 2022, respectively. Residential real estate loans to retail customers account for the second largest portion of the loan portfolio, comprising 29.0%.
The balance is comprised of 40 loans, which include two loans totaling $11.9 million to a single borrower for commercial real estate hospitality loans, $5.3 million to finance two multifamily housing construction projects to two related borrowers, a $4.8 million commercial real estate loan to a senior care facility and a $2.1 million commercial real estate loan to finance an office building.
The balance is comprised of 53 loans, which include seven loans totaling $26.1 million to a single borrower for retail commercial real estate projects, $18.9 million to finance two multifamily housing construction projects to two related borrowers, a $8.0 million commercial real estate loan to a senior care facility and a $11.2 million commercial real estate loan to finance an office building.
Residential real estate loans totaled $609.5 million at December 31, 2022, compared to $310.5 million at December 31, 2021.
Residential real estate loans totaled $672.5 million at December 31, 2023, compared to $609.5 million at December 31, 2022.
Management believes the available-for-sale classification provides flexibility in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities. The decrease in investment security balances during 2022 was primarily driven by unrealized holding losses.
Management believes the available-for-sale classification provides flexibility in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities. The decrease in investment securities balances during 2023 was primarily driven by sales and maturities of available-for-sale securities.
We paid dividends to common shareholders of $8.4 million in 2022 and $6.0 million in 2021, compared to earnings of $15.0 million in 2022 versus $39.1 million in 2021, resulting in an increase in the dividend payout ratio to 55.5% in 2022 from 15.4% in 2021.
We paid dividends to common shareholders of $8.6 million in 2023 and $8.4 million in 2022, compared to earnings of $31.2 million in 2023 versus $15.0 million in 2022, resulting in an decrease in the dividend payout ratio to 27.7% in 2023 from 55.5% in 2022.
The decrease of $1.5 million, or 24.2%, was concentrated in the commercial loan portfolio and is the result of the implementation of the workout of these loans resulting in principal reduction from paydowns, loan sales and foreclosures of various loans to unrelated borrowers obtained as part of the First State acquisition, as well as a charge-off of a commercial loan totaling $0.1 million secured by residential real estate.
The decrease of $0.1 million, or 2.1%, was concentrated in the commercial loan portfolio and is the result of the implementation of the workout of these loans resulting in principal reduction from paydowns, loan sales and foreclosures of various loans to unrelated borrowers, both MVB legacy and those obtained as part of the First State acquisition, as well as two charge offs of commercial loans totaling $1.0 million secured by a government lease and accounts receivable.
At December 31, 2022, the amortized cost of available-for-sale investment securities totaled $427.1 million, resulting in a net unrealized loss in the investment portfolio of $47.3 million. Management has the intent and ability to hold the investments to maturity and they are all high quality investments with no other than temporary impairment.
At December 31, 2023, the amortized cost of available-for-sale investment securities totaled $377.8 million, resulting in a net unrealized loss in the investment portfolio of $32.5 million. Management has the intent and ability to hold the investments to maturity and they are all high quality investments with no credit impairment.
The decrease is primarily due the risk grade upgrade of seven loans to six separate commercial and mortgage loan relationships, totaling $18.1 million, the payoff of 49 existing loans totaling $4.5 million and the continued curtailment of the loans that remained within the portfolio.
The decrease is primarily due the risk grade upgrade of three loans to separate commercial loan relationships totaling $1.9 million, the payoff of 13 mortgage loans totaling $0.9 million and the continued curtailment of the loans that remained within the portfolio.
The increase in average total loans and other assets were partially offset by a $16.9 million decrease in average interest-bearing cash balances with banks and a $57.3 million decrease in average investment securities. Equity Our return on average stockholders’ equity was 5.9% in 2022, compared to 15.6% in 2021.
The increase in average total loans and other assets were partially offset by a $181.6 million, or 78.0%, increase in average interest-bearing cash balances with banks and a $37.6 million, 41 or 10.0%, decrease in average investment securities. Equity Our return on average stockholders’ equity was 11.4% in 2023, compared to 5.9% in 2022.
The 2022 earnings equated to a return on average assets of 0.5% and a return on average equity of 5.9%, compared to 2021 results of 1.5% and 15.6%, respectively. Basic and diluted earnings per share were $1.23 and $1.17, respectively, in 2022 compared to $3.32 and $3.10, respectively, in 2021.
The 2023 earnings equated to a return on average assets of 0.9% and a return on average equity of 11.4%, compared to 2022 results of 0.5% and 5.9%, respectively. Basic and diluted earnings per share were $2.46 and $2.40, respectively, in 2023 compared to $1.23 and $1.17, respectively, in 2022.
The decrease in noninterest income for 2022 compared to 2021 was primarily the result of a decrease of $18.1 million in equity method investment income, a $10.8 million decrease in gains on acquisition and divestiture activity, a $6.8 million decrease in investment portfolio gains and a $2.5 million decrease in gain on sale of portfolio loans.
The decrease in noninterest income for 2023 compared to 2022 was primarily the result of a decrease of $2.4 million in gain on sale of loans, a decrease of $2.2 million in investment portfolio gains, an increase of $1.8 million in equity method investment losses and a loss on divestiture activity of $1.0 million.
To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses.
To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings.
GAAP basis Net interest income $ 111,803 $ 77,159 $ 68,826 Average interest-earning assets 2,798,784 2,410,827 1,959,702 Net interest margin 3.99 % 3.20 % 3.51 % Net interest margin - non-U.S.
GAAP basis Net interest income $ 123,283 $ 111,803 $ 77,159 Average interest-earning assets 3,077,717 2,798,784 2,410,827 Net interest margin 4.01 % 3.99 % 3.20 % Net interest margin - non-U.S.
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. Loans Our primary market areas are North Central West Virginia and Northern Virginia.
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. Management continually evaluates hedging strategies that are available to manage interest rate risk.
With stockholders’ equity decreasing as noted above and with the growth in assets of $276.5 million, the equity to assets ratio decreased from 9.8% at December 31, 2021 to 8.5% at December 31, 2022.
With stockholders’ equity increasing as noted above and with the growth in assets of $245.0 million, the equity to assets ratio increased from 8.5% at December 31, 2022 to 8.7% at December 31, 2023 .
We have identified the following estimate as critical to the understanding of our financial position and results of operations and which require the application of significant judgment by management. Allowance for Loan Losses The ALL represents management’s estimate of probable credit losses inherent in the loan portfolio.
We have identified the following estimate as critical to the understanding of our financial position and results of operations and which require the application of significant judgment by management.
As of December 31, 2022, the "economic and business conditions" factor was generally the highest weighted qualitative factor, with a weighting of 25% to 30%, and given a risk grade of three out of seven for seven of the eight portfolio segments.
As of December 31, 2023, the "economic and business conditions" factor was generally the highest weighted qualitative factor, with a weighting of 10% to 20%, and given a risk rating of “Minor” for eight of the fourteen portfolio segments.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. The available-for-sale securities are reported at estimated fair value.
Investment Securities Investment securities totaled $386.4 million at December 31, 2023, compared to $418.6 million at December 31, 2022. The following table sets forth a summary of the investment securities portfolio as of the dates indicated. The available-for-sale securities are reported at estimated fair value.
The following table sets forth the balance of each of the deposit categories for the years ended December 31, 2022 and 2021: (Dollars in thousands) 2022 2021 Demand deposits of individuals, partnerships and corporations Noninterest-bearing demand $ 1,231,544 $ 1,120,433 Interest-bearing demand 720,074 651,016 Savings and money markets 284,447 510,068 Time deposits including CDs and IRAs 334,417 96,088 Total deposits $ 2,570,482 $ 2,377,605 Time deposits that meet or exceed the FDIC insurance limit $ 4,386 $ 9,573 Average interest-bearing deposits totaled $1.27 billion during 2022 compared to $1.33 billion during 2021.
The following table sets forth the balance of each of the deposit categories for the years ended December 31, 2023 and 2022: (Dollars in thousands) 2023 2022 Demand deposits of individuals, partnerships and corporations Noninterest-bearing demand $ 1,197,272 $ 1,231,544 NOW 538,444 720,062 Savings and money markets 571,299 284,459 Time deposits, including CDs and IRAs 594,461 334,417 Total deposits $ 2,901,476 $ 2,570,482 Time deposits that meet or exceed the FDIC insurance limit $ 3,150 $ 4,386 Average interest-bearing deposits totaled $1.86 billion during 2023 compared to $1.27 billion during 2022.
Any such additional provisions for credit losses will be a direct charge to our earnings. 50 Recent Accounting Pronouncements and Developments Recent accounting pronouncements and developments applicable to us are described further in Note 1 – Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this report. 51
Recent Accounting Pronouncements and Developments Recent accounting pronouncements and developments applicable to us are described further in Note 1 – Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this report. 51
The increase in loan loss provision is primarily the result of the changes to the outstanding balances of the loan portfolios, including an increase in our consumer loan segment, level of recognized charge-offs and resulting historical loss rates, as well as adjustments to the risk grading of loans within the portfolio.
The decrease in the provision for credit losses is primarily the result of the changes to the outstanding balances of the loan portfolios, including a decrease in our consumer loan segment, forecasted loss rates, as well as the level of recognized charge-offs within the portfolio.
The increase in earning assets yield, partially offset by the increase in the cost of interest-bearing liabilities, resulted in an increase in our net interest margin (tax-equivalent) to 4.04% in 2022 from 3.26% in 2021. Net income in 2022 totaled $15.0 million, compared to $39.1 million in 2021, a decrease of $24.1 million.
The increase in earning assets yield was partially offset by the increase in the cost of interest-bearing liabilities, which resulted in our net interest margin (tax-equivalent) remaining at 4.04% in 2023 and 2022. Net income in 2023 totaled $31.2 million, compared to $15.0 million in 2022, an increase of $16.2 million.
Major classification of loans held for investment at December 31, are as follows: (Dollars in thousands) 2022 2021 Business $ 851,072 $ 821,615 Real estate 632,839 572,736 Acquisition, development and construction 126,999 100,080 Commercial $ 1,610,910 $ 1,494,431 Residential 609,452 310,498 Home equity lines of credit 18,734 22,186 Consumer 131,566 44,332 Total loans $ 2,370,662 $ 1,871,447 Deferred loan origination fees and costs, net 1,983 (1,609) Loans receivable $ 2,372,645 $ 1,869,838 At December 31, 2022, commercial and non-residential real estate loans represented the largest portion of the portfolio at 68.0%.
Major classification of loans held for investment at December 31, are as follows: (Dollars in thousands) 2023 2022 Business $ 797,100 $ 851,072 Real estate 670,584 632,839 Acquisition, development and construction 134,004 126,999 Commercial $ 1,601,688 $ 1,610,910 Residential 672,547 609,452 Home equity lines of credit 14,531 18,734 Consumer 27,408 131,566 Total loans $ 2,316,174 $ 2,370,662 Deferred loan origination fees and costs, net 1,420 1,983 Loans receivable $ 2,317,594 $ 2,372,645 At December 31, 2023, commercial and non-residential real estate loans represented the largest portion of the portfolio at 69.2%.
Management believes residential real estate lending continues to represent a primary focus due to the lower risk factors associated with this type of loan and the opportunity to provide service to those in the North Central West Virginia and Northern Virginia markets. Consumer loans totaled $131.6 million at December 31, 2022, compared to $44.3 million at December 31, 2021.
Management believes residential real estate lending continues to represent a primary focus due to the lower risk factors associated with this type of loan and the opportunity to provide service to both those in the primary North Central West Virginia and Northern Virginia markets, as well as those in the surrounding areas as management deems appropriate.
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 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 interest-bearing balances with banks. Interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts, repurchase agreements, subordinated debt and the senior term loan.
The decreased return in 2022 is a result of a $24.1 million, or 61.6%, decrease in earnings compared to 2021, while average equity increased by $4.9 million to $255.5 million. 42 Statement of Financial Condition Cash and Cash Equivalents Cash and cash equivalents totaled $40.3 million at December 31, 2022, compared to $307.4 million at December 31, 2021.
The increased return in 2023 is a result of a $16.2 million, or 108.0%, increase in earnings compared to 2022, while average equity increased by $19.1 million to $273.9 million. Statement of Financial Condition Cash and Cash Equivalents Cash and cash equivalents totaled $398.2 million at December 31, 2023, compared to $40.3 million at December 31, 2022.
At December 31, 2022, noninterest-bearing balances totaled $1.23 billion, compared to $1.12 billion at December 31, 2021, or 47.9% and 47.1%, respectively, of total deposits. Interest-bearing deposits totaled $1.34 billion at December 31, 2022, compared to $1.26 billion at December 31, 2021, or 52.1% and 52.9%, respectively, of total deposits.
Interest-bearing deposits totaled $1.70 billion at December 31, 2023, compared to $1.34 billion at December 31, 2022, or 58.7% and 52.1%, respectively, of total deposits.
The increase in average total assets was mainly as a result of a $471.5 million, or 27.5%, increase in average total loans and a $43.0 million, or 21.3%, increase in other assets.
The increase in average total assets was mainly as a result of a $136.1 million, or 6.2%, increase in average total loans and a $57.1 million, or 23.3%, increase in other assets.
Further, we encourage you to revisit the Forward-Looking Statements at the beginning of this report . Executive Summary During 2022, we adapted our business model due to challenging market conditions, primarily brought on by an environment of increasing interest rates and a slowing economy. We remained committed to key Fintech industry gaming and payments initiatives and implemented cost-saving measures.
Further, we encourage you to revisit the Forward-Looking Statements at the beginning of this report. 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.
The result of the evaluation of the adequacy at each period presented herein indicated that the ALL was considered by management to be adequate to absorb losses inherent in the loan portfolio. At December 31, 2022 and 2021, impaired loans totaled $15.9 million and $22.5 million, respectively.
The result of the evaluation of the adequacy at each period presented herein indicated that the ACL was considered by management to be adequate to absorb forecasted losses over the remaining life of the loan portfolio. 45 At December 31, 2023 and 2022, individually analyzed loans totaled $11.8 million and $18.2 million, respectively.
December 31, (Dollars in thousands) 2022 2021 Available-for-sale securities: United States government agency securities $ 44,814 $ 40,437 United States sponsored mortgage-backed securities 56,571 76,108 United States treasury securities 120,909 110,389 Municipal securities 138,636 175,012 Corporate debt securities 10,560 11,142 Other debt securities 7,500 7,500 Other securities 824 878 Total investment securities available-for-sale $ 379,814 $ 421,466 Equity securities $ 38,744 $ 32,402 At December 31, 2022, investment securities are available-for-sale or equity securities.
December 31, (Dollars in thousands) 2023 2022 Available-for-sale securities: United States government agency securities $ 38,408 $ 44,814 United States sponsored mortgage-backed securities 82,382 56,571 United States treasury securities 100,356 120,909 Municipal securities 106,907 138,636 Corporate debt securities 8,942 10,560 Other debt securities 7,500 7,500 Other securities 780 824 Total investment securities available-for-sale $ 345,275 $ 379,814 Equity securities $ 41,086 $ 38,744 At December 31, 2023, all investment securities are available-for-sale or equity securities.
Interest income on loans would have increased by approximately $0.5 million, $0.4 million and $0.6 million for 2022, 2021 and 2020, respectively, if loans had performed in accordance with their terms. 46 Non-performing assets and past due loans as of December 31, are as follows: (Dollars in thousands) 2022 2021 Non-accrual loans Commercial $ 7,528 $ 9,845 Real estate and home equity 2,286 7,853 Consumer and other 1,351 259 Total non-accrual loans 11,165 17,957 Accruing loan past due 90 days or more — — Total non-performing loans 11,165 17,957 Other real estate, net 1,194 2,330 Total non-performing assets $ 12,359 $ 20,287 Allowance for loan losses $ 23,837 $ 18,266 Non-performing loans to gross loans 0.5 % 0.9 % Allowance for loan losses to total loans 1.0 % 1.0 % Allowance for loan losses to non-performing loans 213.5 % 103.1 % Non-performing assets to total assets 0.4 % 0.7 % Impaired loans have decreased by $6.6 million, or 29.3%, during 2022.
Non-performing assets and past due loans as of December 31, are as follows: (Dollars in thousands) 2023 2022 Non-accrual loans Commercial $ 7,680 $ 7,528 Real estate and home equity 243 2,286 Consumer and other 344 1,351 Total non-accrual loans 8,267 11,165 Accruing loan past due 90 days or more — — Total non-performing loans 8,267 11,165 Other real estate, net 825 1,194 Total non-performing assets $ 9,092 $ 12,359 Allowance for credit losses $ 22,124 $ 23,837 Non-performing loans to gross loans 0.4 % 0.5 % Allowance for credit losses to total loans 0.95 % 1.00 % Allowance for credit losses to non-performing loans 267.6 % 213.5 % Non-performing assets to total assets 0.3 % 0.4 % Individually analyzed loans have decreased by $6.4 million, or 35.2%, during 2023.
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.
We believe liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. Our liquid assets totaled $504.3 million and $354.4 million of December 31, 2023 and 2022, respectively.
The following table summarizes the primary segments of the ALL, excluding the ALL related to loans individually evaluated for impairment as of December 31, 2022 and 2021: (Dollars in thousands) 2022 2021 December 31, Amount % of loans in each category to total loans Amount % of loans in each category to total loans Commercial and non-residential real estate $ 15,539 68 % $ 14,100 80 % Residential 2,880 26 1,492 17 Home equity lines of credit 131 1 128 1 Consumer and other 5,287 5 2,546 2 Total $ 23,837 100 % $ 18,266 100 % The ALL increase in the consumer and other loan segment was driven by a $43.8 million increase in purchased automotive loans throughout 2022.
The following table summarizes the primary segments of the ACL as of December 31, 2023 and 2022: (Dollars in thousands) 2023 2022 December 31, Amount % of loans in each category to total loans Amount % of loans in each category to total loans Commercial and non-residential real estate $ 12,536 69 % $ 15,539 68 % Residential 6,412 29 2,880 26 Home equity lines of credit 97 1 131 1 Consumer and other 3,079 1 5,287 5 Total $ 22,124 100 % $ 23,837 100 % The ACL decrease in the consumer and other loan segment was driven by a $44.4 million sale of subprime automobile loans during 2023.
Meanwhile, total loan receivable balances increased $502.8 million in 2022 versus an increase of $415.0 million in 2021. The commercial loan portfolio increased by $116.5 million in 2022, in comparison to an increase of $332.3 million in 2021, while the residential mortgage loan portfolio increased by $299.0 million and $53.3 million in 2022 and 2021, respectively.
Meanwhile, total loan receivable balances decreased $55.0 million in 2023 versus an increase of $502.8 million in 2022. The commercial loan portfolio decreased by $9.2 million in 2023, in comparison to an increase of $116.5 million in 2022, while the consumer loan portfolio decreased by $104.2 million in 2023, in comparison to an increase of $87.7 million in 2022.
GAAP basis Net interest income $ 111,803 $ 77,159 $ 68,826 Plus: Impact of fully tax-equivalent adjustment 1,128 1,392 1,214 Net interest income on a fully-tax equivalent basis $ 112,931 $ 78,551 $ 70,040 Average interest-earning assets $ 2,798,784 $ 2,410,827 $ 1,959,702 Net interest margin on a fully tax-equivalent basis 4.04 % 3.26 % 3.57 % Rate Volume Calculation The year over year change in rate volume to 2022 from 2021 is as follows: (Dollars in thousands) Change in Volume Change in Rate Total Change Earning Assets Loans: Commercial $ 9,473 $ 14,821 $ 24,294 Tax-exempt (90) (7) (97) Real estate 5,625 434 6,059 Consumer 11,387 (439) 10,948 Investment securities: Taxable 51 1,040 1,091 Tax-exempt (1,952) 790 (1,162) Interest-bearing deposits in banks (21) 1,329 1,308 CDs with banks (181) 4 (177) Total earning assets $ 24,292 $ 17,972 $ 42,264 Interest-bearing liabilities Negotiable order of withdrawal $ 81 $ 3,031 $ 3,112 Money market checking (261) 827 566 Savings 2 411 413 IRAs (43) (7) (50) CDs 367 2,092 2,459 Repurchase agreements — (7) (7) FHLB and other borrowings (36) 380 344 Senior term loan — 163 163 Subordinated debt 942 (58) 884 Total interest-bearing liabilities 1,052 6,832 7,884 Total $ 23,240 $ 11,140 $ 34,380 39 Key Metrics Year ended December 31, (Dollars in thousands, except per share data) 2022 2021 Book value per common share $ 20.69 $ 22.70 Tangible book value per common share 4 $ 20.25 $ 22.17 Efficiency ratio 1 4 78.2 % 69.7 % Overhead ratio 2 4 3.9 % 3.7 % Net loan charge-offs to total loans receivable 3 0.4 % 0.1 % Allowance for loan losses to total loans receivable 1.00 % 0.98 % Nonperforming loans $ 11,165 $ 17,713 Nonperforming loans to total loans receivable 0.5 % 0.9 % Equity to assets 8.5 % 9.8 % Community Bank Leverage Ratio 9.8 % 11.6 % 1 Noninterest expense as a percentage of net interest income and noninterest income 2 Noninterest expense as a percentage of average assets 3 Charge-offs less recoveries 4 Non-U.S.
GAAP basis Net interest income $ 123,283 $ 111,803 $ 77,159 Plus: Impact of fully tax-equivalent adjustment 946 1,128 1,392 Net interest income on a fully-tax equivalent basis $ 124,229 $ 112,931 $ 78,551 Average interest-earning assets $ 3,077,717 $ 2,798,784 $ 2,410,827 Net interest margin on a fully tax-equivalent basis 4.04 % 4.04 % 3.26 % Rate Volume Calculation The year over year change in rates and change in volume from 2022 to 2023 is as follows: (Dollars in thousands) Change in Volume Change in Rate Total Change Earning Assets Loans: Commercial $ 1,501 $ 34,732 $ 36,233 Tax-exempt (40) — (40) Real estate 3,361 5,682 9,043 Consumer 711 (2,935) (2,224) Investment securities: Taxable (221) 2,301 2,080 Tax-exempt (841) 22 (819) Interest-bearing deposits in banks 1,257 18,173 19,430 CDs with banks (24) — (24) Total earning assets $ 5,704 $ 57,975 $ 63,679 Interest-bearing liabilities Negotiable order of withdrawal $ (67) $ 15,194 $ 15,127 Money market checking 766 8,137 8,903 Savings 149 1,304 1,453 IRAs 5 118 123 CDs 9,076 16,502 25,578 Repurchase agreements (3) (2) (5) FHLB and other borrowings 58 394 452 Senior term loan 468 135 603 Subordinated debt 11 136 147 Total interest-bearing liabilities 10,463 41,918 52,381 Total $ (4,759) $ 16,057 $ 11,298 38 Key Metrics Year ended December 31, (Dollars in thousands, except per share data) 2023 2022 Book value per common share $ 22.68 $ 20.69 Tangible book value per common share 4 $ 22.43 $ 20.25 Efficiency ratio 1 4 82.3 % 78.2 % Overhead ratio 2 4 3.5 % 3.9 % Net loan charge-offs to total loans receivable 3 0.4 % 0.4 % Allowance for credit losses to total loans receivable 0.95 % 1.00 % Nonperforming loans $ 8,267 $ 11,165 Nonperforming loans to total loans receivable 0.4 % 0.5 % Equity to assets 8.7 % 8.5 % Community Bank Leverage Ratio 10.5 % 9.8 % 1 Noninterest expense as a percentage of net interest income and noninterest income 2 Noninterest expense as a percentage of average assets 3 Charge-offs less recoveries 4 Non-U.S.
Total loans increased by $526.0 million to $2.40 billion as of December 31, 2022 from $1.87 billion as of December 31, 2021. Our overall cost of interest-bearing liabilities was 1.03% in 2022 compared to 0.44% in 2021.
Our yield on earning assets (tax-equivalent) in 2023 was 6.20% compared to 4.54% in 2022. Total loans decreased by $77.6 million to $2.32 billion as of December 31, 2023 from $2.40 billion as of December 31, 2022. Our overall cost of interest-bearing liabilities was 3.38% in 2023 compared to 1.03% in 2022.
The decreased return in 2022 is a result of a $24.1 million, or 61.6%, decrease in earnings and an increase in average total assets of $426.2 million, or 16.4%, as compared to 2021.
The increased return in 2023 is a result of a $16.2 million, or 108.0%, increase in earnings, which was offset by an increase in average total assets of $329.6 million, or 10.9%, as compared to 2022.
These decreases were partially offset by increases of $5.9 million in compliance consulting income, $5.0 million in gain on sale of assets, $4.1 million in payment card and service charge income and $1.9 million in an equity method investment gains. Equity method investment income decreased $18.1 million, primarily due to lower mortgage banking revenue.
Additionally, there was a $1.9 million holding gain on equity method investments and a $5.0 million gain on sale of assets in 2022 without corresponding gains in 2023. These decreases were partially offset by increases of $4.2 million in other operating income and $2.1 million in payment card and service charge income.
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.
Healthcare loans are a significant component of commercial and non-residential real estate loans and comprise 23.4% of total loans receivable at December 31, 2023. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry.
Of the 11 loans recently classified as Special Mention, there were two commercial real estate hotel loans to one relationship for $11.9 million, two commercial real estate loans secured by movie theaters totaling $2.5 million and a PPP commercial loan for $2.0 million.
Of the 24 loans recently classified as Special Mention, there were seven commercial loans to one relationship for $26.1 million, one commercial multifamily real estate for $14.6 million, two commercial office real estate to a single borrower totaling $11.7 million, one commercial real estate loan secured by a healthcare facility for $8.0 million, and 11 commercial loans with government guarantees to nine borrowers for $6.6 million.
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 totaled $418.6 million at December 31, 2022, compared to $453.9 million at December 31, 2021.
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.
This segment realizes elevated charge offs, and therefore is allocated against at a much higher rate than commercial, residential or home equity. We continue to monitor this segment closely.
This segment realizes elevated charge offs, and therefore is allocated against a much higher rate than commercial, residential or home equity. We continue to monitor this segment closely. Non-performing assets consist of loans that are no longer accruing interest and real estate acquired through foreclosure. When interest accruals are suspended, accrued interest income is reversed and charged to earnings.
Loans classified as Special Mention totaled $31.3 million and $30.3 million as of December 31, 2022 and December 31, 2021, respectively. The increase of $1.0 million, or 3.3%, was concentrated in the commercial loan portfolio.
These included a $2.0 million commercial PPP note, and a $1.4 million commercial construction note for multifamily housing. Loans classified as Substandard totaled $34.0 million and $35.3 million as of December 31, 2023 and December 31, 2022, respectively. The decrease of $1.3 million, or 3.7%, was concentrated in the commercial loan portfolio.
Of these amounts, gaming deposits totaled $652.1 million and $911.6 million at December 31, 2022 and 2021, respectively. Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 6.7% of funding sources at December 31, 2022, versus 3.0% at December 31, 2021.
Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 2.7% of funding sources at December 31, 2023, versus 6.7% at December 31, 2022. Repurchase agreements, which are available to large corporate customers, represented 0.2% and 0.4% of funding sources at December 31, 2023 and 2022, respectively.
Cash flows from operating, investing and financing activities during the year ended December 31, 2021 totaled $34.8 million, ($572.0) million and $580.7 million, respectively.
During the year ended December 31, 2023, cash flows from operating, investing and financing activities totaled $58.2 million, $88.2 million and $211.5 million, respectively. Cash flows from operating, investing and financing activities during the year ended December 31, 2022 totaled $7.4 million, ($571.1) million and $296.6 million, respectively.
We estimate the general component of the ALL based on the Bank’s historical loss experience and consideration of qualitative factors, both internal and external, all of which may be susceptible to significant change.
A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. We estimate the general component of the ACL based on a forecasting model and consideration of qualitative factors, both internal and external, all of which may be susceptible to significant change.
Average total loans increased $471.5 million in 2022, primarily as the result of a $206.8 million increase in average commercial loans. The yield on loans increased 93 basis points. Average investment securities decreased $57.3 million in 2022, or 13.2%, as the result of a $62.2 million decrease in tax-exempt investments and a $4.9 million increase in taxable investments.
The yield on loans increased 154 basis points. Average investment securities decreased $37.6 million in 2023, or 10.0%, as the result of a $22.7 million decrease in tax-exempt investments and a $14.9 million decrease in taxable investments. The yield increased two basis points and 104 basis points on tax-exempt securities and taxable securities, respectively.
December 31, 2022 December 31, 2021 Goodwill $ 3,988 $ 3,988 Intangibles 1,631 2,316 Total intangibles $ 5,619 $ 6,304 Total equity attributable to parent $ 261,084 $ 274,328 Less: Total intangibles (5,619) (6,304) Tangible common equity $ 255,465 $ 268,024 Tangible common equity $ 255,465 $ 268,024 Common shares outstanding (000s) 12,618 12,087 Tangible book value per common share $ 20.25 $ 22.17 Net Interest Income Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities.
December 31, 2023 December 31, 2022 Goodwill 1 $ 2,838 $ 3,988 Intangibles 2 352 1,631 Total intangibles $ 3,190 $ 5,619 Total equity attributable to parent $ 289,384 $ 261,084 Less: Total intangibles (3,190) (5,619) Tangible common equity $ 286,194 $ 255,465 Tangible common equity $ 286,194 $ 255,465 Common shares outstanding (000s) 12,758 12,618 Tangible book value per common share $ 22.43 $ 20.25 1 Includes $1.2 million of goodwill included under assets from discontinued operations on the balance sheet as of December 31, 2022. 2 Includes $1.1 million of intangibles included under assets from discontinued operations on the balance sheet as of December 31, 2022.
These loans include $19.2 million in three loans to finance hospitality properties to three related borrowers, a $2.0 million loan to finance a multifamily real estate property, a $1.0 million loan secured by receivables and a $0.9 million loan secured by residential lots.
There were 34 additional loans that management identified as Substandard loans, totaling $34.0 million as of December 31, 2023. These loans include $18.4 million in three loans to finance hospitality properties to three related borrowers, a $3.8 million loan to finance a multifamily real estate property and two loans totaling $3.1 million loan secured by leases.
Average interest-bearing liabilities decreased $43.5 million in 2022, or 3.1%, primarily the result of a $138.8 million decrease in the average balance of money market checking accounts and $9.8 million in FHLB and other borrowings, partially offset by an increase of $33.7 million in average balance of negotiable order of withdrawal accounts, $22.1 million in subordinated debt and $36.4 million in certificates of deposit.
Average interest-bearing liabilities increased $594.9 million, or 43.3%, in 2023 primarily the result of a $406.1 million increase in certificates of deposit and a $174.5 million increase in the average balance of money market checking accounts. Average interest-bearing deposits increased $591.2 million in 2023.
The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 53 basis points in 2022 compared to 18 basis points in 2021.
The difference between the net interest margin on a tax-equivalent basis and net interest spread on a tax-equivalent basis was 122 basis points in 2023 compared to 53 basis points in 2022. This was driven by the 235 basis point increase in the cost of interest-bearing liabilities outpacing the 166 basis point increase in yield on earning assets.
As of December 31, 2022, there is $1.0 million in calculated loan loss reserve allocation against seven legacy MVB loans totaling $2.5 million. The largest of purchased loans had a balance of $1.3 million, while the remaining two loans had balances totaling $0.4 million.
As of December 31, 2022, there is $0.6 million in calculated credit loss reserve allocation against seven legacy MVB loans totaling $4.0 million. There is a single Doubtful purchased loan remaining, with an immaterial balance. 47 Interest Rate Risk Management continually evaluates hedging strategies that are available to manage interest rate risk.
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. Deposits continue to be the most significant source of funds, totaling $2.57 billion, or 92.9% of funding sources, at December 31, 2022, versus $2.38 billion, or 96.6% of such funding sources, at December 31, 2021.
Deposits continue to be the most significant source of funds, totaling $2.90 billion, or 97.1% of funding sources, at December 31, 2023, versus $2.57 billion, or 92.9% of such funding sources, at December 31, 2022. Of these amounts, gaming deposits totaled $354.1 million and $652.1 million at December 31, 2023 and 2022, respectively.
Also from time to time, we recognize gains or losses on acquisition and divestiture activity, sales of assets or our investment portfolio. Total noninterest income for 2022, 2021 and 2020 was $38.3 million, $62.6 million and $91.8 million, respectively.
Noninterest Income Payment card and service charge income, consulting compliance income, equity method investment income or loss and gains on sale of loans generally account for the majority of our noninterest income. From time to time, we also recognize gains or losses on 40 acquisition and divestiture activity, sales of assets or our investment portfolio.
Lastly, the provision for loan losses was impacted by a $1.3 million increase in the specific loan loss allocations in 2022, relative to a $0.8 million decrease in 2021. Noninterest Income Payment card and service charge income, consulting compliance income, equity method investment income and gains on sale of 41 loans generally account for the majority of our noninterest income.
Lastly, the provision for credit losses was impacted by a $0.1 million increase in the specific credit loss allocations in 2023, relative to a $1.3 million increase in provision for such loan losses in 2022.
While 45 the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in numerous different industries, primarily located in our market areas. Allowance for Loan Losses Management is responsible for establishing the allowance for loan losses (“ALL”) and the Loan Review Committee provides oversight for the adequacy of the ALL.
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, primarily located in our market areas.
Repurchase agreements, which are available to large corporate customers, represented 0.4% and 0.5% of funding sources at December 31, 2022 and 2021, respectively. Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for the Company.
Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for us. At December 31, 2023, noninterest-bearing balances totaled $1.20 billion, compared to $1.23 billion at December 31, 2022, or 41.3% and 47.9%, respectively, of total deposits.
The commercial loan is currently involved in legal proceedings. The $1.1 million of principal curtailments/payoffs were concentrated in two commercial relationships, one in which the note was curtailed through the sale of collateral, and one in which two notes to a single borrower were refinanced into a third restructured note.
The $3.8 million of principal curtailments/payoffs were concentrated in a single commercial relationship, in which the note was curtailed through the sale of collateral of $1.5 million, or 39%, of the total principal curtailments, and through the sale of 12 non-performing consumer mortgage notes representing $1.8 million, or 47%, of the total principal curtailments.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+4 added−7 removed23 unchanged
Biggest changeEstimated Changes in Economic Value of Equity (EVE) Change in interest rates +400 bp +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp -400 bp Policy Limit (35.0) % (25.0) % (17.0) % (12.0) % (12.0) % (17.0) % (25.0) % (35.0) % December 31, 2022 14.7 % 11.4 % 8.0 % 3.9 % (4.6) % (11.4) % (19.9) % (29.3) % December 31, 2021 14.2 % 10.8 % 8.7 % 4.5 % (7.8) % (12.2) % (6.2) % (0.5) % The increase in economic value of equity in rising rate environments is largely attributable to the effect that an increase in interest rates has on the present value of non-interest-bearing deposits.
Biggest changeEstimated Changes in EVE Change in interest rates +400 bp +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp -400 bp Policy Limit (35.0) % (25.0) % (17.0) % (12.0) % (12.0) % (17.0) % (25.0) % (35.0) % December 31, 2023 (2.3) % (1.9) % (1.3) % (0.6) % 0.7 % (0.7) % (3.5) % (6.0) % December 31, 2022 14.7 % 11.4 % 8.0 % 3.9 % (4.6) % (11.4) % (19.9) % (29.3) % The EVE is much more stable across rate changing scenarios for 2023.
We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and the Board of Directors have chosen an interest rate risk profile that is consistent with our strategic business plan.
We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and our Board of Directors have chosen an interest rate risk profile that is consistent with our strategic business plan.
The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in interest rates.
The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity (“EVE”) at risk) resulting from a hypothetical change in interest rates.
At December 31, 2022, we are shown in an asset sensitive position for the first year after rate shocks. Management continuously strives to reduce higher costing fixed rate funding instruments, while increasing assets that are more fluid in their repricing.
At December 31, 2023, we are shown in an asset sensitive position for the first year after rate shocks. Management continuously strives to reduce higher costing fixed rate funding instruments, while increasing assets that are more fluid in their repricing.
Estimated Changes in Net Interest Income Change in interest rates +400 bp +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp -400 bp Policy Limit (25.0) % (20.0) % (15.0) % (10.0) % (10.0) % (15.0) % (20.0) % (25.0) % December 31, 2022 30.0 % 21.3 % 12.5 % 4.1 % (13.3) % (22.7) % (31.7) % (38.7) % December 31, 2021 55.4 % 39.9 % 24.6 % 10.4 % (9.2) % (13.7) % (15.9) % (16.5) % Net interest income is first compared to the Global Insight Rate Forecast that we received from a third-party banking solution.
Estimated Changes in Net Interest Income Change in interest rates +400 bp +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp -400 bp Policy Limit (25.0) % (20.0) % (15.0) % (10.0) % (10.0) % (15.0) % (20.0) % (25.0) % December 31, 2023 51.8 % 39.7 % 27.6 % 16.1 % (7.6) % (20.2) % (33.4) % (44.8) % December 31, 2022 30.0 % 21.3 % 12.5 % 4.1 % (13.3) % (22.7) % (31.7) % (38.7) % Net interest income is first compared to the Global Insight Rate Forecast that we received from a third-party banking solution.
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.
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, including derivative contracts such as interest rate swaps and fair value hedges. We work with third-party investors that are generally well-capitalized, are investment grade and exhibit strong financial performance to mitigate this risk.
Our expectation is that over any given one to two year period, interest rates will likely move at a gradual pace. As interest rates fall, mortgage companies experience a higher volume of loan originations and refinance activity. This benefit is not reflected in measures of net interest income at risk, as origination and refinance activity are classified as fee income.
A gradual interest rate decline scenario smooths the impact of falling rates over a 12 or 24 month period. Our expectation is that over any given one to two year period, interest rates will likely move at a gradual pace. As interest rates fall, mortgage companies experience a higher volume of loan originations and refinance activity.
That is also why the shock is less in the down rate environment, which would be closer to a flat rate environment, rather than a true down-rate environment. At December 31, 2022, the expectation is for rates to move slightly throughout the next year, then drop slightly over year two.
As such, the projected impact at year-end 2022 is smaller than the current report. That is also why the shock is less in the down-rate environment, which would be closer to a flat rate environment, rather than a true down-rate environment.
This establishes an expectation of interest rate movement over the next two years. Then, the shocks are applied based on the rate expectation.
This establishes an expectation of interest rate movement over the next two years. Then, the shocks are applied based on the rate expectation. In comparing the expectations as of each of December 31, 2022 and December 31, 2023, at December 31, 2022 the expectation was that rates would see little movement in 2023.
The policy violations in these scenarios are driven largely by the general level or market interest rates described above, as well as our cost of funding. Our deposit costs are low and have little room to reprice to a lower interest rate in a falling rate environment.
Net interest income at risk exceeded policy limits in the -100 bp, -200 bp, -300 bp and -400 bp parallel instantaneous interest rate shock scenarios. The policy violations in these scenarios are driven largely by the general level or market interest rates described above, as well as our cost of funding.
Our net interest income profile exhibits declining net interest income when rates fall gradually; however, the impact is not as extreme as is suggested in a shock scenario. A gradual interest rate decline scenario smooths the impact of falling rates over a 12 or 24 month period.
The discussion above assumes net interest income at risk in various shock scenarios; scenarios in which interest rates immediately move by a large margin. Our net interest income profile exhibits declining net interest income when rates fall gradually; however, the impact is not as extreme as is suggested in a shock scenario.
This increase in fee income represents a benefit to net income that offsets the losses to net interest income experienced in a falling rate environment.
This benefit is not reflected in measures of net interest income at risk, as origination and refinance activity are classified as income from an equity method investment. This increase in equity method investment income represents a benefit to net income that offsets the losses to net interest income experienced in a falling rate environment.
However, our floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling rate environment. The discussion above assumes net interest income at risk in various shock scenarios; scenarios in which interest rates immediately move by a large margin.
Our deposit costs are low and have little room to reprice to a lower interest rate in a falling rate environment. However, our floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling rate environment.
Removed
In comparing the expectations as of each of December 31, 2021 and December 31, 2022, at December 31, 2021, the expectation was that interest rates were going to rise and, accordingly volatility was higher in the up-rate shocks due to the rates also being assumed to be rising based on the forecast.
Added
At December 31, 2023, the expectation is for rates to drop throughout the next year, then hit a steady point in year two, and moving forward. There is impact in a down-rate environment as the bank deals heavily in variable rate loans and deposits.
Removed
Due to that forecast, volatility is higher in down-rate environments as rates are expected to remain close to flat. Net interest income at risk exceeded policy limits in the -100 bp, -200 bp, -300 bp and -400 bp parallel instantaneous interest rate shock scenarios.
Added
The Fed Funds Rate increased significantly during 2022, and the effect of this rate movement was not fully realized in the deposit portfolio until 2023. Interest-bearing deposits were repriced throughout 2023 in the rising rate environment leading to increased cost of funds.
Removed
The discount rate for non-interest-bearing deposits rises as interest rates rise; however, these deposits pay a rate of zero. The cost of these liabilities does not increase as interest rates rise, but the 53 discount rate applied to the expected future cash flows of these liabilities increases with interest rates.
Added
The significant change in rates also 53 drove previously non-interest-bearing deposits into new interest-bearing account types, which impacted the cost of interest-bearing liabilities. This impact drove the cost of interest-bearing liabilities up, allowing the cost to behave similar to the discount rate applied to cash flows.
Removed
Any increase in the market rates used to discount the cash flows of these liabilities reduces the present value of these liabilities. The decrease in present value of these liabilities results in a net increase to economic value of equity.
Added
These changes in rates took place in 2023, despite only being projected at year-end 2022. The EVE impact in changing rate environments has stabilized due to our understanding of the impact of previous rate changes to the portfolio and the small rate changes projected in 2023.
Removed
A falling rate environment would result in a higher net present value for these liabilities and would lead to a net decrease to economic value of equity. Additionally, interest-bearing deposits contribute to the large declines in economic value of equity in falling rate environments as a result of their low cost.
Removed
Interest-bearing deposit costs are modeled with a floor of zero, meaning that the interest rates paid on deposits cannot be negative. In the event of a large downward interest rate shock, deposit costs would not move below zero.
Removed
However, the discount rates applied to the expected future cash flows of these deposits could sustain a large decline in interest rates before reaching zero. This has the effect of increasing the present value of the interest-bearing-deposit liability and ultimately decreasing economic value of equity.

Other MVBF 10-K year-over-year comparisons