MVB FINANCIAL CORP

Previous wording

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. Interest rates have remained at an elevated level through March 31, 2024 as the Federal Reserve raised its key interest rate to a range of 4.25% to 4.5%. Lower loan balances are the result of slower market demand and deliberate efforts to improve balance sheet liquidity. We remain committed to our key Fintech industries of gaming and payments. We continue to expand the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. Additionally, we have expanded our compliance and risk management team to support the growth in these lines of business.

Current wording

We continue to adapt our business model due to challenging market conditions, primarily due to the current high interest rate environment, a slowing economy and multiple high-profile bank failures that occurred during the first half of 2023. Interest rates have remained at an elevated level through June 30, 2024, as the Federal Reserve raised its key interest rate to a range of 5.25% to 5.50% in July 2023. Lower loan balances are the result of slower market demand, the impact of loan amortization and payoffs and slower loan growth based on overall market conditions and portfolio management. We initiated the process of winding down our digital asset program account relationships, while maintaining operating accounts, during the second quarter of 2024, a decision that was prompted by changing market conditions and profitability challenges that contributed to an unfavorable risk/reward dynamic. We remain committed to the gaming, payments and banking-as-a-service industries. We continue to expand the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. Additionally, we have expanded our compliance and risk management team to support the growth in these lines of business.

Previous wording

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

Current wording

There continues to be a focus on liquidity after the bank failures that occurred during the first half of 2023, when certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there has been substantial market disruption and indications that deposit concerns could spread within the banking industry, leading to deposit outflows and other destabilizing results. These market events could have a material adverse effect on our business. A deterioration in economic conditions or the loss of confidence in financial institutions may result in deposit base outflows and limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings and borrowings from the Federal Reserve and FHLB. In addition, account and deposit balances may decrease when clients perceive alternative investments, such as the stock market or real estate, as providing a better risk/return 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. If our clients move money out of bank deposits into investments or to other financial institutions, we could lose a relatively low-cost source of funds. As of June 30, 2024 and December 31, 2023, our liquid assets totaled $592.5 million and $504.3 million, respectively, which we believe would enable us to meet our cash obligations as they come due.

Previous wording

During the three months ended March 31, 2024, net interest income decreased $2.6 million, noninterest income increased $4.8 million and noninterest expenses increased by $1.9 million compared to the three months ended March 31, 2023. Our tax- equivalent yield on earning assets in the three months ended March 31, 2024 was 6.34% compared to 6.00% in the three months ended March 31, 2023. Loans receivable decreased by $50.3 million to $2.27 billion during the three months ended March 31, 2024. Our overall cost of interest-bearing liabilities was 4.22% in the three months ended March 31, 2024 compared to 2.95% in the three months ended March 31, 2023. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a tax-equivalent net interest margin of 3.83% in the three months ended March 31, 2024, compared to 4.40% in the three months ended March 31, 2023.

Current wording

During the three months ended June 30, 2024, net interest income decreased $2.0 million, noninterest income increased $0.7 million and noninterest expenses decreased by $1.4 million compared to the three months ended June 30, 2023. Our tax- equivalent yield on earning assets in the three months ended June 30, 2024 was 6.26% compared to 6.02% in the three months ended June 30, 2023. Loans receivable decreased by $60.5 million to $2.21 billion during the three months ended June 30, 2024. Our overall cost of interest-bearing liabilities was 4.15% in the three months ended June 30, 2024 compared to 3.29% in the three months ended June 30, 2023. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a tax-equivalent net interest margin of 3.75% in the three months ended June 30, 2024, compared to 3.80% in the three months ended June 30, 2023.

Previous wording

Our net income for the three months ended March 31, 2024 was $4.5 million compared to $11.3 million in the three months ended March 31, 2023. Earnings for the three months ended March 31, 2024 equated to a return on average assets of 0.5% and a return on average equity of 6.2%, compared to the three months ended March 31, 2023 results of 1.4% and 16.1%, respectively. Basic and diluted earnings per share were $0.35 and $0.34, respectively, for the three months ended March 31, 2024, compared to $0.90 and $0.87, respectively, for the three months ended March 31, 2023.

Current wording

Our net income for the three months ended June 30, 2024 was $4.1 million compared to $8.1 million in the three months ended June 30, 2023. Earnings for the three months ended June 30, 2024 equated to a return on average assets of 0.5% and a return on average equity of 5.7%, compared to the three months ended June 30, 2023 results of 1.0% and 12.0%, respectively. Basic and diluted earnings per share were $0.32 and $0.31, respectively, for the three months ended June 30, 2024, compared to $0.64 and

Previous wording

5 Non-U.S. GAAP metric

Current wording

4 Non-U.S. GAAP metric

Previous wording

Tangible book value (“TBV”) per common share was $22.48 and $21.17 as of March 31, 2024 and March 31, 2023, 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.

Current wording

Tangible book value (“TBV”) per common share was $22.70 and $21.31 as of June 30, 2024 and June 30, 2023, 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.

Previous wording

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

Current wording

In 2023, the Federal Reserve raised its key interest rate to a range of 5.25% to 5.5% as of December 31, 2023 and remained at this rate as of June 30, 2024. We continually analyze methods to deploy assets into an earning asset mix to generate a stronger net interest margin.

Previous wording

Net interest margin on a tax-equivalent basis was 3.83% for the three months ended March 31, 2024 compared to 4.40% for the three months ended March 31, 2023. The decrease in net interest margin on a tax-equivalent basis primarily reflects higher funding costs and a shift in the mix of earnings assets, partially offset by investment yields. Tax-equivalent net interest spread was 2.12% for the three months ended March 31, 2024 compared to 3.05% for the three months ended March 31, 2023. The difference between the tax-equivalent net interest margin and tax-equivalent net interest spread was 171 basis points in the three months ended March 31, 2024 compared to 135 basis points in the three months ended March 31, 2023 driven by the increase in interest expense outpacing the increase in average assets.

Current wording

Net interest margin on a tax-equivalent basis was 3.75% for the three months ended June 30, 2024 compared to 3.80% for the three months ended June 30, 2023. The decrease in net interest margin on a tax-equivalent basis primarily reflects higher funding costs and a shift in the mix of earnings assets, partially offset by investment yields. Tax-equivalent net interest spread was 2.11% for the three months ended June 30, 2024 compared to 2.73% for the three months ended June 30, 2023. The difference between the tax-equivalent net interest margin and tax-equivalent net interest spread was 164 basis points in the three months ended June 30, 2024 compared to 107 basis points in the three months ended June 30, 2023 driven by the increase in interest expense and the decline in average assets.

Previous wording

During the three months ended March 31, 2024, net interest income decreased by $2.6 million, or 7.9%, to $30.1 million from $32.7 million during the three months ended March 31, 2023. Average total earning assets were $3.19 billion in the three months ended March 31, 2024 compared to $3.04 billion in the three months ended March 31, 2023. Total interest income increased by $5.3 million, or 11.8%, to $50.0 million in the three months ended March 31, 2024 from $44.8 million in the three months ended March 31, 2023 driven by an increase in total earning assets, including interest bearing deposits with other banks. Average total loans decreased to $2.28 billion in the three months ended March 31, 2024 from $2.38 billion in the three months ended March 31, 2023, primarily as the result of a $45.2 million decrease in average real estate loans and an $60.2 million decrease in average consumer loans. The yield on total loans increased 50 basis points.

Current wording

During the three months ended June 30, 2024, net interest income decreased by $2.0 million, or 6.8%, to $27.6 million from $29.6 million during the three months ended June 30, 2023. Average total earning assets were $2.97 billion in the three months ended June 30, 2024 compared to $3.15 billion in the three months ended June 30, 2023. Total interest income decreased by $0.9 million, or 1.9%, to $46.1 million in the three months ended June 30, 2024 from $47.0 million in the three months ended June 30, 2023 driven by an decrease in total earning assets, including interest bearing deposits with other banks. Average total loans decreased to $2.24 billion in the three months ended June 30, 2024 from $2.36 billion in the three months ended June 30, 2023, primarily as the result of a $30.8 million decrease in average real estate loans and an $54.6 million decrease in average consumer loans. The yield on total loans increased 25 basis points.

Previous wording

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

Current wording

Average investment securities increased $11.6 million as the result of a $32.3 million increase in taxable investments, partially offset by a $20.7 million decrease in tax-exempt investments during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The yield on tax-exempt securities decreased 105 basis points, and the taxable securities yield increased 80 basis points.

Previous wording

Average interest-bearing liabilities increased by $240.0 million for three months ended March 31, 2024 from three months ended March 31, 2023. The increase was primarily the result of average balance increases of $288.5 million in certificates of deposit and $199.5 million in money market checking deposits, partially offset by a decrease of $241.4 million in NOW accounts.

Current wording

Average interest-bearing liabilities decreased by $330.9 million for the three months ended June 30, 2024 from the three months ended June 30, 2023. The decrease was primarily the result of average balance decreases of $216.7 million in NOW accounts and $215.8 million in money market checking deposits, partially offset by an increase of $68.6 million in certificates of deposit.

Previous wording

Average interest-bearing deposits were $1.81 billion for the three months ended March 31, 2024 and $1.49 billion for the three months ended March 31, 2023. Total interest expense increased by $7.9 million, caused primarily by a $8.8 million increase in deposit interest. The result was a 127 basis point increase in the cost of interest-bearing liabilities, primarily driven by increases in interest rates.

Current wording

Average interest-bearing deposits were $1.72 billion for the three months ended June 30, 2024 and $2.04 billion for the three months ended June 30, 2023. Total interest expense increased by $1.1 million, caused primarily by a $1.2 million increase in deposit interest. The result was a 86 basis point increase in the cost of interest-bearing liabilities, primarily driven by increases in interest rates.

Previous wording

The provision for credit losses, which is a product of management’s analysis, is recorded in response to inherent losses in the loan portfolio. Credit loss provisions were $2.0 million for the three months ended March 31, 2024 and $4.6 million for the three months ended March 31, 2023, respectively. The decrease in credit loss provision is the result of lower calculated loss rates and lower portfolio balances across most of the pooled loan segments. The Bank did see an increase in loss rates in the other construction loan segment, which had an amortized cost basis of $128.9 million at March 31, 2024.

Current wording

The provision for credit losses, which is a product of management’s analysis, is recorded in response to inherent losses in the loan portfolio. Credit loss provisions were $0.3 million for the three months ended June 30, 2024, while there was a release of allowance for credit losses of $4.2 million for the three months ended June 30, 2023, respectively. The increase in credit loss provisions is the result of an increase in the required reserve calculated by the individually analyzed loan, which was partially offset by lower calculated loss rates and lower portfolio balances across most of the pooled loan segments.

Previous wording

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

Current wording

Total loans decreased $60.5 million during the three months ended June 30, 2024, compared to a decrease of $48.8 million in the three months ended June 30, 2023. The decline in loan balances compared to the prior quarters primarily reflects the amortization of the loan portfolio and the Bank’s purposeful effort to improve the overall strength of the loan portfolio through selective originations. The commercial loan portfolio decreased by $53.1 million during the three months ended June 30, 2024, as compared to an increase of $12.2 million in the three months ended June 30, 2023, while the residential mortgage loan portfolio decreased by $4.4 million during the three months ended June 30, 2024, as compared to a $33.4 million decrease during the three months ended June 30, 2023. Additionally, our consumer loan portfolio decreased by $1.9 million during the three months ended June 30, 2024, while it decreased by $26.9 million in the three months ended June 30, 2023. Net charge-offs totaled $0.9 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Noninterest income for the three months ended March 31, 2024 and 2023 totaled $7.8 million and $3.1 million, respectively. The increase in noninterest income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily the result of an increase of $2.2 million in gain on sale of available-for-sale investment securities, an increase of $1.2 million in payment card and service charge income and an increase of $0.6 million in other operating income. Loss on sale of loans decreased $0.4 million, as a result of losses on the sale of subprime automobile loans during the three months ended March 31, 2023, with no comparable losses in the current quarter.

Current wording

Noninterest income for the three months ended June 30, 2024 and 2023 totaled $7.1 million and $6.4 million, respectively. The increase in noninterest income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily the result of losses of $1.0 million on divestiture activity and $1.0 million on the sale of subprime automobile loans during the three months ended June 30, 2023, with no comparable losses in the current quarter, offset by a $1.4 million decrease in equity method investment income.

Previous wording

Noninterest expense was $30.2 million and $28.3 million in the three months ended March 31, 2024 and 2023, respectively. Approximately 55% and 59% of noninterest expense for the three months ended March 31, 2024 and 2023, respectively, was related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to financial services organizations.

Current wording

Noninterest expense was $28.9 million and $30.3 million in the three months ended June 30, 2024 and 2023, respectively. The decline from the prior period primarily reflects a decline in other operating expenses, partially offset by higher professional fees incurred to enhance our risk management and compliance-related infrastructure. Approximately 55.1% and 52.0% of noninterest expense for the three months ended June 30, 2024 and 2023, respectively, was related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to financial services organizations. The decrease as compared to the prior year period primarily reflects the implementation of expense reduction initiatives.

Previous wording

Our return on average assets was 0.5% for the three months ended March 31, 2024, compared to 1.4% for the three months ended March 31, 2023. The decreased return in the three months ended March 31, 2024 is the result of a $6.9 million decrease in earnings, while average total assets increased by $150.9 million, mainly as the result of a $264.8 million increase in average interest-bearing balances with banks, partially offset by a $100.3 million decrease in average total loans.

Current wording

Our return on average assets was 0.5% for the three months ended June 30, 2024, compared to 1.0% for the three months ended June 30, 2023. The decreased return in the three months ended June 30, 2024 is the result of a $4.0 million decrease in earnings, while average total assets decreased by $148.9 million, mainly as the result of a $64.3 million decrease in average interest-bearing balances with banks and a $54.6 million decrease in average consumer loans.

Previous wording

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

Current wording

Our return on average stockholders’ equity was 5.7% for the three months ended June 30, 2024, compared to 12.0% for the three months ended June 30, 2023. The decreased return in the three months ended June 30, 2024 is a result of a $4.0 million decrease in earnings, while average equity increased by $17.1 million.

Previous wording

Cash and cash equivalents totaled $640.4 million at March 31, 2024, compared to $398.2 million at December 31, 2023. The increase in cash and cash equivalents reflects seasonal increases due to tax season driven by a BaaS relationship. We believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity demands.

Current wording

Cash and cash equivalents totaled $455.5 million at June 30, 2024, compared to $398.2 million at December 31, 2023. 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.

Previous wording

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

Current wording

Investment securities, including equity securities, totaled $402.5 million at June 30, 2024, compared to $386.4 million at December 31, 2023. The following table presents a summary of the investment securities portfolio as of the periods shown. The available-for-sale securities are reported at estimated fair value.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

Our loan portfolio totaled $2.21 billion as of June 30, 2024 and $2.32 billion as of December 31, 2023. The Bank’s lending is primarily focused in North Central West Virginia, Northern Virginia, North Carolina and South Carolina. The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending.

Previous wording

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

Current wording

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

Previous wording

The ACL was $22.8 million, or 1.01% of loans receivable, at March 31, 2024, compared to $22.1 million, or 1.00% of loans receivable, at December 31, 2023. The $0.7 million increase in the ACL was primarily impacted by an increase in provision needed for individually analyzed loans of $1.5 million. Additionally, over the three months ended March 31, 2024, changes to the loan portfolio balances, qualitative factor adjustments and expected loss forecasts within the expected credit loss calculation resulted in allowance increases of $0.4 million to the other construction segment. These increases have been offset by allowance decreases of $0.5 million to the consumer auto and $0.4 million to the commercial and industrial segments, respectively. All other segments combined experienced an allowance decrease of $0.4 million. Bank management's expectations are that the markets in which it lends will experience economic improvements over the next 12 to 24 months, and most decreases in estimated loss rates have been further buoyed by decreases in loan balances in the three months ended March 31, 2024. This results in marginally lower allocation rates, against slightly lower loan balances, resulting in an overall lower allowance needed for the pooled loan portfolio. However, this has been more than offset by the increase in allowance needed by the individually analyzed loans. The increases to the ACL totaled $0.6 million and combined with net charge offs to date of $1.3 million, resulted in total credit loss provision of $0.7 million over the three months ended March 31, 2024. Net charge-offs for the three months ended March 31, 2024 included $0.6 million related to a SBA loan secured by business assets, $0.5 million related to the subprime consumer automotive segment and $0.4 million related to a commercial client in the energy industry.

Current wording

The ACL was $22.1 million, or 1.00% of loans receivable, at June 30, 2024 and December 31, 2023. Over the six months ended June 30, 2024, the ACL was impacted by an increase in provision needed for individually analyzed loans of $2.2 million. Additionally, over the six months ended June 30, 2024, changes to the loan portfolio balances, qualitative factor adjustments and expected loss forecasts within the expected credit loss calculation resulted in allowance decreases of $0.8 million to the subprime auto segment, $0.6 million to the commercial and industrial segments and $0.3 million to the residential segment. All other segments combined experienced an allowance decrease of $0.6 million. Bank management expects that the markets in which it lends will experience economic improvements over the next one to two years, and most decreases in estimated loss rates have been further supported by decreases in loan balances in the six months ended June 30, 2024. This results in marginally lower allocation rates against slightly lower loan balances, resulting in an overall lower allowance needed for the pooled loan portfolio. However, this has been partially offset by the increase in allowance needed by the individually analyzed loans. Net charge-offs for the three months ended June 30, 2024 included $0.9 million related to five SBA loans secured by business assets and $0.6 million related to the subprime consumer automotive segment.

Previous wording

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

Current wording

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

Previous wording

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 remain the most significant source of funds, totaling $3.15 billion, or 97.4% of funding sources at March 31, 2024. This same information at December 31, 2023 reflected $2.90 billion in deposits representing 97.1% of funding sources. Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 2.5% of funding sources at March 31, 2024, versus 2.7% at December 31, 2023. Repurchase agreements, which are available to large corporate customers, represented 0.1% of funding sources at March 31, 2024 and 0.2% at December 31, 2023.

Current wording

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 remain the most significant source of funds, totaling $2.88 billion, or 97.4% of funding sources at June 30, 2024. This same information at December 31, 2023 reflected $2.90 billion in deposits representing 97.1% of funding sources. Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 2.5% of funding sources at June 30, 2024, versus 2.7% at December 31, 2023. Repurchase agreements, which are available to large corporate customers, represented 0.1% of funding sources at June 30, 2024 and 0.2% at December 31, 2023.

Previous wording

At March 31, 2024, noninterest-bearing balances totaled $1.39 billion, compared to $1.20 billion at December 31, 2023, or 44.2% and 41.3%, respectively, of total deposits. Interest-bearing deposits totaled $1.75 billion at March 31, 2024, compared to $1.70 billion at December 31, 2023.

Current wording

At June 30, 2024, noninterest-bearing balances totaled $983.8 million, compared to $1.20 billion at December 31, 2023, or 34.1% and 41.3%, respectively, of total deposits. Interest-bearing deposits totaled $1.90 billion at June 30, 2024, compared to $1.70 billion at December 31, 2023.

Previous wording

Average interest-bearing deposits were $1.81 billion during the three months ended March 31, 2024, compared to $1.49 billion during the same time period in 2023 and average noninterest-bearing deposits were $1.28 billion during the three months ended March 31, 2024 compared to $1.38 billion during the same time period in 2023.

Current wording

Average interest-bearing deposits were $1.72 billion during the three months ended June 30, 2024, compared to $2.04 billion during the same time period in 2023 and average noninterest-bearing deposits were $1.14 billion during the three months ended June 30, 2024 compared to $971.4 million during the same time period in 2023.

Previous wording

We utilize a custodial deposit transference structure for certain deposit programs whereby we, acting as custodian of account holder funds, places a portion of such account holder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a program bank). Accounts opened at program banks are established in our name as custodian, for the benefit of our account holders. We remain the issuer of all accounts under the applicable account holder agreements and has sole custodial control and transaction authority over the accounts opened at program banks. We maintain the records of each account holders' deposits maintained at program banks. Program banks undergo robust due diligence prior to becoming a program bank and are also subject to continuous monitoring. These off-balance sheet deposits totaled $1.5 billion at March 31, 2024 and $1.1 billion at December 31, 2023 and represent gaming, banking-as-a-service and digital asset clients.

Current wording

We utilize a custodial deposit transference structure for certain deposit programs whereby we, acting as custodian of account holder funds, place a portion of such account holder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a program bank). Accounts opened at program banks are established in our name as custodian, for the benefit of our account holders. We remain the issuer of all accounts under the applicable account holder agreements and have sole custodial control and transaction authority over the accounts opened at program banks. We maintain the records of each account holders' deposits maintained at program banks. Program banks undergo robust due diligence prior to becoming a program bank and are also subject to continuous monitoring. These off-balance sheet deposits totaled $1.4 billion at June 30, 2024 and $1.1 billion at December 31, 2023 and represent gaming and banking-as-a-service.

Previous wording

Our four primary Fintech deposit verticals are gaming, payments, banking-as-a-service and digital assets, with deposits totaling $257.6 million, $417.9 million, $357.6 million and $339.1 million as of March 31, 2024, respectively, compared to $354.1 million, $449.8 million, $251.6 million and $188.4 million as of December 31, 2023, respectively. Of the gaming deposits, $199.3 million is with our three largest gaming clients at March 31, 2024. Of the digital asset deposits, $309.5 million is with our largest digital asset client at March 31, 2024.

Current wording

Our three primary Fintech deposit verticals are gaming, payments and banking-as-a-service, with deposits totaling $295.8 million, $314.1 million and $342.1 million as of June 30, 2024, respectively, compared to $354.1 million, $449.8 million and $251.6 million as of December 31, 2023, respectively. Of the gaming deposits, $270.3 million is with our three largest gaming clients at June 30, 2024.

Previous wording

During the three months ended March 31, 2024, stockholders’ equity increased $2.5 million to $291.8 million. This increase consists of net income of $4.5 million, common stock options exercised of $1.2 million and stock based compensation of $0.9 million, offset by cash dividends paid of $2.2 million and other comprehensive loss of $2.0 million.

Current wording

During the six months ended June 30, 2024, stockholders’ equity increased $7.2 million to $296.7 million. This increase primarily consists of net income of $8.6 million, common stock options exercised of $1.2 million and stock based compensation of $1.8 million, offset by cash dividends paid of $4.4 million.

Previous wording

The growth in assets of $233.5 million in the three months ended March 31, 2024 outpaced the growth in stockholders' equity, and the equity to assets ratio decreased from 8.7% at December 31, 2023 to 8.2% at March 31, 2024. We paid dividends to common shareholders of $2.2 million and $2.1 million in the three months ended March 31, 2024 and 2023, respectively, compared to earnings of $4.5 million and $11.3 million in the three months ended March 31, 2024 and 2023, respectively, resulting in the dividend payout ratio increasing to 48.7% in the three months ended March 31, 2024 from 18.9% in the three months ended March 31, 2023.

Current wording

The growth in assets of $25.9 million in the six months ended June 30, 2024 outpaced the growth in stockholders' equity, and the equity to assets ratio increased from 8.7% at December 31, 2023 to 9.0% at June 30, 2024. We paid dividends to common shareholders of $4.4 million and $4.3 million in the six months ended June 30, 2024 and 2023, respectively, compared to earnings of $8.6 million and $19.5 million in the six months ended June 30, 2024 and 2023, respectively, resulting in the dividend payout ratio increasing to 51.0% in the six months ended June 30, 2024 from 22.1% in the six months ended June 30, 2023.

Previous wording

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

Current wording

The Bank's CBLR at June 30, 2024 was 10.7%, which is above the minimum requirement of 9%. Management believes that capital continues to provide a strong base for profitable growth.

Previous wording

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

Current wording

Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated operating cash needs, loan demand and deposit withdrawals without incurring a sustained negative impact on net interest income. It is our policy to optimize the funding of the balance sheet, continually balancing the stability and cost factors of various funding sources. We believe liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. Our liquid assets totaled $592.5 million as of June 30, 2024. These sources of funds should enable us to meet cash obligations as they come due.

Previous wording

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

Current wording

The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from loans and income from loans and investment securities. For the six months ended June 30, 2024, cash from operating and investing activities totaled $1.6 million and $87.2 million, respectively, while cash used in financing activities totaled $31.5 million. Significant changes in cash flows during the quarter include inflows from the net change in loans of $108.5 million and sales of available-for-sale investment securities of $24.3 million, partially offset by an outflow of $48.2 million to purchase available-for-sale investment securities and a decline in deposits of $18.6 million.

Previous wording

When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, the Federal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity.

Current wording

When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, the Federal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with the contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

We believe that the current economic climate in our primary market areas reflects economic climates that are consistent with the general national economic climate. Unemployment in the United States was 4.3% for June 2024 and 3.6% for June 2023.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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