MVB FINANCIAL CORP
For the period ended Dec 31, 2024. Filed Mar 13, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 13, 2025
MVBF$25.91+1.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-13.
0001277902-24-000014
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-13.
0001277902-25-000043
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 126 previous paragraphs and 139 current paragraphs.
48 unchanged; 62 reworded; 27 added; 15 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 16 previous and 20 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
3 The senior term loan was paid off in May 2024 and the unamortized debt issuance costs were recorded as interest expense upon the repayment.
Current report
4 Charge-offs, less recoveries
Current report
During 2024, net interest income declined $14.1 million, or 11.4%, and total interest income declined $4.0 million, or 2.1%. These declines were primarily driven by a $116.1 million decline in average total loans and a 40 basis point increase in the cost of funds as compared to 2023. The $116.1 million decline in average total loans during 2024 reflects declines of $51.0 million in average commercial loans, $38.0 million in average consumer loans and $26.5 million in average real estate loans. The yield on loans increased nine basis points during 2024.
Current report
Average interest-bearing liabilities declined $86.2 million, or 4.4%, in 2024, primarily as a result of declines of $175.9 million and $107.8 million in average NOW accounts and average money market checking accounts, respectively, partially offset by an increase of $184.0 million in average certificates of deposit.
Current report
Average interest-bearing deposits declined $60.1 million in 2024. Total interest expense increased $10.1 million, primarily due to an $11.4 million increase in deposit interest. The result was a 69 basis point increase in the cost of interest-bearing liabilities, from 3.38% in 2023 to 4.07% in 2024. This increase is primarily the result of a 75 basis point increase in the cost of deposits, reflecting a shift in the mix of average deposits driven by the highly-competitive deposit environment. There was also a 271 basis point increase in the cost of the senior term loan associated with unamortized debt issuance costs that were recorded as interest expense upon the repayment in May 2024. Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.
Current report
The increase in noninterest income for 2024 compared to 2023 was primarily the result of increases of $11.7 million in gain on sale of assets, $2.5 million in payment card and service charge income and $1.0 million in holding gains on equity securities. The gain on sale of assets in 2024 was primarily driven by the sale-leaseback transaction, resulting in a pre-tax gain on sale of assets of $11.8 million. For more information regarding the sale-leaseback transaction, refer to Note 4 – Premises and Equipment accompanying the consolidated financial statements included elsewhere in this report. Additionally, there was $1.4 million in equity method investment income from our mortgage segment, compared to equity method investment losses of $2.5 million in 2023. Gain on sale of available-for-sale investment securities was $0.7 million in 2024, compared to a loss of $1.5 million in 2023, and gain on sale of loans was $1.0 million in 2024, driven by government guaranteed loan sales, compared to a loss of $0.7 million on the sale of subprime automobile loans in 2023.
Current report
Noninterest expense was $122.2 million and $117.6 million in 2024 and 2023, respectively. The increase of noninterest expense relative to the year ended December 31, 2023 primarily reflects increases of $4.6 million in salaries and employee benefits and $3.0 million in professional fees, incurred to enhance our risk management and compliance related infrastructure.
Current report
Statement of Financial Condition
Current report
Consumer loans totaled $18.6 million at December 31, 2024, compared to $27.4 million at December 31, 2023. This decrease was the result of $7.9 million of scheduled principal curtailments/payoffs and $0.9 million of charge-offs.
Current report
All commercial loans, regardless of loan type, with an exposure of $1 million or greater are subject to the Bank’s internal annual review process. This process involves the collection and analysis of updated financial statements from all parties required to provide them under the loan agreements, as well as several other review items, dependent upon the specific loan characteristics, including but not limited to:
Current report
The internal annual review process is specialized based on the loan type, with emphasis and additional analysis performed based on each specific loan type’s characteristics.
Current report
Management continuously reviews the commercial real estate portfolio on an annual basis, through the internal annual review process, third-party review engagements and other specialized ad hoc portfolio reviews as deemed appropriate by management. During the year ended December 31, 2024, management focused on the review of non-owner-occupied real estate, with an emphasis on office properties. This review was triggered by the macroeconomic trend of increasing vacancy rates, brought on by the continued work from home trend.
Current report
Management recognizes that the current business environment is inflationary, with elevated interest rates. This has portfolio wide impacts on borrowers’ cash flows and borrowing costs, and is not considered to be market or industry specific. However, management recognizes that some portions of the portfolio, such as loans with variables interest rates, are more susceptible to the current economic environment.
Current report
Should any deficiencies or problems be identified during these regular reviews, subject loans will be appropriately reviewed for any downgrades and be presented at the monthly Special Assets Review Committee for any further necessary action.
Current report
Management tracks several commercial real estate concentrations monthly. These concentrations are monitored through bi-annual concentration scorecards, which are presented to the Bank’s Board for review and approval. These scorecards are used to justify the lending limits for each concentration. There are five CRE loan concentrations currently being monitored:
Current report
Overall, these concentrations have weighted average LTVs between 47% - 63%. The “Other” segment above contains all CRE loan types outside of the five listed. These Other concentrations are not tracked through scorecards, and are immaterial to the CRE loan portfolio.
Current report
Nursing Homes are mainly originated through purchased participation from third-party banks. These loans typically are made to skilled nursing facilities ("SNF") and are secured by the subject properties. A majority of these loans are bridge to U.S. Department of Housing and Urban Development loans and have a three to five year term. As of December 31, 2024, these borrowers are in 21 different states. This concentration contains a single classified note, well secured by multiple SNF properties in Michigan.
Current report
Retail borrowers are mainly located in the Northern Virginia and Washington, D.C. metro area. These borrowers vary in size and scope, but generally include multi-unit retail strip centers.
Current report
Office borrowers are more dispersed, with material loan balances in Northern Virginia, Southwest Pennsylvania and North Central West Virginia. Since the COVID-19 pandemic, the office CRE loan concentration has been subject to increased scrutiny by management, due to the lowered demand for office space. This concentration includes three Classified notes to unrelated borrowers, secured by properties in North Central West Virginia and Southwestern Pennsylvania.
Current report
Multifamily borrowers are mainly located in the Northern Virginia and North Central West Virginia areas and are heavily concentrated in three loans to two unrelated borrowers. These three loans make up more than 60% of the total concentration.
Current report
The Hospitality concentration consists of eight loans to two unrelated ownership groups. One group with five loans are in the Washington, D.C. metro area, with all loans performing. The second group includes three loans in North West Virginia/Southeast Ohio, and are all classified. However, these notes are paying as agreed under forbearance agreements.
Current report
● Leverage ratio greater than 9%.
Current report
Critical Accounting Estimates
Current report
Fair Value of Level III Financial Instruments
Current report
Available-for-sale investment securities are recorded at fair value based upon quoted prices, if available. However, certain local municipal securities included in available-for-sale securities, which are related to tax increment financing, represent Level III instruments. These are assets that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The fair value of Level III municipal securities are based upon pricing obtained from third-party pricing services, which perform independent analysis of liquidity, rating, yield and duration. Based upon internal review procedures and the fair values provided by the pricing services, we believe that the fair values provided by the pricing services are consistent with the principles of ASC 820, Fair Value Measurement.
Current report
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. Assets acquired, liabilities assumed and consideration exchanged are recorded at their respective acquisition date fair values. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment and the use of models are necessary to estimate fair value. Significant assumptions used in models, which include assumptions for interest rates, discount rates, prepayments and credit losses, are independently verified against observable market data when possible. Fair value estimates are also based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. When changes in market conditions reduce the availability of quoted prices or observable data, the estimate of fair value becomes more subjective and requires a higher degree of management judgment.
Current report
Refer to Note 18 – Fair Value Measurements accompanying the consolidated financial statements included elsewhere in this report for a complete discussion of our use of fair value and the related measurement practices.
Removed paragraphs (15)
Previous report
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.
Previous report
3 Charge-offs less recoveries
Previous report
1 Includes $1.2 million of goodwill included under assets from discontinued operations on the balance sheet as of December 31, 2022.
Previous report
2 Includes $1.1 million of intangibles included under assets from discontinued operations on the balance sheet as of December 31, 2022.
Previous report
During 2023, net interest income increased $11.5 million, or 10.3%, driven largely by higher average earning asset balances of $278.9 million and the increase in the yield on earning assets, partially offset by the higher funding costs. Total interest income increased $63.9 million, or 50.7%, in 2023 driven by higher yields from new loan production at favorable interest rates and the repricing of variable rate loans. Average total loans increased $136.1 million in 2023, primarily as the result of a $104.1 million increase in average real estate loans and a $27.2 million increase in average commercial loans. The yield on loans increased 154 basis points.
Previous report
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.
Previous report
Average interest-bearing deposits increased $591.2 million in 2023. Total interest expense increased by $52.4 million, primarily due to a $51.2 million increase in deposit interest. The result was a 235 basis point increase in the cost of interest-bearing liabilities, primarily from increases in interest rates, a migration out of NIB deposits driven by the highly-competitive deposit environment and liquidity actions taken during 2023 in response to market conditions.
Previous report
The cost of interest bearing liabilities increased to 3.38% in 2023 from 1.03% in 2022. This increase is primarily the result of an increase of 249 basis point in the cost of deposits and 225 basis points in the cost of FHLB and other borrowings. Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.
Previous report
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. 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.
Previous report
Gain on sale of portfolio loans decreased $2.4 million primarily driven by losses on the sale of $44.4 million of subprime automobile loans during 2023 as we reduced that portfolio. Investment portfolio gains decreased $2.2 million primarily driven by losses on the sale of securities as a result of repositioning our investment portfolio during the first quarter of 2023. The $1.8 million increase in equity method investment losses was due to lower mortgage banking revenue driven by market conditions. The $1.9 million holding gain on equity method investments in the prior year reflected an in substance sale of an equity method investment from our portfolio during the third quarter of 2022. The $1.0 million loss on divestiture activity was primarily related to the loss on the divestiture of Flexia during the second quarter of 2023. For more information regarding the Flexia transaction, see Note 26 - Acquisition and Divestiture Activity. Payment card and service charge income increased by $2.1 million, which primarily reflects an increase in payment relationships and fee income on Fintech deposits.
Previous report
The increase of noninterest expense relative to the year ended December 31, 2022 primarily reflects an increase of professional fees of $2.7 million attributable to actions taken in response to the market events in March 2023 to further enhance risk management and compliance-related infrastructure, and an increase of insurance, tax, and assessment expense of $1.8 million, primarily the result of a market wide increase in FDIC insurance costs.
Previous report
Consumer loans totaled $27.4 million at December 31, 2023, compared to $131.6 million at December 31, 2022. This decrease was concentrated in automotive loans originated by a third-party, which decreased from $84.5 million at December 31, 2022 to $27.3 million at December 31, 2023, primarily the result of the sale of $44.4 million of subprime automobile loans during 2023. In addition, $46.9 million in consumer loans were reclassified as other loan types during the transition to CECL, with $45.2 million moving to the Residential category.
Previous report
The ACL decrease in the consumer and other loan segment was driven by a $44.4 million sale of subprime automobile loans during 2023. 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.
Previous report
The Bank elected to begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:
Previous report
Critical Accounting Policies and Estimates
Reworded paragraphs (62)
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. 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 brought on by an environment of sustained higher 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 December 31, 2024, although the Federal Reserve did reduce its key interest rate to a range of 4.25% to 4.50% in December 2024. 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. This decision 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.
Previous wording
Net interest income increased $11.5 million to $123.3 million, noninterest income decreased $7.9 million to $19.7 million and noninterest expense increased $7.5 million to $117.6 million during 2023 compared to 2022. 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 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.
Current wording
Net interest income decreased $14.1 million to $109.2 million, noninterest income increased $23.2 million to $42.9 million and noninterest expense increased $4.6 million to $122.2 million during 2024 compared to 2023. Our tax-equivalent yield on earning assets was 6.22% in 2024, compared to 6.20% in 2023. Total loans decreased by $218.1 million to $2.10 billion as of December 31, 2024 from $2.32 billion as of December 31, 2023. Our overall cost of interest-bearing liabilities was 4.07% in 2024 compared to 3.38% in 2023. The increase in the cost of interest-bearing liabilities outpaced the increase in the earning assets yield, which resulted in our tax-equivalent net interest margin decreasing to 3.67% at December 31, 2024 from 4.04% at December 31, 2023.
Previous wording
Net income in 2023 totaled $31.2 million, compared to $15.0 million in 2022, an increase of $16.2 million. 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.
Current wording
Net income available to common shareholders in 2024 totaled $20.1 million, compared to $31.2 million in 2023, a decrease of $11.1 million. The 2024 earnings equated to a return on average assets of 0.6% and a return on average equity of 6.9%, compared to 2023 results of 0.9% and 11.4%, respectively. Basic and diluted earnings per share were $1.56 and $1.53, respectively, in 2024 compared to $2.46 and $2.40, respectively, in 2023.
Previous wording
2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the twelve months ended December 31, 2023, 2022 and 2021, which is a non-U.S. GAAP financial measure. Please refer to the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.
Current wording
1 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the years ended December 31, 2024, 2023 and 2022, which is a non-U.S. GAAP financial measure. Refer to the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.
Previous wording
1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
Current wording
2 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
Previous wording
The year over year change in rates and change in volume from 2022 to 2023 is as follows:
Current wording
The year over year change in rates and change in volume from 2023 to 2024 was as follows:
Previous wording
4 Non-U.S. GAAP metric
Current wording
1 Non-U.S. GAAP metric
Previous wording
1 Noninterest expense as a percentage of net interest income and noninterest income
Current wording
2 Noninterest expense as a percentage of net interest income and noninterest income
Previous wording
2 Noninterest expense as a percentage of average assets
Current wording
3 Noninterest expense as a percentage of average assets
Previous wording
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.
Current wording
Tangible book value ("TBV") per common share was $23.37 and $22.43 as of December 31, 2024 and 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
Net interest margin is calculated by dividing net interest income by average interest-earning assets and measures the net revenue generated by the Bank’s balance sheet. Net interest margin on a tax-equivalent basis was consistent at 4.04% in 2023 and 2022.
Current wording
Net interest margin is calculated by dividing net interest income by average interest-earning assets and measures the net revenue generated by the Bank’s balance sheet. Net interest margin on a tax-equivalent basis was 3.67% and 4.04% in 2024 and 2023, respectively.
Previous wording
December 31, 2023. We continue to analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin. Management’s estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in Item 7A – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Current wording
In 2024, the Federal Reserve lowered its key interest rate from a range of 5.25% to 5.50% to a range of 4.25% to 4.50% as of December 31, 2024. We continue to analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin. Management’s estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in Item 7A – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Previous wording
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. 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.
Current wording
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 2.15% in 2024 compared to 2.82% in 2023. The difference between the net interest margin on a tax-equivalent basis and net interest spread on a tax-equivalent basis was 152 basis points in 2024 compared to 122 basis points in 2023. This was driven by the 69 basis point increase in the cost of interest-bearing liabilities outpacing the two basis point increase in yield on earning assets.
Previous wording
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.
Current wording
Average investment securities increased $28.7 million, or 8.5%, in 2024 as the result of a $40.6 million increase in taxable investments, partially offset by an $11.9 million decline in tax-exempt investments. The yield increased 42 basis points on taxable securities and declined 59 basis points on tax-exempt securities.
Previous wording
Our release of allowance for credit losses for 2023 was $1.9 million compared to a provision for losses of $14.2 million for 2022. In January 2023, we adopted CECL for calculating the allowance for credit losses ("ACL") and required an adjustment to the allowance of $8.9 million to make the allowance adequate under the new methodology. The provision for credit losses, which is a product of management's analysis, is recorded in response to forecasted losses over the remaining life of the loan portfolio. Further discussion on the provision for credit losses is included in Note 1 – Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this report. 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.
Current wording
Our provision for credit losses for 2024 was $3.5 million compared to a release of allowance for credit losses of $1.9 million for 2023. The provision for credit losses, which is a product of management's analysis, is recorded in response to forecasted losses over the remaining life of the loan and available-for-sale investment security portfolios. Further discussion on the provision for credit losses is included in Note 1 – Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this report. The change from release of allowance to provision for credit losses is primarily the result of the level of recognized charge-offs within the loan portfolio, which was partially offset by changes to the outstanding balances of the loan portfolios, including decreases in the commercial, residential and consumer loan segments. The 2023 release was primarily the result of the sale of subprime automobile loans.
Previous wording
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. Additionally, the residential mortgage loan portfolio increased by $63.0 million and $299.0 million in 2023 and 2022, respectively. Net charge-offs in 2023 totaled $9.3 million, in comparison to net charge-offs of $8.6 million in 2022. 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.
Current wording
Total loan receivable balances decreased $217.5 million in 2024 versus a decrease of $55.0 million in 2023. The commercial loan portfolio decreased by $184.8 million in 2024, in comparison to a decrease of $9.2 million in 2023, while the consumer loan portfolio decreased by $8.8 million in 2024, in comparison to a decrease of $104.2 million in 2023. Additionally, the residential mortgage loan portfolio decreased by $21.8 million and $63.0 million in 2024 and 2023, respectively. Net charge-offs in 2024 totaled $4.4 million, in comparison to net charge-offs of $9.3 million in 2023. Lastly, the provision for credit losses was impacted by a $0.6 million decrease in the specific credit loss allocations in 2024, relative to a $0.1 million decrease in provision for such loan losses in 2023.
Previous wording
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 acquisition and divestiture activity, sales of assets or our investment portfolio. Total noninterest income for 2023, 2022 and 2021 was $19.7 million, $27.6 million and $55.9 million, respectively.
Current wording
Payment card and service charge income, consulting compliance income, equity method investment income or loss and gains or losses on sale of loans account for the majority of our noninterest income. From time to time, we also recognize gains or losses on acquisition and divestiture activity, sales of assets or our investment portfolio. Total noninterest income for 2024, 2023 and 2022 was $42.9 million, $19.7 million and $27.6 million, respectively.
Previous wording
Noninterest expense was $117.6 million, $110.1 million and $91.8 million in 2023, 2022 and 2021, respectively. Approximately, 54%, 57% and 58% of noninterest expense for 2023, 2022 and 2021, respectively, related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to services organizations.
Current wording
Approximately, 56% and 54% of noninterest expense for 2024 and 2023, respectively, related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to services organizations.
Previous wording
In February 2023, we completed the sale of Chartwell for total consideration of $14.4 million in the form of a loan issued to the buyer, resulting in a gain on sale of $11.8 million. To facilitate a transition of the Chartwell services and support the onboarding and conversion of systems, we entered into a 60 day Employee Lease and Service Agreement, whereby we provided the purchaser with finance and accounting, human capital, information technology, marketing and record/data retention services. In addition, we entered into a contract with the purchaser for Chartwell to continue to provide services and support for three years following the sale.
Current wording
In February 2023, we completed the sale of Chartwell for total consideration of $14.4 million in the form of a loan issued to the buyer, resulting in a gain on sale of $11.8 million. To facilitate a transition of the Chartwell services and support the onboarding and conversion of systems, we entered into a 60-day Employee Lease and Service Agreement, whereby we provided the purchaser with finance and accounting, human capital, information technology, marketing and record/data retention services. In addition, we entered into a contract with the purchaser for Chartwell to continue to provide services and support for three years following the sale. We paid $3.9 million and $2.5 million in fees related to this contract during the years ended December 31, 2024 and December 31, 2023, respectively.
Previous wording
We incurred income tax expense of $8.1 million, $4.1 million and $9.9 million in 2023, 2022 and 2021, respectively. 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. 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.
Current wording
We incurred income tax expense of $6.1 million and $8.1 million in 2024 and 2023, respectively. Our effective tax rate was 23% and 21% in 2024 and 2023, 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. Other, smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses. For 2024, we expect to file tax returns in 28 states.
Previous wording
Our return on average assets was 0.9% in 2023, compared to 0.5% in 2022. 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. 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. 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, or 10.0%, decrease in average investment securities.
Current wording
Our return on average assets was 0.6% in 2024, compared to 0.9% in 2023. The decline in 2024 is a result of an $11.1 million, or 35.6%, decline in earnings, which is partially offset by a $73.3 million, or 2.2%, decline in average total assets as compared to 2023. The decline in average total assets was primarily the result of a $116.1 million, or 5.0%, decline in average total loans, partially offset by increases of $28.7 million, or 8.5%, and $7.7 million, or 1.9%, in average investment securities and average interest-bearing deposits with banks, respectively.
Previous wording
Our return on average stockholders’ equity was 11.4% in 2023, compared to 5.9% in 2022. 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.
Current wording
Our return on average stockholders’ equity was 6.9% in 2024, compared to 11.4% in 2023. The decline in 2024 is a result of an $11.1 million, or 35.6%, decline in earnings and an $18.2 million, or 6.7%, increase in average equity to $292.2 million.
Previous wording
Cash and cash equivalents totaled $398.2 million at December 31, 2023, compared to $40.3 million at December 31, 2022. The increase in cash and cash equivalents reflects actions taken in 2023 to ensure liquidity in response to recent conditions in the banking industry. We believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity demands.
Current wording
Cash and cash equivalents totaled $317.9 million at December 31, 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 totaled $386.4 million at December 31, 2023, compared to $418.6 million at December 31, 2022.
Current wording
Investment securities totaled $454.2 million at December 31, 2024, compared to $386.4 million at December 31, 2023.
Previous wording
At December 31, 2023, all investment securities are available-for-sale or equity securities. 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. 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 municipal securities continue to give us the ability to pledge and to decrease the effective tax rate.
Current wording
At December 31, 2024, all investment securities are available-for-sale or equity securities. 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 increase in investment securities balances during 2024 was driven by purchases of available-for-sale mortgage-backed securities. At December 31, 2024, the amortized cost of available-for-sale investment securities totaled $445.5 million, resulting in a net unrealized loss in the investment portfolio of $33.9 million. Management has the intent and ability to hold the investments to maturity and they are all high quality investments. Declines in the fair values of these securities can be attributed to general market conditions, rather than credit-related conditions. The municipal securities continue to give us the ability to pledge and to decrease the effective tax rate.
Previous wording
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. Investments in our top four equity securities represented $34.1 million, or 93.7%, of our total Fintech investment portfolio at December 31, 2023. 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.
Current wording
At December 31, 2024, equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in nine companies with a carrying value of $36.5 million. Investments in our top four equity securities represented $34.1 million, or 93.4%, of our total Fintech investment portfolio at December 31, 2024. 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.
Previous wording
Management continually evaluates hedging strategies that are available to manage interest rate risk. We enter into interest rate swap contracts designated as hedging instruments to manage the interest rate risk associated with certain fixed rate available for sale securities. In 2023 we entered into a portfolio layer method interest rate swap with a notional amount of $50.0 million and a swap liability fair value of $1.6 million at December 31, 2023. The swap is designated as a hedging instrument over a closed portfolio of municipal securities with an amortized cost basis of $59.3 million at December 31, 2023, which includes a $1.6 million basis adjustment. At December 31, 2022 we had an interest rate swap with a notional amount of $10.9 million designated as a hedging instrument over a closed portfolio of municipal securities with an amortized cost basis of $11.1 million, which includes a $0.2 million basis adjustment. This hedging relationship was discontinued during the first quarter of 2023.
Current wording
Management continually evaluates hedging strategies that are available to manage interest rate risk. We enter into interest rate swap contracts designated as hedging instruments to manage the interest rate risk associated with certain fixed rate available for sale securities. In 2023 we entered into a portfolio layer method interest rate swap designated as a hedging instrument over a closed portfolio of municipal securities. The notional amount was $50.0 million as of December 31, 2024 and December 31, 2023 and the swap was in a liability position with a fair value of $0.6 million and $1.6 million as of December 31, 2024 and December 31, 2023, respectively. The amortized cost basis of the closed portfolio of municipal securities was $58.3 million and $59.3 million as of December 31, 2024 and December 31, 2023, respectively, which includes basis adjustments of $0.6 million and $1.6 million. This interest rate swap was voluntarily discontinued in January 2025. For additional details on our hedging activity, refer to Note 19 – Derivatives accompanying the consolidated financial statements included elsewhere in this report.
Previous wording
Our primary market areas are North Central West Virginia, Northern Virginia, North Carolina and South Carolina. Our loan portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, home equity lines of credit and consumer lending. Loans receivable totaled $2.32 billion as of December 31, 2023, a decrease of $55.1 million from $2.37 billion as of December 31, 2022.
Current wording
Our primary market areas are North Central West Virginia, Northern Virginia, North Carolina and South Carolina. Our loan portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, home equity lines of credit and consumer lending. Loans receivable totaled $2.10 billion as of December 31, 2024, a decrease of $217.5 million from $2.32 billion as of December 31, 2023.
Previous wording
At December 31, 2023, commercial and non-residential real estate loans represented the largest portion of the portfolio at 69.2%. 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. 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.
Current wording
At December 31, 2024, commercial and non-residential real estate loans represented the largest portion of the portfolio at 67.5%. Commercial and non-residential real estate loans totaled $1.42 billion at December 31, 2024, compared to $1.60 billion at December 31, 2023. 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.
Previous wording
Residential real estate loans to retail customers account for the second largest portion of the loan portfolio, comprising 29.0%. Residential real estate loans totaled $672.5 million at December 31, 2023, compared to $609.5 million at December 31, 2022. 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.
Current wording
Residential real estate loans to retail customers account for the second largest portion of the loan portfolio, comprising 31.0%. Residential real estate loans totaled $650.7 million at December 31, 2024, compared to $672.5 million at December 31, 2023. 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.
Previous wording
At December 31, 2023, Special Mention loans amounted to $83.8 million. 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. 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.
Current wording
At December 31, 2024, Special Mention loans amounted to $50.4 million. The balance is comprised of 52 loans, which include four loans totaling $12.1 million to a single borrower for retail commercial real estate projects, an $8.9 million line of credit secured by a borrowing base, a $7.7 million commercial real estate loan to a senior care facility and a $2.5 million commercial term loan to finance a business acquisition. In addition, there are 45 loans to various unrelated borrowers totaling $19.1 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.
Previous wording
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. In addition, there are 28 loans to various unrelated borrowers totaling $8.7 million in commercial, HELOC, installment and mortgage loans. These are loans where known information about the borrowers’ credit problems causes management to have serious doubts, relative to the 34 loans discussed above, as to the borrowers’ ability to comply with the loan repayment terms in the future.
Current wording
There were 54 additional loans that management identified as Substandard loans, totaling $76.8 million as of December 31, 2024. These loans include a $18.0 million loan to a skilled nursing facility, $17.7 million in three loans to finance hospitality properties to three related borrowers and a $13.5 million loan to finance a multifamily real estate property. In addition, there are 49 loans to various unrelated borrowers totaling $27.6 million in commercial, HELOC, installment and mortgage loans. These are loans where known information about the borrowers’ credit problems causes management to have serious doubts as to the borrowers’ ability to comply with the loan repayment terms in the future.
Previous wording
At December 31, 2023, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. 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. 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.
Current wording
At December 31, 2024, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. Healthcare loans are a significant component of commercial and non-residential real estate loans and comprise 22.7% of total loans receivable at December 31, 2024. 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, primarily located in our market areas.
Previous wording
Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate (“CRE”) loans. The federal banking regulators have issued guidance to remind financial institutions of the risk posed by CRE lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for bank examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:
Current wording
Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate (“CRE”) loans. The federal banking regulators have issued guidance to remind financial institutions of the risk posed by CRE lending concentrations. CRE loans generally include land development, construction loans and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for bank examiners to help identify institutions that are potentially exposed to significant CRE loan risk and may warrant greater supervisory scrutiny:
Previous wording
As of December 31, 2023, the Bank's concentration of loans for construction, land development, and other land as a percentage of capital totaled 36.0% and the Bank's CRE concentration, excluding owner-occupied loans, as a percentage of capital totaled 234.1%.
Current wording
As of December 31, 2024, the Bank's concentration of loans for construction, land development and other land as a percentage of capital totaled 31.3% and the Bank's CRE loan concentration, excluding owner-occupied loans, as a percentage of capital totaled 222.0%.
Previous wording
At December 31, 2023 and 2022, individually analyzed loans totaled $11.8 million and $18.2 million, respectively. 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.
Current wording
At December 31, 2024 and 2023, individually analyzed loans totaled $43.2 million and $11.8 million, respectively. The increase in individually analyzed loans is primarily due to the addition of two commercial real estate loans totaling $31.5 million. A portion of the ACL of $1.3 million and $1.9 million was allocated to cover any loss in individually analyzed loans at December 31, 2024 and 2023, respectively. Loans past due more than 30 days were $45.5 million and $14.0 million, respectively, at December 31, 2024 and 2023.
Previous wording
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.
Current wording
For tables reflecting the allocation of the ACL, refer to Note 3 – Loans and Allowance for Credit Losses accompanying the consolidated financial statements included elsewhere in this report.
Previous wording
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. When, in management’s judgment, the borrower’s ability to make periodic interest and principal payments resumes and collectability is no longer in doubt, which is evident by the receipt of six consecutive months of regular, on-time payments, the loan is eligible to be returned to accrual status. Interest income on loans would have increased by $0.8 million, $0.5 million and $0.4 million for 2023, 2022 and 2021, respectively, if loans had performed in accordance with their terms.
Current wording
Nonperforming 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. When, in management’s judgment, the borrower’s ability to make periodic interest and principal payments resumes and collectability is no longer in doubt, which is evident by the receipt of six consecutive months of regular, on-time payments, the loan is eligible to be returned to accrual status. Interest income on loans would have increased by $1.6 million, $0.8 million and $0.5 million for 2024, 2023 and 2022, respectively, if loans had performed in accordance with their terms.
Previous wording
Non-performing assets and past due loans as of December 31, are as follows:
Current wording
Nonperforming assets and past due loans as of December 31, are as follows:
Previous wording
Individually analyzed loans have decreased by $6.4 million, or 35.2%, during 2023. 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 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.
Current wording
Individually analyzed loans have increased by $31.4 million, or 266.1%, during 2024. This change is the net effect of multiple factors, primarily the identification of $40.0 million of recently individually analyzed loans, offset by normal loan amortization of $6.4 million, $0.9 million in charge offs, the reclassification of $0.7 million of previously reported individually analyzed loans to performing loans and principal curtailments/payoffs of $0.6 million.
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Current report — wording carried from elsewhere
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Current report — wording carried from elsewhere
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 $2.69 billion, or 97.2% of funding sources, at December 31, 2024, versus $2.90 billion, or 97.1% of such funding sources, at December 31,
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
In 2023, the Federal Reserve raised its key interest rate from a range of 4.25% to 4.50% to a range of 5.25% to 5.50% as of