FVCBankcorp Inc

Previous wording

The following presents management’s discussion and analysis of our consolidated financial condition at March 31, 2024 and December 31, 2023 and the results of our operations for the three months ended March 31, 2024 and 2023. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations for the balance of 2024, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

Current wording

The following presents management’s discussion and analysis of our consolidated financial condition at June 30, 2024 and December 31, 2023 and the results of our operations for the three and six months ended June 30, 2024 and 2023. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. Results of operations for the three and six month periods ended June 30, 2024 are not necessarily indicative of the results of operations for the balance of 2024, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

Previous wording

•potential exposure to fraud, negligence, computer theft and cyber-crime, and our ability to maintain the security of its data processing and information technology systems.

Current wording

•potential exposure to fraud, negligence, computer theft and cyber-crime, and our ability to maintain the security of our data processing and information technology systems.

Previous wording

While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance of credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.

Current wording

While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance for credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.

Previous wording

Results of Operations— Three Months Ended March 31, 2024 and 2023

Current wording

Results of Operations— Three and Six Months Ended June 30, 2024 and 2023

Previous wording

We recorded net income of $1.3 million, or $0.07 diluted earnings per share, for the three months ended March 31, 2024, compared to net income of $621 thousand, or $0.03 diluted earnings per share, for the three months ended March 31, 2023, an increase of $719 thousand, or 116%. Net interest income decreased $1.2 million, or 9%, to $12.8 million for the three months ended March 31, 2024, compared to $14.0 million for the same period of 2023. No provision was recorded for the three months ended March 31, 2024, compared to a provision for credit losses of $242 thousand for the same period of 2023. Noninterest income of $395 thousand and loss of $4.6 million were recorded for the three months ended March 31, 2024 and 2023, respectively. Noninterest expense was $8.6 million for the three months ended March 31, 2024, compared to $9.0 million for the three months ended March 31, 2023, a decrease of $385 thousand, or 4%.

Current wording

Net interest income decreased $717 thousand, or 5%, to $13.7 million for the three months ended June 30, 2024, compared to $14.4 million for the same period of 2023. Provision of credit losses of $206 thousand was recorded for the three months ended June 30, 2024, compared to $618 thousand for the same period of 2023. Noninterest income was $871 thousand and $891 thousand for the three months ended June 30, 2024 and 2023, respectively. Noninterest expense was $9.0 million for the three months ended June 30, 2024, compared to $9.2 million for the three months ended June 30, 2023, a decrease of $207 thousand, or 2%.

Previous wording

The annualized return on average assets for the three months ended March 31, 2024 and 2023 was 0.25% and 0.11%, respectively. The annualized return on average equity for the three months ended March 31, 2024 and 2023 was 2.44% and 1.21%, respectively.

Current wording

The annualized return on average assets for the three months ended June 30, 2024 and 2023 was 0.77% and 0.73%, respectively. The annualized return on average equity for the three months ended June 30, 2024 and 2023 was 7.42% and 8.17%, respectively.

Previous wording

During the first quarter of 2024, we surrendered certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon their surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense.

Current wording

For the six months ended June 30, 2024, we recorded net income of $5.5 million, or $0.30 diluted earnings per share, compared to net income of $4.9 million, or $0.27 diluted earnings per share for the six months ended June 30, 2023. Net income for the six months ended June 30, 2024 includes the surrender of certain BOLI policies with an aggregate cash surrender value of $48.0 million. Upon the surrender, we received a cash payout and were required to accrue additional income tax on the appreciation of those policies which had previously been treated as tax-exempt income. This resulted in additional statutory income tax expense of $1.6 million and tax penalties of $722 thousand. The tax penalties related to the surrender of the BOLI were recorded in income tax expense. Additionally, net income for the six months ended June 30, 2023 included sales of available-for-sale investment securities, which resulted in a pre-tax loss totaling $4.6 million.

Previous wording

Commercial bank operating earnings, which exclude the nonrecurring taxes on the surrender of our BOLI policies recorded during the first quarter of 2024 and the after-tax losses on the sale of investment securities available-for-sale recorded during the first quarter 2023, for the three months ended March 31, 2024 and March 31, 2023 were $3.7 million million and $4.2 million, respectively, a decrease of $477 thousand. Diluted commercial bank operating earnings per share for the three months ended March 31, 2024 and March 31, 2023 was $0.20 and $0.23 respectively. We consider commercial bank operating earnings a useful financial measure of our operating performance. Commercial bank operating earnings is determined by methods other than in accordance with GAAP. A reconciliation of non-GAAP financial measures to their most comparable financial measure in accordance with GAAP can be found in the tables below.

Current wording

Commercial bank operating earnings, which exclude the nonrecurring taxes on the surrender of our BOLI policies recorded during the first quarter of 2024 and the after-tax losses on the sale of investment securities available-for-sale recorded during the first quarter 2023, for the three months ended June 30, 2024 and June 30, 2023 were each $4.2 million. For the six months ended June 30, 2024 and June 30, 2023, commercial bank operating earnings were $7.9 million and $8.4 million, respectively.

Previous wording

(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the quarters presented. Net loan fees and late charges included in interest income on loans totaled $404 thousand and$499 thousand for the quarters ended March 31, 2024 and 2023, respectively.

Current wording

(1)Non-accrual loans are included in average balances and do not have a material effect on the average yield. Interest income on non-accruing loans was not material for the quarters presented. Net loan fees and late charges included in interest income on loans totaled $388 thousand and $422 thousand for the quarters ended June 30, 2024 and 2023, respectively.

Previous wording

Net interest income totaled $12.8 million, a decrease of $1.2 million, or 9%, for the three months ended March 31, 2024, compared to March 31, 2023. The decrease in net interest income is primarily due to an increase in funding costs, which have increased precipitously as a result of Federal Reserve monetary policy, coupled with the need to meet intense competition from market area banks, brokerages, other financial institutions and the U.S. Treasury.

Current wording

Net interest income totaled $13.7 million, a decrease of $717 thousand, or 5%, for the three months ended June 30, 2024, compared to June 30, 2023. The decrease in net interest income is primarily due to an increase in funding costs, which have increased precipitously as a result of Federal Reserve monetary policy, coupled with the need to meet intense competition from market area banks, brokerages, other financial institutions and the U.S. Treasury.

Previous wording

Average earning assets decreased $101.1 million to $2.08 billion during the first quarter of 2024 as compared to $2.18 billion for the same period of 2023, which was primarily related to the sales of investment securities available-for-sale that were completed during 2023, decreasing the average balances of our investment securities by $112.4 million.

Current wording

Average earning assets decreased $100.2 million to $2.12 billion during the second quarter of 2024 as compared to $2.22 billion for the same period of 2023, which was primarily related to the sales of investment securities available-for-sale that were completed during 2023, decreasing the average balances of our investment securities by $77.4 million.

Previous wording

Interest income for the three months ended March 31, 2024 increased $1.5 million, or 6%, to $26.8 million from $25.3 million for the three months ended March 31, 2023. Loan interest income during the first quarter of 2024 increased $1.9 million, or 8%, as compared to the year ago quarter due to both loan growth and an increase in yields earned on the portfolio. Income from investment securities decreased $495 thousand for the three months ended March 31, 2024 compared to the same period of 2023, primarily as a result of the aforementioned sales of investment securities during 2023. Interest income from deposits at other financial institutions increased $70 thousand to $372 thousand for the first quarter of 2024 as compared to the first quarter of 2023, which was primarily due to the increase in rates earned on those funds.

Current wording

Interest income for the three months ended June 30, 2024 increased $769 thousand, or 3%, to $28.0 million from $27.2 million for the three months ended June 30, 2023. Loan interest income during the second quarter of 2024 increased $1.5 million, or 6%, as compared to the year ago quarter due to both an increase in loan volume and an increase in yields earned on the loan portfolio. The year ago 2023 quarter included recovered loan interest of $338 thousand from an impaired loan that was fully recovered. Income from investment securities decreased $259 thousand for the three months ended June 30, 2024 compared to the same period of 2023, primarily as a result of the sales of investment securities executed during 2023. Interest income from deposits at other financial institutions decreased $443 thousand to $401 thousand for the second quarter of 2024 as compared to the second quarter of 2023, which was primarily due to lower average balances.

Previous wording

Interest expense for the three months ended March 31, 2024 increased $2.7 million to $14.0 million, or 24%, from $11.3 million for the three months ended March 31, 2023. Deposit interest expense for the first quarter of 2024 increased $3.8 million compared to the year ago quarter primarily as a result of increased rates on interest deposits. This increase in deposit interest expense for the three months ended March 31, 2024 was offset by a decrease in interest expense on short term borrowings of $1.0 million during the same three month period of 2024.

Current wording

Interest expense for the three months ended June 30, 2024 increased $1.5 million to $14.3 million, or 12%, from $12.8 million for the three months ended June 30, 2023. Deposit interest expense for the second quarter of 2024 increased $882 thousand compared to the year ago quarter primarily as a result of increased interest rates on interest-bearing deposits. Interest expense on other borrowed funds increased $604 thousand for the three months ended June 30, 2024 compared to the same period in 2023.

Previous wording

(2)The average yields for investment securities are reported on a fully taxable-equivalent basis at a rate of 22% for March 31, 2024 and March 31, 2023.

Current wording

(2)The average yields for investment securities are reported on a fully taxable-equivalent basis at arate of 22%for June 30, 2024 and June 30, 2023.

Previous wording

Average interest-bearing deposits increased $40.9 million to $1.41 billion for the three months ended March 31, 2024 compared to $1.37 billion for the three months ended March 31, 2023. Average non-interest-bearing deposits decreased $39.7 million to $380.1 million for the three months ended March 31, 2024 compared to $419.8 million for the same period in 2023. Average wholesale deposits increased $53.8 million to $305.4 million for the three months ended March 31, 2024 compared to $251.6 million for the same period in 2023. Average other borrowed funds, which include federal funds purchased and Federal Home Loan Bank of Atlanta ("FHLB") advances, decreased $123.4 million to $107.8 million at March 31, 2024 compared to $231.3 million at March 31, 2023.

Current wording

Total average interest-bearing deposits decreased $43.7 million to $1.41 billion for the six months ended June 30, 2024 compared to $1.46 billion for the six months ended June 30, 2023. Average noninterest-bearing deposits decreased $58.0 million to $379.2 million for the six months ended June 30, 2024 compared to $437.2 million for the same period of 2023. Average wholesale deposits decreased $37.1 million to $277.6 million for the six months ended June 30, 2024 compared to $314.7 million for the same period in 2023. Average other borrowed funds, which include federal funds purchased and FHLB advances, decreased $40.0 million to $103.8 million at June 30, 2024 compared to $143.7 million at June 30, 2023.

Previous wording

Our net interest margin, on a tax equivalent basis, for the three months ended March 31, 2024 and 2023 was 2.47% and 2.60%, respectively. The decrease in our net interest margin was primarily a result of the increase in the cost of our interest-bearing liabilities during first quarter of 2024 compared to the first quarter of 2023, a result of the rising rate environment. The yield on interest-earning assets increased 51 basis points to 5.15% for the three months ended March 31, 2024, compared to 4.64% for the same period of 2023. The average yield of the loan portfolio for the three months ended March 31, 2024 and 2023 was 5.50% and 5.11%, respectively, an increase of 39 basis points. The cost of interest-bearing deposits increased 98 basis points to 3.59% for the three months ended March 31, 2024, compared to 2.61% for the same period of 2023, which was primarily attributable to the repricing of our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes non-interest-bearing deposits) was 2.81% for the three months ended March 31, 2024 compared to 1.97% for the three months ended March 31, 2023. Cost of other borrowed funds increased 60 basis points to 4.61% for the three months ended March 31, 2024 compared to 4.01% for the three months ended March 31, 2023.

Current wording

Our net interest margin, on a tax equivalent basis, for the six months ended June 30, 2024 and 2023 was 2.53% and 2.60% respectively. The decrease in our net interest margin was primarily a result of the increase in the cost of our interest-bearing liabilities during 2024 compared to 2023, a result of the increased interest rate environment. The yield on interest-earning assets increased 44 basis points to 5.21% for the six months ended June 30, 2024, compared to 4.77% for the same period of 2023. The average yield of the loan portfolio for the six month periods ended June 30, 2024 and 2023 was 5.56% and 5.23%, respectively, an increase of 33 basis points. The cost of interest-bearing deposits increased 74 basis points to 3.62% for the six months ended June 30, 2024, compared to 2.88% for the same period of 2023, which was primarily attributable to the repricing of our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes noninterest-bearing deposits) was 2.84% for the six months ended June 30, 2024 compared to 2.20% for the same six month period of 2023. Cost of other borrowed funds increased 65 basis points to 4.62% for the six months ended June 30, 2024 compared to 3.97% for the six months ended June 30, 2023.

Previous wording

We did not record a provision for credit losses for the three months ended March 31, 2024 compared to$242 thousandfor the three months ended March 31, 2023. The allowance for credit losses was $18.9 million at March 31, 2024 and at December 31, 2023. Our allowance for credit loss ratio as a percent of total loans, net of deferred fees and costs, for the three months ended March 31, 2024 and December 31, 2023 was 1.02% and 1.03%, respectively.

Current wording

We recorded a provision for credit losses of $206 thousand for each of the three and six months ended June 30, 2024 compared to $618 thousand and $860 thousand for the three and six months ended June 30, 2023. The allowance for credit losses was $19.2 million and $18.9 million at June 30, 2024 and at December 31, 2023, respectively. Our allowance for credit losses on loans as a percent of total loans, net of deferred fees and costs, was 1.02% at both June 30, 2024 and December 31, 2023.

Previous wording

We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Credit quality metrics improved for the three months ended March 31, 2024 as nonperforming loans totaled $3.0 million, or 0.14% of total assets, compared to $4.4 million, or 0.19%, of total assets at March 31, 2023. Loans on our watchlist decreased to $28.0 million at March 31, 2024, a decrease of $816 thousand from December 31, 2023, as we proactively manage the credit quality of our loan portfolio, including reducing our commercial real estate concentrations, which has resulted in limited credit losses over our history. We had no other real estate owned at March 31, 2024 and December 31, 2023. We recorded net recoveries of $30 thousand during the quarter ended March 31, 2024 and net recoveries of $23 thousand for same period of 2023.

Current wording

We lend to well-established and relationship-driven borrowers which has contributed to our track record of low historical credit losses. We continue to maintain our disciplined credit guidelines during the current rate environment. We proactively monitor the impact of interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Nonperforming loans for the three months ended June 30, 2024 totaled $3.2 million, or 0.13% of total assets, compared to $1.8 million, or 0.08%, of total assets at December 31, 2023. We had no other real estate owned at June 30, 2024 and at December 31, 2023. We recorded net recoveries of $5 thousand during the second quarter of 2024 compared to net charge-offs of $356 thousand for same period of 2023. For the six months ended June 30, 2024 and 2023, we recorded net recoveries of $35 thousand and net charge-offs of $333 thousand, respectively.

Previous wording

The following table provides detail for noninterest income for the three months ended March 31, 2024 and 2023.

Current wording

The following table provides detail for noninterest incomefor the three and six months ended June 30, 2024 and 2023.

Previous wording

Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. Non-interest income was $395 thousand for the three months ended March 31, 2024 compared to loss of $4.6 million for same period in 2023. During 2024, we recorded a loss from minority membership interest, primarily from our investment in ACM, totaling $203 thousand for the three months ended March 31, 2024, compared to a loss of $801 thousand for the three months ended March 31, 2023. In the first quarter of 2023, we recorded a loss of $4.6 million related to the sale of available-for-sale investment securities.

Current wording

Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. Non-interest income was $871 thousand for the three months ended June 30, 2024 compared to $891 thousand for same period of 2023. For the six months ended June 30, 2024, we recorded noninterest income of $1.3 million compared to a loss of $3.7 million for same period of 2023.

Previous wording

Fee income from loans was $49 thousand for the three months ended March 31, 2024, compared to $77 thousand for the same period of 2023. Service charges on deposits and other fee income was $261 thousand for the three months ended March 31, 2024, compared to $215 thousand for the same period of 2023. Income from BOLI decreased 43% to $190 thousand for the three months ended March 31, 2024 as compared to $332 thousand for the three months ended March 31, 2023, a result of surrendering our BOLI policies during the first quarter of 2024.

Current wording

Fee income from loans was $38 thousand for the three months ended June 30, 2024, compared to $169 thousand for the same period of 2023, which included income from back-to-back loan swap transactions entered into during the second quarter of 2023. Service charges on deposits was $278 thousand for the three months ended June 30, 2024, compared to $232 thousand for the same period of 2023. Income from BOLI decreased to $66 thousand for the three months ended June 30, 2024 as compared to $362 thousand for the three months ended June 30, 2023, a result of surrendering our BOLI policies during the first quarter of 2024.

Previous wording

The following table reflects the components of noninterest expense for the three months ended March 31, 2024 and 2023.

Current wording

The following table reflects the components of noninterest expense for the three and six months ended June 30, 2024 and 2023.

Previous wording

Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was$8.6 millionand$9.0 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $9.0 million and $9.2 million for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Salaries and benefits expense decreased $484 thousand to $4.5 million for the three months ended March 31, 2024 compared to $5.0 million for the same period in 2023, which was primarily related to a decrease in headcount for the current quarter. Occupancy expense decreased by $105 thousand, primarily related to the office space reduction initiatives that were completed during the fourth quarter of 2023. These decreases were partially offset by an increase in internet banking and software expense of $132 thousand for the three months ended March 31, 2024 to $694 thousand, compared to $562 thousand for the same period in 2023, a result of the implementation of enhanced customer software solutions. In addition, Federal Deposit Insurance Corporation ("FDIC") insurance premium expense increased $165 thousand for the three months ended March 31, 2024 compared to the same period in 2023, a result of the FDIC increasing the assessment rate to replenish its deposit insurance fund.

Current wording

Noninterest expense was $17.6 million and $18.2 million for the six months ended June 30, 2024 and 2023, respectively. Salaries and benefits expense decreased $886 thousand to $9.2 million for the six months ended June 30, 2024 compared to $10.1 million for the same period in 2023, which was primarily related to reduced staffing for the six months ended June 30, 2024 compared to the same period of 2023. Occupancy expense decreased by $201 thousand for the six months ended June 30, 2024 as compared to the same period of 2023, which was primarily related to the office space reduction initiatives that were completed during the fourth quarter of 2023. These decreases were partially offset by an increase in internet banking and software expense of $280 thousand for the six months ended June 30, 2024 to $1.4 million, compared to $1.1 million for the same period in 2023, a result of the implementation of enhanced customer software solutions during 2023. Lastly, Federal Deposit Insurance Corporation ("FDIC") insurance premium expense increased

Previous wording

We recorded a provision for income tax expense of $3.2 millionfor the three months ended March 31, 2024, compared to thebenefit for income taxes of $486 thousand for the three months ended March 31, 2023. Income tax expense for the three months ended March 31, 2024 includes $2.4 million in taxes and penalties related to the surrender of our BOLI policies. These were in part offset by discrete tax benefits recorded as a result of nonqualified option exercises that occurred during the quarter ended March 31, 2024.

Current wording

For the six months ended June 30, 2024 and 2023, provision for income taxes was $4.4 million and $739 thousand, respectively. Provision for income taxes for the six months ended June 30, 2024 includes $2.4 million in taxes and penalties related to the surrender of our BOLI policies. Provision for income taxes for the six months ended June 30, 2023 were decreased as a result of the losses recorded on the sale of investment securities available-for-sale during 2023.

Previous wording

At March 31, 2024, total assets were $2.18 billion, a decrease of 0.4%, or $7.9 million, from $2.19 billion at December 31, 2023. Investment securities were $167.1 million at March 31, 2024, a decrease of $4.8 million, from $171.9 million at December 31, 2023. Total deposits increased 1%, or $12.0 million, to $1.86 billion at March 31, 2024, from $1.85 billion at December 31, 2023. From time to time, we may utilize other borrowed funds such as federal funds purchased and FHLB advances as an additional funding source for the Bank. We had no federal funds purchased as of March 31, 2024 and December 31, 2023. The Bank had FHLB advances outstanding of $50.0 million and $85.0 million at March 31, 2024 and December 31, 2023, respectively. Subordinated debt, net of unamortized issuance costs, totaled $19.6 million at March 31, 2024 and December 31, 2023.

Current wording

At June 30, 2024, total assets were $2.30 billion, an increase of 5.0%, or $108.6 million, from $2.19 billion at December 31, 2023. Investment in debt securities were $162.4 million at June 30, 2024, a decrease of $9.4 million, from $171.9 million at December 31, 2023. Total deposits increased 7%, or $123.5 million, to $1.97 billion at June 30, 2024, from $1.85 billion at December 31, 2023. From time to time, we may utilize other funding sources such as federal funds purchased and FHLB advances as an additional funding source for the Bank. We had no federal funds purchased at June 30, 2024 and December 31, 2023. The Bank had FHLB advances outstanding of $50.0 million and $85.0 million at June 30, 2024 and December 31, 2023, respectively. Subordinated debt, net of unamortized issuance costs, totaled $19.7 million and $19.6 million at June 30, 2024 and December 31, 2023.

Previous wording

Loans receivable, net of deferred fees, were $1.85 billion at March 31, 2024 and $1.83 billion at December 31, 2023, an increase of $24.2 million, or 1%. During the first quarter of 2024, new commercial loan originations totaled $41.5 million with a weighted average rate of 8.76%, loan renewals totaled $19.3 million with a weighted average rate of 8.25%, and repayments of loans and lines of credit totaled $18.6 million with a weighted average rate of 7.97%.

Current wording

Loans receivable, net of deferred fees, were $1.89 billion at June 30, 2024 and $1.83 billion at December 31, 2023, an increase of $58.4 million, or 3%. During the second quarter of 2024, commercial loan originations totaled $41.1 million with a weighted average rate of 8.38%, loan renewals totaled $15.4 million with a weighted average rate of 8.95%, and repayments of loans totaled $42.5 million with a weighted average rate of 6.39%.

Previous wording

Commercial real estate loans totaled $1.09 billion at March 31, 2024 and December 31, 2023, and were approximately 60% of the total loans receivable for those same periods. Owner-occupied commercial real estate loans were $210.8 million at March 31, 2024 compared to $212.9 million at December 31, 2023. Nonowner-occupied commercial real estate loans were $878.5 million at March 31, 2024 compared to $878.7 million at December 31, 2023. Commercial construction loans totaled $155.5 million at March 31, 2024, compared to $148.0 million at December 31, 2023 and comprised 8% of total loans receivable for those same periods. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 394% of our total risk based capital at March 31, 2024. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".

Current wording

Commercial real estate loans totaled $1.08 billion and $1.09 billion at June 30, 2024 and December 31, 2023, and were approximately 57% and 60% of the total loans receivable at such dates, respectively. Owner-occupied commercial real estate loans were $204.5 million at June 30, 2024 compared to $212.9 million at December 31, 2023. Nonowner-occupied commercial real estate loans were $879.0 million at June 30, 2024 compared to $878.7 million at December 31, 2023. Commercial construction loans totaled $164.7 million at June 30, 2024, compared to $148.0 million at December 31, 2023 and comprised of 8% of total loans receivable at such dates, respectively. Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 393% of our total risk based capital at June 30, 2024. Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Additional information on the stratification of these portfolio segments can be found below under "Asset Quality".

Previous wording

Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $3.0 million and $1.8 million at March 31, 2024 and December 31, 2023, respectively, an increase of $1.2 million. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had specific reserves totaling $673 thousand and $676 thousand at March 31, 2024 and December 31, 2023, respectively. Our ratio of nonperforming loans to total assets was 0.14% and 0.08% at March 31, 2024 and December 31, 2023, respectively. We had no other real estate owned and there were $1.3 million in loan modifications for borrowers who were experiencing financial difficulty during the quarter ended March 31, 2024.

Current wording

Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were $3.2 million and $1.8 million at June 30, 2024 and December 31, 2023, respectively, an increase of $1.4 million. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we individually evaluate each loan, generally through the performance of a collateral analysis to determine the amount of allowance required. As a result of the analysis completed, we had specific reserves totaling $679 thousand and $676 thousand at June 30, 2024 and December 31, 2023, respectively. Our ratio of nonperforming loans to total assets was 0.13% and 0.08% at June 30, 2024 and December 31, 2023, respectively. We had no other real estate owned and there were no loan modifications for borrowers who were experiencing financial difficulty during the quarter ended June 30, 2024.

Previous wording

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2024, we had $5.5 million in loans identified as special mention, a decrease of $693 thousand from December 31, 2023. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The decrease from December 31, 2023 was driven by a few loans being upgraded and paid off. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated.

Current wording

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At June 30, 2024, we had $10.6 million in loans identified as special mention, an increase of $4.4 million from December 31, 2023. Special mention rated loans have a potential weakness that deserves our close attention; however, the borrower continues to pay in accordance with their contractual terms, unless modified and disclosed. The increase from December 31, 2023 was driven by one loan that was downgraded to special mention during the second quarter of 2024, offset by several loans that were upgraded and paid off. Loans rated as special mention are generally considered to be well-secured, and are not individually evaluated.

Previous wording

At each of March 31, 2024 and December 31, 2023, we had $22.4 million in loans identified as substandard. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At March 31, 2024, specific reserves totaling $673 thousand were allocated within the allowance for credit losses to supplement any shortfall of collateral.

Current wording

At June 30, 2024 and December 31, 2023, we had $23.0 million in loans identified as substandard, an increase of $555 thousand from December 31, 2023. Substandard rated loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At June 30, 2024, specific reserves totaling $679 thousand were allocated within the allowance for credit losses to supplement any shortfall of collateral.

Previous wording

We recorded annualized net recoveries of (0.01)% for each of the three months ended March 31, 2024 and 2023, respectively. The following table provides additional information on our asset quality for the dates presented.

Current wording

We recorded annualized net charge-offs to average loans receivable of 0.00% for the six months ended June 30, 2024, compared to 0.04% for the six months ended June 30, 2023. For the six months ended June 30, 2024, we have recorded net recoveries totaling $35 thousand, compared to net charge-offs of $333 thousand for the comparable six month period of 2023. The following table provides additional information on our asset quality for the dates presented.

Previous wording

We are closely and proactively monitoring the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.09 billion, or 59% of total loans, at March 31, 2024 and $1.09 billion, or 60% of total loans, at December 31, 2023. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of the portfolio in a disciplined manner, and have comprehensive policies to monitor, measure and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Included in commercial real estate are loans secured by office buildings totaling $121.3 million, or 7% of total loans, and retail shopping centers totaling $266.1 million, or 14% of total loans, at March 31, 2024. Multi-family commercial properties totaled $178.2 million, or 10% of total loans, at March 31, 2024.

Current wording

We are closely and proactively monitoring the effects of recent market activity. As mentioned above, our commercial real estate loan portfolio totaled $1.08 billion, or 57% of total loans, at June 30, 2024 and $1.09 billion, or 60% of total loans, at December 31, 2023. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of the portfolio in a disciplined manner, and have comprehensive policies to monitor, measure and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Included in commercial real estate are loans secured by office buildings totaling $136.4 million, or 7% of total loans, and retail shopping centers totaling $260.8 million, or 14% of total loans, at June 30, 2024. Loans secured by multi-family commercial properties totaled $178.2 million, or 9% of total loans, at June 30, 2024.

Previous wording

The following table provides further stratification of these and additional classes of real estate loans at March 31, 2024 (dollars in thousands).

Current wording

The following table provides further stratification of these and additional classes of commercial real estate and construction loans at June 30, 2024 (dollars in thousands).

Previous wording

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity at each of March 31, 2024 and December 31, 2023 totaled $264 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $166.8 million at March 31, 2024, a decrease of $4.8 million, or 3%, from$171.6 million at December 31, 2023, due to principal repayments of $2.8 million during the first quarter of 2024 and a decrease in the market value of the investment securities portfolio totaling $2.0 million at March 31, 2024.

Current wording

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity at June 30, 2024 and December 31, 2023 totaled $264 thousand at both dates, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $162.2 million at June 30, 2024, a decrease of $9.4 million, or 5%, from $171.6 million at December 31, 2023, due to principal repayments of$7.4 million during the first half-year of 2024 and a decrease in the market value of the investment securities portfolio totaling $2.0 million at June 30, 2024.

Previous wording

As of March 31, 2024 and December 31, 2023, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled $12.8 million and $7.2 million at March 31, 2024 and December 31, 2023, respectively.

Current wording

As of June 30, 2024 and December 31, 2023, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled $10.6 million and $7.2 million at June 30, 2024 and December 31, 2023, respectively. Investment securities that were pledged to secure Federal Reserve Bank of Richmond ("FRB") borrowings totaled $6.1 million at June 30, 2024 and none at December 31, 2023.

Previous wording

We hold restricted investments in equities of the Federal Reserve Bank of Richmond ("FRB") and FHLB. At March 31, 2024, we owned $3.6 million in FRB stock and $4.0 million in FHLB stock. At December 31, 2023, we owned $3.6 million in FRB stock and $5.8 million in FHLB stock.

Current wording

We hold restricted investments in equities of the FRB and FHLB. At June 30, 2024, we owned $4.1 million in FRB stock and $4.0 million in FHLB stock. At December 31, 2023, we owned $3.6 million in FRB stock and $5.8 million in FHLB stock.

Previous wording

The following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the three months ended March 31, 2024 and 2023:

Current wording

The following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the six months ended June 30, 2024 and 2023:

Previous wording

Total deposits increased $12.0 million, or 0.6%, to $1.86 billion at March 31, 2024 from $1.85 billion at December 31, 2023. Non-interest-bearing deposits were $394.1 million at March 31, 2024, or 21.2% of total deposits. At March 31, 2024, core deposits, which exclude wholesale deposits, decreased$2.6 million from December 31, 2023, or 0.2%. Time deposits (excluding wholesale deposits) increased $38.0 million, or 12%, to $344.4 million at March 31, 2024 from December 31, 2023, and were 21.6% of core deposits, representing new and existing customer deposits as customers were looking to fix higher interest rates on their deposit balances.

Current wording

Total deposits increased $123.5 million, or 7%, to $1.97 billion at June 30, 2024 from $1.85 billion at December 31, 2023. Non-interest-bearing deposits were $373.8 million at June 30, 2024, or 19% of total deposits. At June 30, 2024, core deposits, which exclude wholesale deposits, increased $118.9 million from December 31, 2023, or 7%. Time deposits decreased$31.7 million, or 16%, to$274.7 million at June 30, 2024 from December 31, 2023, and were 16%of core deposits.

Previous wording

Wholesale deposits were $259.8 million at March 31, 2024 compared to $245.3 million at December 31, 2023, an increase of $14.6 million, or 6%. Wholesale deposits are partially fixed at a weighted average rate of 3.49% as we have executed $200 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products to our customers who seek to maximize FDIC insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At March 31, 2024 and December 31, 2023, we had $234.8 million and $254.1 million, respectively, in CDARS reciprocal and ICS reciprocal products.

Current wording

Wholesale deposits were$249.9 million at June 30, 2024 compared to$245.3 million at December 31, 2023, an increase of$4.6 million, or 2%. Wholesale deposits are partially fixed at a weighted average rate of 3.40% as we have executed $200.0 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products to our customers who seek to maximize FDIC insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At June 30, 2024 and December 31, 2023, we had $255.4 million and $254.1 million, respectively, in CDARS reciprocal and ICS reciprocal products.