NEW PEOPLES BANKSHARES INC

Previous wording

Net income for the three months ended June 30, 2024 was $1.7 million, a decrease of $39,000, or 2.56%, from the same period in 2023. Net interest income declined 0.43%, or $30,000, from $7.0 million for the quarter ended June 30, 2023 to $7.0 million for the quarter ended June 30, 2024. The decrease was primarily due to an increase in the cost of interest-bearing liabilities of 124 basis points (“bps”) to 2.94% during the quarter ended June 30, 2024 compared to 1.70% during the quarter ended June 30, 2023.

Current wording

Net income for the three months ended September 30, 2024 was $2.1 million, an increase of $218,000, or 11.53%, from the same period in 2023. Net interest income increased 1.99%, or $140,000, from $7.0 million for the quarter ended September 30, 2023 to $7.2 million for the quarter ended September 30, 2024. The increase was primarily due to an increase in interest income of $2.0 million to $11.5 million due to the combination of an increase of 57 basis points (“bps”) in the yield on earning assets to 5.51%, and a $65.5 million increase in the average balance of earning assets.

Previous wording

The balance sheet grew to $855.0 million in total assets as of June 30, 2024, from $826.3 million as of December 31, 2023. Gross loans increased $1.8 million to $639.9 million as of June 30, 2024. Additionally, interest-bearing deposits in other banks increased $22.4 million to $72.8 million as of June 30, 2024. Total deposit liabilities as of June 30, 2024 increased $26.8 million to $743.2 million from December 31, 2023.

Current wording

The balance sheet grew to $880.3 million in total assets as of September 30, 2024, from $826.3 million as of December 31, 2023. Gross loans increased $8.2 million to $646.4 million as of September 30, 2024. Additionally, interest-bearing deposits in other banks increased $40.2 million to $90.6 million as of September 30, 2024. Total deposit liabilities as of September 30, 2024 increased $47.1 million to $763.6 million from December 31, 2023.

Previous wording

During the first quarter of 2024, we extended a previously announced stock repurchase program, to continue through March 31, 2025. During the second quarter of 2024, 35,530 shares were repurchased at an average price of $2.54 per share.

Current wording

During the first quarter of 2024, we extended a previously announced stock repurchase program, to continue through March 31, 2025. During the third quarter of 2024, 23,989 shares were repurchased at an average price of $2.67 per share.

Previous wording

The Company’s primary source of income is net interest income, which showed a slight decrease of $30,000, or 0.43%, to $7.0 million for the second quarter of 2024 compared to $7.0 million for the second quarter of 2023. Interest income increased $2.0 million due to increases in both the volume and yields for loans and interest-bearing deposits with banks. Average loans increased $39.2 million or 6.5% during the second quarter of 2024, as compared to the second quarter of 2023, while the yield increased 63 bps to 5.89% resulting from a combination of the repricing of existing loans and the origination of new credits. The average balance of interest-bearing deposits with banks increased $31.2 million or 70.4% to $75.5 million for the second quarter of 2024, as compared to the second quarter of 2023, as we actively manage our liquidity position. For the same comparative periods the yield on interest-bearing deposits with banks increased 38 bps to 5.37% due to the higher interest rate environment. Total interest expense increased $2.0 million to $4.0 million as the cost of interest-bearing liabilities rose 124 bps to 2.94% from 1.70% for the comparative three months ended June 30, 2024 and 2023. The time deposits portfolio was the primary contributor to the increase in interest expense due to an increase of 164 bps in the quarterly cost on time deposits to 3.96% and a $57.6 million increase in the average balance of time deposits due to a shift in the mix from lower cost deposit products combined with promotional interest rates offered in response to competition for deposits. Additionally, while the average cost of borrowed funds decreased 63 bps to 5.83%, the related interest expense increased $160,000 due to the increased average balance related to a Federal Home Loan Bank (FHLB) advance and a $10 million borrowing from the Federal Reserve Bank under the Bank Term Funding Program, taken in the second and fourth quarters of 2023, respectively, which increased the overall outstanding average balance $13.3 million.

Current wording

During the three months ended September 30, 2024, interest income increased $2.0 million to $11.5 million due to the combination of an increase of 57 basis points (“bps”) in the yield on earning assets to 5.51%, and a $65.5 million increase in the average balance of earning assets. The loan portfolio was the primary driver of both increases, as the yield rose 62 bps to 6.05%, while the average balance increased $21.7 million for the comparative quarters ending September 30, 2024 and 2023. The increased interest income was offset by increased interest expense which rose $1.8 million to $4.4 million during the third quarter of 2024 as compared to $2.5 million reported for the same period in 2023. Interest-bearing deposits accounted for $1.7 million of the increase as the average rate increased 110 bps and the average balance increased $59.7 million for the comparative quarters ending September 30, 2024 and 2023. Additionally, while the average cost of borrowed funds decreased 64 bps to 5.77%, the related interest expense increased $100,000 due to the increased average balance related to a $10.0 million borrowing from the Federal Reserve Bank under the Bank Term Funding Program taken in the fourth quarter of 2023, which increased the overall outstanding average balance by $9.7 million. The net interest margin decreased 20 bps, to 3.43% for the quarter ending September 30, 2024, as compared to the 3.63% net interest margin for the same period in 2023 due to the increase in funding costs outpacing improvements in the yield on earning assets; however, growth in earning assets offset the impact of a smaller net interest margin, resulting in the $140,000 increase in net interest income.

Previous wording

The provision for credit losses charged to the income statement for the three months ended June 30, 2024 was $472,000 compared to $149,000 for the three months ended June 30, 2023. The amount of the provision for credit losses was impacted by net loan charge-offs of $101,000 during the quarter ended June 30, 2024, combined with a specific allocation to the allowance for credit losses of $263,000 for a single credit relationship. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 7, Allowance for Credit Losses for Loans, in Item 1 of this Form 10-Q.

Current wording

The provision for credit losses charged to the income statement for the three months ended September 30, 2024 was $49,000 compared to a provision of $155,000 for the three months ended September 30, 2023. The provision for credit losses in the third quarter of 2024 was impacted by the resolution of a loan relationship that had resulted in a $263,000 specific allowance allocation during the second quarter of 2024. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 7, Allowance for Credit Losses for Loans, in Item 1 of this Form 10-Q and Asset Quality, below.

Previous wording

Noninterest expense was $6.8 million for the quarter ended June 30, 2024 compared to $7.0 million for the quarter ended June 30, 2023. The $197,000 dollar improvement resulted from decreases in salaries and benefits, occupancy and data processing expenses which combined for a $93,000 decrease. In addition, legal and professional fees, loan and other real estate owned expenses, included in other operating expenses, decreased a combined $138,000.

Current wording

Noninterest expense was $6.8 million for the three months ended September 30, 2024 compared to $6.9 million for the quarter ended September 30, 2023. The $54,000 improvement resulted from modest decreases in salaries and benefits of $40,000, and occupancy expenses of $3,000. In addition, legal and professional fees, loan and loan related expenses, included in other operating expenses, decreased by a combined $90,000. These decreases offset increases in data processing and telecommunication expenses and other noninterest expenses of $10,000 and $59,000, respectively.

Previous wording

The efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, decreased to 71.96% during the second quarter of 2024 from 75.42% for the second quarter of 2023. We continue to assess our operational procedures and structure to improve efficiencies and contain costs.

Current wording

The efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, decreased to 71.10% during the third quarter of 2024 from 72.62% for the third quarter of 2023. We continue to assess our operational procedures and structure to improve efficiencies and contain costs.

Previous wording

Income tax expense for the second quarter of 2024 totaled $508,000, an increase of $11,000, or 2.21%, from $497,000 recorded during the same period in 2023. The effective tax rate for the three months ended June 30, 2024, was 23.18%, compared to 22.39% for the same period in 2023. A contributor to the increase to the effective tax rate is the increase in revenue generated in states which assess income tax.

Current wording

Income tax expense for the third quarter of 2024 totaled $621,000, an increase of $72,000, or 13.11%, from $549,000 recorded during the same period in 2023. The effective tax rate for the three months ended September 30, 2024, was 22.76%, compared to 22.51% for the same period in 2023. A contributor to the increase to the effective tax rate is the increase in revenue generated in states which assess income tax.

Previous wording

For the six months ended June 30, 2024, net interest income decreased $167,000 to $13.9 million from $14.1 million for the six months ended June 30, 2023. The yield on earning assets increased 65 bps to 5.35% for the comparative six-month periods, while the average balance increased $60.5 million to $812.4 million. The cost of interest-bearing liabilities increased 137 bps to 2.86%, while the average balance increased $72.0 million to $542.1 million during the comparative six-month period.

Current wording

For the nine months ended September 30, 2024, net interest income decreased $27,000 to $21.1 million from $21.1 million for the nine months ended September 30, 2023. The yield on earning assets increased 61 bps to 5.40% for the comparative nine-month periods, while the average balance increased $62.1 million to $819.9 million. The cost of interest-bearing liabilities increased 126 bps to 2.94%, while the average balance increased $71.1 million to $548.7 million during the comparative nine-month periods.

Previous wording

Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

Current wording

Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

Previous wording

Based on our current assessment of the loan portfolio and related unfunded commitments, a provision of $429,000 was made for the six months ended June 30, 2024. The allowance for credit losses as a percentage of loans increased from 1.15% at December 31, 2022 to 1.21% as of June 30, 2024. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 2, Summary of Significant Accounting Policies and Note 7, Allowance for Credit Losses, in Item 1 of this Form 10-Q.

Current wording

Based on our current assessment of the loan portfolio and related unfunded commitments, a provision of $478,000 was made for the nine months ended September 30, 2024. The allowance for credit losses as a percentage of loans increased from 1.14% at December 31, 2023 to 1.19% as of September 30, 2024. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 2, Summary of Significant Accounting Policies and Note 7, Allowance for Credit Losses, in Item 1 of this Form 10-Q, and Asset Quality, below.

Previous wording

During the six months ended June 30, 2024, noninterest income increased $51,000 to $4.9 million from $4.8 million for the same period in 2023. The increase is due largely to earnings from service charges, card processing and financial services, which increased a combined $160,000. Those increases offset the impact of the sales of bank properties in 2024 and 2023. During the first six months of 2024, a former branch office and a lot were sold resulting in a net gain of $20,000. During the same period of 2023, two former office facilities and a vehicle were sold resulting in a net gain of $135,000

Current wording

For the nine months ended September 30, 2024, noninterest income increased $42,000 to $7.3 million from $7.2 million for the same period in 2023. The increase is due largely to financial services revenue of $998,000, an increase of $168,000, or 20.24%, from the $830,000 recorded during the first nine months of 2023. Service charges and card processing revenue totaling $2.9 million and $2.8 million respectively were largely unchanged from 2023. These improvements were partially offset by the impact of the sales of bank properties in 2024 and 2023. During the first nine months of 2024, a former branch office and a lot were sold, along with the sale of furniture, resulting in a net gain of $23,000. During the same period of 2023, two former office facilities and a vehicle were sold resulting in a net gain of $135,000.

Previous wording

For the six months ended June 30, 2024, noninterest expense decreased $88,000 to $13.8 million compared to $13.9 million for the six months ended June 30, 2023. The decrease was impacted by reductions in occupancy costs of $22,000 combined with decreases in legal and professional fees, consulting and other real estate owned expenses of $212,000. The expense reductions were partially offset by increases in salaries and employee benefits of $39,000, as well as advertising, ATM network and miscellaneous expenses which combined for an increase of $116,000. The increase in salaries and employee benefits related to performance raises, along with severance costs related to the elimination of several positions during the first quarter of 2024 and other contractual payments associated with the recent retirement of the previous chief executive officer.

Current wording

For the nine months ended September 30, 2024, noninterest expense decreased $141,000 to $20.6 million compared to $20.8 million for the nine months ended September 30, 2023. The decrease was impacted by reductions in occupancy costs of $26,000 combined with decreases in legal and professional fees of $140,000, consulting fees of $57,000 and loan and other real estate owned expenses of $98,000, excluding net gains on sales of other real estate owned. The expense reductions were partially offset by increases in advertising of $19,000, ATM network expenses of $25,000 and miscellaneous expenses of $131,000 which combined for an increase of $175,000.

Previous wording

Total assets as of June 30, 2024 were $854.7 million, an increase of $28.4 million, or 3.43%, from $826.3 million as of December 31, 2023. Gross loans at June 30, 2024 of $639.9 million were largely unchanged from $638.1 million at December 31, 2023. Liquid assets in the form of interest-bearing deposits with banks increased $22.4 million, or 44.6%, during the first six months of 2024. Investment securities increased $2.5 million during the first six months of 2024 due to purchases of $8.0 million offset by an increase in the unrealized loss on securities available for sale of $271,000, combined with payments and amortization of $5.3 million.

Current wording

Total assets as of September 30, 2024 were $880.3 million, an increase of $54.0 million, or 6.53%, from $826.3 million as of December 31, 2023. Gross loans of $646.4 million as of September 30, 2024 reflected an increase of $8.2 million from $638.1 million at December 31, 2023. Liquid assets in the form of cash and cash equivalents increased $38.8 million or 59.64% during the first nine months of 2024. Investment securities increased $6.8 million during the first nine months of 2024 due to purchases of $14.0 million, which more than offset sales of $2.1 million, and maturities, payments and amortization of $8.2 million and a $3.3 million decrease in the unrealized loss on securities available for sale. During the third quarter of 2024, odd lot investment securities totaling $2.1 million were sold, and the proceeds were used to reinvest in other securities. These sales generated a net gain of $4,000.

Previous wording

Consumer loans increased $4.5 million or 20.08% which included the purchase of $1.6 million of individual loans, and the funding of $1.8 million of private student loans during the first six months of 2024. Commercial real estate and multi-family loans increased $1.0 million and $533,000, respectively, during the first six months of 2024. Commercial and Residential 1-4 family loans decreased $2.4 million and $1.6 million, respectively, from December 31, 2023 to June 30, 2024. Loan originations during the first six months of 2024 were impacted by higher interest rates affecting borrower requests.

Current wording

Consumer loans increased $5.5 million, or 24.10% which included the purchase of $2.5 million of individual loans, and the funding of $1.8 million of private student loans during the first nine months of 2024. Commercial real estate and commercial loans increased $5.3 million and $3.4 million, respectively, during the first nine months of 2024. Residential 1-4 family loans decreased $6.0 million from December 31, 2023 to September 30, 2024. Loan originations during the first nine months of 2024 were impacted by higher interest rates affecting borrower requests.

Previous wording

Total deposits were $743.2 million as of June 30, 2024 compared to $716.5 million as of December 31, 2023. The increase of $26.8 million, or 3.7%, was due to efforts to attract and retain time deposits and money market account relationships, combined with cyclical funds inflows. As a result of these efforts, total time deposits increased $18.6 million, including $3.0 million of brokered time deposits, and money market accounts increased $15.1 million during the first six months of 2024, respectively. The increase in time and money market deposits contributed to the increase in our cost of funds, as previously discussed, due to the continuing rising interest rate environment combined with ongoing competition for deposits.

Current wording

Total deposits were $763.6 million as of September 30, 2024 compared to $716.5 million as of December 31, 2023. The increase of $47.1 million, or 6.57%, was due to efforts to attract and retain time deposits and money market account relationships, combined with cyclical funds inflows. As a result of these efforts, total time deposits increased $25.1 million, including $3.0 million of brokered time deposits, and money market accounts increased $27.1 million during the first nine months of 2024, respectively. The increase in time and money market deposits contributed to the increase in our cost of funds, as previously discussed, due to the continuing repricing of maturing time deposits in the higher interest rate environment combined with ongoing competition for deposits.

Previous wording

During the first six months of 2024 total shareholders’ equity increased $1.4 million to $66.2 million as of June 30, 2024, due to earnings of $3.5 million which were offset by dividends paid of $1.7 million, the $214,000 increase in the net unrealized loss on available-for-sale investment securities, and the repurchase of common stock totaling $175,000. Consequently, book value per share increased to $2.80 as of June 30, 2024 compared to $2.73 at December 31, 2023. The Bank remains well capitalized per regulatory guidance.

Current wording

During the first nine months of 2024, total shareholders’ equity increased $6.3 million to $71.1 million as of September 30, 2024, due to net income of $5.6 million and a decrease in the net unrealized loss on available-for-sale investment securities of $2.6 million which was offset by dividends paid to shareholders of $1.7 million and the repurchase of common stock totaling $239,000. Additional discussion of shareholders’ equity is presented in the Capital Resources discussion below.

Previous wording

The allowance for credit losses as a percentage of total loans was 1.21%, or $7.7 million, as of June 30, 2024, and 1.14%, or $7.3 million, as of December 31, 2023. The allowance for credit losses on unfunded commitments was $287,000 as of June 30, 2024 as compared to $285,000 at December 31, 2023.

Current wording

The allowance for credit losses was $7.7 million, or 1.19% as a percentage of total loans, as of September 30, 2024, and $7.3 million, or 1.14%, as of December 31, 2023. The allowance for credit losses on unfunded commitments was $309,000 as of September 30, 2024 as compared to $285,000 at December 31, 2023.

Previous wording

Annualized net charge-offs (recoveries), as a percentage of average loans, was (0.01)% during the first six months of 2024, compared to 0.02% in the first six months of 2023.

Current wording

Annualized net charge-offs as a percentage of average loans was 0.01% during the first nine months of 2024 compared to 0.03% during the same period of 2023.

Previous wording

Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $5.5 million as of June 30, 2024, an increase of $1.8 million, or 49.42%, since year-end 2023. Nonperforming assets as a percentage of total assets were 0.65% as of June 30, 2024, and 0.45% as of December 31, 2023.

Current wording

Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $5.1 million as of September 30, 2024, an increase of $1.4 million, or 39.34%, since year-end 2023. Nonperforming assets as a percentage of total assets were 0.58% as of September 30, 2024 and 0.45% as of December 31, 2023.

Previous wording

Loans rated substandard or below totaled $6.5 million as of June 30, 2024, an increase of $3.0 million from $3.5 million as of December 31, 2023. Total past due loans increased to $7.4 million as of June 30, 2024 from $6.2 million as of December 31, 2023. The increase in past due loans is largely attributed to the loan relationship that was transferred to nonaccrual status during the first quarter of 2024.

Current wording

Loans rated substandard or below totaled $4.8 million as of September 30, 2024, an increase of $1.3 million from $3.5 million as of December 31, 2023. Total past due loans increased to $7.3 million as of September 30, 2024 from $6.2 million as of December 31, 2023. The increase in past due loans is largely attributed to an increase in residential mortgage loans 30-59 days past due.

Previous wording

The allowance for credit losses is maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. Through our quarterly assessment, we continue to adjust the CECL model to best reflect the risks in the portfolio. However, future provisions may be deemed necessary. During the first six months of 2024, we maintained the adjustments to our qualitative factors initiated in 2023, to consider risk factors associated with commercial real estate and residential mortgage loans, however the qualitative adjustment for commercial real estate loans was reduced as factors used in determining the adjustment have begun to be reflected in the portfolio as it seasons. Those changes, along with net charge-offs for the period and the assessment of the historical and specific risks associated with the loan portfolio, resulted in a provision for credit losses of $429,000, of which $426,000 was a provision for the loan portfolio; and a provision for unfunded commitments of $3,000. The following table summarizes components of the allowance for credit losses and related loans as of June 30, 2024 and December 31, 2023:

Current wording

The allowance for credit losses is maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. Through our quarterly assessment, we continue to adjust the CECL model to best reflect the risks in the portfolio. However, future provisions may be deemed necessary. During the first nine months of 2024, we maintained the adjustments to our qualitative factors initiated in 2023, to consider risk factors associated with commercial real estate and residential mortgage loans, however the qualitative adjustment for commercial real estate loans was reduced as factors used in determining the adjustment have begun to be reflected in the portfolio as it seasons. Additionally, in consideration of the impact of Hurricane Helene on the financial performance of borrowers and the underlying loan collateral, a qualitative factor adjustment was made for September 30, 2024. Those changes, along with net charge-offs for the period and the assessment of the historical and specific risks associated with the loan portfolio, resulted in a provision for credit losses of $478,000, of which $453,000 was a provision for the loan portfolio; and a provision for unfunded commitments of $25,000. The following table summarizes components of the allowance for credit losses and related loans as of September 30, 2024 and December 31, 2023:

Previous wording

Due to timing differences between the book and tax treatments of several income and expense items, a net deferred tax asset, excluding the deferred tax asset on the unrealized loss on securities available-for-sale of $3.2 million and $3.1 million, existed as of June 30, 2024 and December 31, 2023, respectively. Our income tax expense was computed at the corporate income tax rate of 21% of taxable income. We have no significant nontaxable income or nondeductible expenses.

Current wording

Due to timing differences between the book and tax treatments of several income and expense items, a net deferred tax asset, excluding the deferred tax asset on the unrealized loss on securities available-for-sale of $2.4 million and $3.1 million, existed as of September 30, 2024 and December 31, 2023, respectively. Our income tax expense was computed at the corporate income tax rate of 21% of taxable income. We have no significant nontaxable income or nondeductible expenses.

Previous wording

Book value per common share was $2.80 and $2.73 as of June 30, 2024 and December 31, 2023, respectively. The modest increase in book value was due to the net income of $3.5 million for the first six months of 2024, which exceeded the dividend payment of $0.07 per share paid during the first quarter of 2024, combined with the $214,000 increase in unrealized loss on available for sale investment securities and the $175,000 repurchase of common shares during the first six months of 2024.

Current wording

Book value per common share was $3.00 and $2.73 as of September 30, 2024 and December 31, 2023, respectively. The increase in book value was due to the net income of $5.6 million for the first nine months of 2024, which exceeded the dividend payment of $0.07 per share paid during the first quarter of 2024, combined with the $2.6 million decrease in the unrealized loss on available for sale investment securities and the $239,000 repurchase of common shares during the first nine months of 2024.

Previous wording

On April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock through June 30, 2023. As previously reported, this plan was extended by the Board of Directors through March 31, 2025. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. As of June 30, 2024, the Company has repurchased 246,029 shares at an average price of $2.37 per share since inception of the plan. During the quarter ended June 30, 2024, the Company repurchased 35,530 shares at an average price of $2.54 per share. There is no assurance that the Company will purchase any additional shares under this program.

Current wording

On April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock. As previously reported, this plan was extended by the Board of Directors through March 31, 2025. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. As of September 30, 2024, the Company has repurchased 270,018 shares at an average price of $2.40 per share since the inception of the plan. During the quarter ended September 30, 2024, the Company repurchased 23,989 shares at an average price of $2.67 per share. There is no assurance that the Company will purchase any additional shares under this program.

Previous wording

As of June 30, 2024, all of our investment securities were classified as available-for-sale. These investments provide a source of liquidity in the amount of $56.9 million, which is net of the $35.4 million of securities pledged as collateral. Investment securities available-for-sale serve as a source of liquidity and interest rate risk management while generally yielding a higher return versus other short-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank. Due to the unrealized loss on securities available-for-sale, the sale of investments, other than shorter-term investments with minimal unrealized losses or more recently purchased investments, would not be considered a primary source of liquidity due to the immediate impact on regulatory capital; however, the majority of the portfolio is considered high credit quality investments and would be available to pledge against borrowings.

Current wording

As of September 30, 2024, all of our investment securities were classified as available-for-sale. These investments provide a source of liquidity in the amount of $50.0 million, which is net of the $38.5 million of securities pledged as collateral. Investment securities available-for-sale serve as a source of liquidity and interest rate risk management while generally yielding a higher return versus other short-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank. Due to the unrealized loss on securities available-for-sale, the sale of investments, other than shorter-term investments with minimal unrealized losses or more recently purchased investments, would not be considered a primary source of liquidity due to the immediate impact on regulatory capital; however, the majority of the portfolio is considered high credit quality investments and would be available to pledge against borrowings.

Previous wording

Our loan to deposit ratio was 86.10% and 89.06% as of June 30, 2024 and December 31, 2023, respectively. Generally, our policy has been to manage this ratio at or below 90.00%.

Current wording

Our loan to deposit ratio was 84.65% and 89.06% as of September 30, 2024 and December 31, 2023, respectively. Generally, our policy has been to manage this ratio at or below 90.00%.

Previous wording

We have used our line of credit with FHLB to issue a letter of credit totaling $12.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on these letters of credit have been issued. The letters of credit are considered to be draws on our FHLB line of credit. In July 2024, we increased our letters of credit to $14.0 million. In May 2023, we borrowed $10.0 million from FHLB, through a fixed rate 5-year advance, to support loan fundings and other general liquidity needs. An additional $190.7 million was available as of June 30, 2024 on the $212.7 million line of credit, of which $95.5 million is secured by a blanket lien on our residential real estate loans. Full use of the FHLB borrowing capacity would require the Company to pledge additional assets. In December 2023 we borrowed $10.0 million through the Federal Reserve Bank Bank Term Funding Program for one year, which can be prepaid prior to maturity without penalty. The Federal Reserve Bank ended the Bank Term Funding Program in March 2024, so at maturity, the repayment or replacement of this borrowing will be dependent on our liquidity and/or interest rate risk needs at that time.

Current wording

We have used our line of credit with FHLB to issue letters of credit totaling $12.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on these letters of credit have been issued. The letters of credit are considered to be draws on our FHLB line of credit. In July 2024, we increased our letters of credit to $14.0 million. In May 2023, we borrowed $10.0 million from FHLB, through a fixed rate 5-year advance, to support loan fundings and other general liquidity needs. An additional $190.7 million was available as of September 30, 2024 on the $212.7 million line of credit, of which $95.5 million is secured by a blanket lien on our residential real estate loans. Full use of the FHLB borrowing capacity would require the Company to pledge additional assets. In December 2023 we borrowed $10.0 million through the Federal Reserve Bank Bank Term Funding Program for one year, which was repaid using available liquid funds on October 1, 2024 without penalty.

Previous wording

As of June 30, 2024 total deposits included $3.0 million of brokered time deposits, acquired during the first quarter of 2024 to augment our balance sheet liquidity. We held no brokered deposits as of December 31, 2023. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the rate paid on deposits is shown in the net interest margin analysis tables. Total reciprocal Certificate of Deposit Registry Services (“CDARS”) time deposits were $6.7 million and $6.3 million as of June 30, 2024 and December 31, 2023, respectively. Aside from the availability of CDARS time deposits, we also offer a similar deposit product for transaction account customers through Intrafi Cash Service (“ICS”). As of June 30, 2024 approximately $25.9 million were placed in this product as compared to $20.5 million at December 31, 2023. Both the CDARS and ICS offerings assist us in maintaining deposit relationships, while assuring the depositors’ funds retain federal deposit insurance coverage.

Current wording

As of September 30, 2024 total deposits included $3.0 million of brokered time deposits, acquired during the first quarter of 2024 to augment our balance sheet liquidity. We held no brokered deposits as of December 31, 2023. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the rate paid on deposits is shown in the net interest margin analysis tables. Total reciprocal Certificate of Deposit Registry Services (“CDARS”) time deposits were $7.2 million and $6.3 million as of September 30, 2024 and December 31, 2023, respectively. Aside from the availability of CDARS time deposits, we also offer a similar deposit product for transaction account customers through Intrafi Cash Service (“ICS”). As of September 30, 2024 approximately $26.4 million were placed in this product as compared to $20.5 million at December 31, 2023. Both the CDARS and ICS offerings assist us in maintaining deposit relationships, while assuring the depositors’ funds retain federal deposit insurance coverage.

Previous wording

Additional liquidity is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion; however, while we do not anticipate using this as a primary funding source, securities with an estimated market value of $20.7 million were pledged as of June 30, 2024.

Current wording

Additional liquidity is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion; however, while we do not anticipate using this as a primary funding source, securities with an estimated market value of $21.4 million were pledged as of September 30, 2024.

Previous wording

Time deposits of $250,000 or more were approximately 6.89% of total deposits at June 30, 2024 and 7.36% of total deposits at December 31, 2023.

Current wording

Time deposits of $250,000 or more were approximately 7.22% of total deposits at September 30, 2024 and 7.36% of total deposits at December 31, 2023.

Previous wording

The bank holding company has approximately $430,000 in cash on deposit at the Bank at June 30, 2024. The holding company receives periodic dividend payments from the Bank which are used to pay operating expenses, to pay trust preferred interest payments and discretionary principal payments, to fund dividend payments to shareholders and to repurchase shares. The Company makes quarterly interest payments on the trust preferred securities.

Current wording

The bank holding company has approximately $20,000 in cash on deposit at the Bank at September 30, 2024. The holding company receives periodic dividend payments from the Bank which are used to pay operating expenses, to pay trust preferred interest payments and discretionary principal payments, to fund dividend payments to shareholders and to repurchase shares. The Company makes quarterly interest payments on the trust preferred securities.

Previous wording

There have been no material changes during the six months ended June 30, 2024, to the off-balance sheet items and the contractual obligations disclosed in our 2023 Form 10-K.

Current wording

There have been no material changes during the nine months ended September 30, 2024, to the off-balance sheet items and the contractual obligations disclosed in our 2023 Form 10-K.