ACCELERATING
ON A WET TRACK
ANNUAL REPORT 2022
CONTENTS
2022 ACCOLADES
What Drives Us
Investing in
Our Communities
Message from
Our CEO
Board of Directors
Shareholder and
Contact Info
Form 10-K
01
02
04
10
11
12
ABOUT MVB
MVB Financial Corp. (“MVB
Financial” or “MVB”), the innovative
financial holding company of MVB
Bank, Inc. (“MVB Bank”), is publicly
traded on the Nasdaq Capital
Market® under the ticker “MVBF.”
Through its subsidiary MVB Bank
and the bank’s subsidiaries, MVB
provides services to individuals
and corporate clients in the
Mid-Atlantic region, as well as
to fintech, payment and gaming
clients throughout the United
States. For more information
about MVB, please visit
ir.mvbbanking.com.
Team MVB’s commitment and teamwork were recognized with several
prestigious accolades in 2022.
American Banker Best Banks to Work For 2022
For the second consecutive year, Team MVB was honored to be
named one of American Banker’s Best Banks to Work For. Out of 90
U.S. banks, MVB placed number 14 in the rankings, which assessed
employee satisfaction in areas including corporate culture and
communications, training and development opportunities and pay
and benefits.
Quartz: Best Companies for Remote Workers 2022
MVB earned a spot on Quartz Media’s list for Best Companies for
Remote Workers, an award based on remote Team Members’
responses regarding company practices, leadership, corporate
culture and Team engagement. Through the award assessment
process, Quartz analyzed how effectively culture is enriching and
supporting a business’s remote workforce.
Fortune: 2022 Best Medium Workplaces
Fortune Magazine honored MVB as one of the 2022 Best Medium
Workplaces. To determine the Best Medium Workplaces list, survey
responses of over 200,000 employees throughout the U.S. were
carefully evaluated. In that survey, 94% of MVB’s Team Members said
MVB is a great place to work – compared to 57% of employees at a
typical U.S.-based company.
Fortune: 2022 Best Workplaces in Financial Services &
Insurance
MVB achieved a second award from Fortune in 2022, Best
Workplaces in Financial Services & Insurance. The highly competitive
award is based on analysis of survey responses from more than
176,000 employees from Great Place to Work-Certified™ companies
in the financial services and insurance industry. Companies are
assessed on how well they are creating a great employee experience
that cuts across race, gender, age, disability status or any aspect of
who employees are or what their role is.
BAI: Global Innovation Award
MVB was named the winner of the 2022 BAI Global Innovation
Awards, receiving recognition for strategic efforts in enhancing
the onboarding experience for new fintech clients through Victor
Technologies, Inc., a wholly-owned subsidiary of MVB Edge Ventures.
Among hundreds of nominees, ten winners were ultimately selected
by a panel of judges. MVB was selected for the Innovation in
Commercial Banking Onboarding Experience category based on
originality and impact.
GonzoBanker: The Smarter Bank Technology Award
For the second consecutive year, MVB accepted an award from
banking consulting company GonzoBanker. This year, Team MVB
was pleased to receive The Smarter Bank Technology Award, which
recognized MVB for leaning into innovation and being a tech leader
within the industry.
Bank Director: The Best U.S. Banks
Bank Director honored MVB as one of The Best U.S. Banks in 2022.
The award is based on Bank Director’s Banking study, which analyzes
the 300 largest publicly traded banks in the U.S. The final rankings
are determined by profitability, asset quality and capital adequacy.
WHAT DRIVES US
Strategy + Talent + Culture = Our Differentiator
At MVB, our culture is our differentiator and part of our corporate DNA. Our Purpose
and Values aren’t just words, they define the environment in which our Team Members
thrive. We like to say our culture is our secret sauce, vital to our continued growth. During
our 20-plus-year history, MVB has grown from a community bank with 35 employees to a
forward-thinking, NASDAQ-listed, Russell 2000® company with nearly 500 Team Members
living in more than 40 states. Together, we think bigger, and we do bigger!
In addition to our Purpose and Values, one additional motivator drives us. That’s our
Moonshot – which is to positively impact the financial lives of 1 billion people, one life at a
time. That’s what inspires us.
Our Why
To positively impact the financial lives
of one billion people, one life at a time
Purpose
Trusted partners on the financial
frontier, committed to your success
Values
Respect, Love & Caring
Trust
Commitment
Adaptive
Teamwork
ANNUAL REPORT 2022
1
INVESTING IN OUR COMMUNITIES
As MVB grows and evolves, our continued commitment to our teammates, clients, communities
and shareholders remains steadfast. Social impact ties into our value of Respect, Love and Caring.
In 2022, MVB focused on larger projects with meaningful impact, as well as providing community service,
technical assistance and leadership to numerous community organizations. Overall, Team MVB performed
816 hours of community service in 2022, which includes 349 activities for 48 organizations.
FHLBank Pittsburgh Affordable Housing Program (AHP)
FHLBank Pittsburgh (FHLBank) announced in December 2022 it awarded a total of $1.5 million to four North
Central West Virginia projects, in partnership with MVB Bank. These awards are part of the 2022 funding
round of FHLBank’s AHP grants and voluntary housing grant initiative.
North Central West Virginia awarded projects include the following:
• Morgantown Community Resources, Inc., was awarded $498,993 toward a building rehabilitation
project that will provide housing and a counseling center in Morgantown for 26 veterans experiencing
homelessness, addiction or difficulties living a productive life.
• Mon Valley Habitat for Humanity, Inc., was awarded $450,000 and will build three new affordable housing
units on blighted lots in the heart of Fairmont on Robinson Street.
• Clarksburg-Harrison Regional Housing Authority was awarded $311,940 to rehabilitate five owner-
occupied units in the Monticello neighborhood of Clarksburg.
• Mountain Opportunities Corporation was awarded $311,940 to rehabilitate five homes in Shinnston.
GameChanger One Pill Can Kill Campaign
MVB is a founding corporate sponsor of the GameChanger program, an initiative designed to combat opioid
and substance misuse. Based in West Virginia, the program seeks to educate, support and empower youth
to make healthy choices as they prepare to be leaders of tomorrow. MVB President Don Robinson is one
of the three leaders who have been involved in the program since day one. MVB Director John Ebert also
serves as a board member of this charity.
In a continuing effort to combat the growing opioid and substance misuse problem and the fentanyl crisis
through prevention education, GameChanger in 2022 launched a new prevention education program
named One Pill Can Kill. Endorsed by the United States Drug Enforcement Administration, the program
features a 35-minute film hosted by former West Virginia University women’s basketball standout Meg
Bulger and educates students, parents and guardians about the dangers of purchasing pills laced with
deadly fentanyl over the internet or from other sources.
Produced by FGPG Productions of Los Angeles, the film will be made available to all public and private
middle and high schools in West Virginia, reaching more than 200,000 students.
The GameChanger One Pill Can Kill Program complements its overall Prevention Education Program
designed in conjunction with the Prevention Solutions Team at The Hazelden Betty Ford Foundation.
This three-year comprehensive program is currently in 12 pilot schools in West Virginia with 50 additional
schools scheduled for implementation in fall 2023.
ANNUAL REPORT 2022
2
Volunteer Income Tax Assistance (VITA)
The IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly programs offer free basic tax
return preparation to qualified individuals. The VITA program has operated for over 50 years, offering free tax help
to people who generally make $58,000 or less; persons with disabilities; and limited English-speaking taxpayers.
For the 2022 tax season, MVB recruited six Team Members to volunteer as remote tax preparers and quality
reviewers for Tygart Valley United Way’s VITA program in North Central West Virginia. Due to unexpected staff
turnover and delayed AmeriCorps assistance, Tygart Valley United Way was in great need of support. MVB
volunteers stepped in to be the primary tax preparers and quality reviewers for the first three weeks of the VITA
season.
Through this initiative, MVB Team Members dedicated more than 100 cumulative hours toward training and
volunteering. Over the three weeks of volunteering, MVB Team Members assisted with 32 tax returns for a
grand total of $52,219 in refunds with an average of $1,631.84 per return. Of these 32 returns, the average
adjusted gross income was $20,903.28, with a total of $9,494 returned through Earn Income Tax Credit and
$8,909 through the enhanced Child Tax Credit.
Real Men Wear Pink
MVB Bank has participated in the West Virginia Real Men Wear Pink campaign to fight
breast cancer for the past five years, three of which have resulted in first-place state titles.
MVB’s five combined campaigns have raised $72,955 that has been allocated to breast
cancer research and support for breast cancer patients and their families through the
American Cancer Society.
Tony Merendino
Tony Merendino, Commercial Loan Officer at MVB Bank, was named West Virginia’s Real Man of 2022 as a
result of his first-place victory in the American Cancer Society’s annual Real Men Wear Pink of West Virginia
campaign, which took place throughout the month of October 2022. Merendino raised funds from MVB Bank
Team Members by hosting company-wide conversations and virtual events, and from his local community by
hosting a business after-hours event and networking with friends and colleagues wherever he went during
the month of October.
Achievement of Carbon Neutral Status
MVB continues to partner with Boston-based sustainability company, GreenFeet, to gather and calculate data
for a collective Emissions Report for all MVB business and banking center locations. Using the GreenFeet
platform, we activity manage data so we can track future sustainability goals. On June 14, 2022, MVB
announced the achievement of Carbon Neutral Status with plans to continue to maintain this status in 2023.
Solar Panel Installation at MVB Banking Centers
Supporting the local business and environment, MVB entered into an agreement to install solar panels with
Parthian Battery Solutions, LLC at MVB’s banking center locations throughout North Central West Virginia. The
first MVB solar panel installation took place in March 2021 in Morgantown, and the project expanded in 2022
to two locations in Fairmont. In 2023, we will complete an installation in Bridgeport. With this effort, 50% of our
banking centers will be utilizing a form of renewable energy.
ANNUAL REPORT 2022
3
A MESSAGE FROM OUR CEO
The events of the past few years have been
tumultuous, and 2022 was no exception. Guided by our
core values, Team MVB again rose to the occasion and
for that, I am immensely grateful.
We met challenges head-on, capitalized on opportunity,
welcomed new partners and continued to forge a path of
transformative change for our company.
Several years ago, we set out to reposition our business
model for what we saw as the coming convergence of
banking and technology. From our strong foundation, we
also sought to build a more resilient business that would
thrive through the economic cycle.
MVB CEO Larry F. Mazza
To that end, we targeted improvement in our funding base, and today I’m pleased to
report our great success in building a differentiated, peer-leading core funding profile.
Primarily through MVB’s market leadership in online gaming and other Fintech initiatives,
we have transformed our deposit base, driving noninterest bearing deposits to 48% of
total deposit funding at year-end 2022 from 8% at year-end 2015, a compound annual
growth rate of 48%.
ANNUAL REPORT 2022
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DRIVEN TO SUCCESS
ANNUAL REPORT 2022
5
Today, MVB banks 43 clients that in the aggregate command 85% market share of the online
sports betting niche. According to research published by JPMorgan Chase & Co., total Gross Gaming
Revenue (GGR) grew from $0.9 billion in 2019 to $7.7 billion in 2022 and is expected to increase to $12.8
billion by 2025, reflecting the continued expansion of legalized sports betting. Given MVB’s clear market
leadership position, we are excited by the potential growth opportunities ahead.
ANNUAL REPORT 2022
6
In March 2022 at MVB’s first-ever Investor Day event, we introduced our new MVB F-1 Success
Loves Speed Strategic Plan. Broadly speaking, the plan objective is to achieve $100 million
of incremental revenue by year-end 2024. Building on the success of our core funding initiatives, a
key aspect of this new plan is to transform and diversify the asset side of our balance sheet through the
development of a robust loan growth engine.
I’m pleased to report that progress on this front accelerated significantly during 2022. Loan balances grew
27% for the year, driven by a diverse set of strategic lending partnerships, SBA lending and other new
initiatives. This continues a trend in which loans have grown at a compound annual growth rate of 16%
since 2017.
These purposeful actions to further develop our core funding profile and loan growth engine
coincided in 2022 with a rapidly shifting interest rate environment, which played to MVB’s
established and emerging strengths. Throughout the year, MVB realized the benefit of exceedingly
strong growth produced at increasingly higher loan yields. Anchored by our large base of noninterest
bearing Fintech, title and specialty deposits, this favorable balance sheet mix drove significant net interest
margin expansion, net interest income growth and core earnings improvement.
Specifically, net interest margin for the year increased to 4.04% from 3.26% and net interest income grew by
45% as compared to the prior year. Notably, our net interest margin now compares quite favorably to bank
sector peers, which was a key objective when we set out to transition our business several years ago.
ANNUAL REPORT 2022
7
Due in large part to monetary policy actions undertaken by the Federal Reserve (e.g. higher interest rates;
quantitative tightening) to drain excess liquidity from the system in an effort to curb inflation, banks face
considerable uncertainty heading into 2023. Against this backdrop, many bank sector peers have struggled
to retain and grow low-cost deposits. While not immune from these pressures, MVB stands relatively well-
positioned, given funding growth drivers that are less correlated to the traditional “red ocean” economy and
interest rate cycle, and more closely tied to the build-out of new, “blue ocean” opportunities in which our
company enjoys first mover advantage and commanding market share.
Importantly, our forward progress is not derived from taking on excess risk. Our foremost priority at MVB is
the safety and soundness of the institution, a philosophy that serves us well during challenging times. During
the just-completed year, MVB’s foundational strength remained intact. Nonperforming and classified loans
declined sharply over the course of the year, and while net charge-offs increased, this was due primarily to
the changing mix of our consumer loan portfolio, and one-off commercial credit write-offs that we do not
consider to be indicative of broad-based deterioration.
Capital strength, another pillar of MVB’s foundation, was maintained. Reflecting MVB’s strong capital position
and earnings profile, the Company elected to increase the quarterly cash dividend over the course of the
year by 13.3%, to $0.17.
We at MVB pride ourselves on our core values; among these is being Adaptive. As Charles Darwin noted, it is
not the strongest or the smartest of the species that survives, it is the most adaptable to change. As market
conditions evolved over the course of the past year, MVB took decisive action.
ANNUAL REPORT 2022
8
In late October, we announced cost rationalization initiatives that will ultimately reduce expenses by 12%
(from the Q3 2022 annualized level) by the end of Q3 2023. Also, of the 14 growth vehicles we highlighted
at MVB’s Investor Day in March 2022, characterized as “fast track,” “qualifying track” and “test track” based
on their respective levels of maturity, we’ve since removed five of these vehicles and deemphasized three
others for now, as we sharpen our focus amidst more challenging market conditions.
During 2022, we welcomed several new partners into the fold. I’d like to congratulate Dan Holt, Lindsay
Slader and Jan Owen for their appointments to our Board of Directors, and to W. Marston (“Marty”) Becker,
who assumed the role of Chairman. In October 2022, we completed the execution of our strategic minority
investment in Warp Speed Holdings LLC. In August 2022, we announced our intention to acquire Integrated
Financial Holdings Inc. (OTCQX: IFHI); subsequently, in January 2023, we announced that both parties had
received shareholder approval of the merger agreement. We look forward to their contributions as trusted
partners on the financial frontier.
Finally, I’d be remiss if I didn’t mention MVB’s receipt of several awards during the year. For the second
consecutive year, MVB was named one of American Banker Magazine’s Best Banks to Work For. During
2022, Great Place to Work and Fortune magazine honored MVB as one of the 2022 Best Workplaces in
Financial Services and Insurance. Also, Quartz Media named MVB as one of the 2022 Best Companies for
Remote Workers. These awards and our continued success are a testament to our teammates, culture and
values.
As we look to a new year, I would like to thank our Team Members, Board of Directors, clients, communities,
shareholders and friends for your continued support.
The best is yet to come.
Larry F. Mazza
CEO, MVB Financial Corp. and MVB Bank
ANNUAL REPORT 2022
9
MVB BOARD OF DIRECTORS
W. Marston
“Marty” Becker
John W. Ebert
Daniel W. Holt
Gary A. LeDonne
Larry F. Mazza
Dr. Kelly R. Nelson
Jan L. Owen
Lindsay A. Slader
Cheryl D. Spielman
ANNUAL REPORT 2022
10
SHAREHOLDER AND CONTACT INFORMATION
Shareholders Meeting
The Annual Meeting of Shareholders of MVB Financial Corp. (MVB) will be held via live webcast
at 10:00 a.m. EDT on May 9, 2023. This meeting is for the purpose of considering and voting
upon certain proposals. Only those shareholders of record at the close of business on March
20, 2023, shall be entitled to notice of the meeting and to vote at the meeting.
Transfer Agent & Shareholder Inquiries
The corporation’s transfer agent is Computershare. Inquiries concerning transfer
requirements, lost certificates, and change of address should be directed to:
Computershare
462 South 4th Street
Louisville, KY 40202
www.computershare.com
Investor Inquiries
Investor inquiries to the Company should be directed to:
Marcie Lipscomb
(304) 285-0020
mlipscomb@mvbbanking.com
All Other Inquiries
All other inquiries to the Company should be directed to:
MVB Financial Corp.
Attn: Investor Relations
301 Virginia Avenue
Fairmont, WV 26554
(844) MVB-BANK (844-682-2265)
Form 10-K
A copy of the MVB Financial Corp. Form 10-K for 2022, which has been filed with the SEC, is
available without attachments at no charge upon written request and is also available at http://
ir.mvbbanking.com.
Inquiries should be directed to the Investor Relations contact above.
Independent Registered Accounting Firm
FORVIS, LLP
910 E. St. Louis Street
Suite 400
Springfield, Missouri 65806
Stock Market Listing
MVB Financial Corp. stock is traded on The Nasdaq Capital Market under the symbol: MVBF.
ANNUAL REPORT 2022
11
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-38314
MVB Financial Corp.
(Exact name of registrant as specified in its charter)
West Virginia
(State or other jurisdiction of
incorporation or organization)
301 Virginia Avenue, Fairmont, WV
(Address of principal executive offices)
20-0034461
(I.R.S. Employer Identification No.)
26554
(Zip Code)
Registrant’s telephone number, including area code (304) 363-4800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Common Stock, $1.00 Par Value Per Share
MVBF
Name of each exchange on
which registered
The Nasdaq Stock Market LLC
(Nasdaq Capital Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
Act.
of
Exchange
the
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
Based upon the closing price of the common shares of the registrant on June 30, 2022 of $31.11 as reported on the Nasdaq Capital Market, the aggregate market
value of the common shares of the registrant held by non-affiliates during that time was $337.7 million. For this purpose, certain executive officers and directors
are considered affiliates. This calculation does not reflect a determination that such persons are affiliates for any other purpose.
As of March 15, 2023, the registrant had 12,621,580 shares of common stock outstanding with a par value of $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the 2022 Annual Meeting of Shareholders are incorporated by reference into Part III of this
Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
[RESERVED]
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
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Forward-Looking Statements:
Statements in this Annual Report on Form 10-K that are based on factors other than historical data are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide
current expectations or forecasts of future events and include, among others, statements with respect to the beliefs, plans,
objectives, goals, guidelines, expectations, anticipations and future financial condition, results of operations and performance of
the Company and its subsidiaries (collectively, “we,” “our,” or “us”), including the MVB Bank, Inc. (the “Bank”), and statements
preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,”
"target," “expect,” “intend,” “plan,” “projects,” “outlook” or the negative of those terms or similar expressions.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing our
view as of any subsequent date. Forward-looking statements involve significant risks and uncertainties (both known and
unknown) and actual results may differ materially from those presented, either expressed or implied, including, but not limited to,
those presented in Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations. Factors that
might cause such differences include, but are not limited to:
l changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather
deposits, including the pace of recovery following the continued effects of the Coronavirus Disease ("COVID-19") pandemic;
l industry factors and general economic and political conditions and events, such as economic slowdowns or recessions,
nationally and in the markets in which we operate;
l changes in financial market conditions in areas in which we conduct operations, including, without limitation, changes in
deposit flows, the cost of funds, reduced rates of business formation and growth, commercial and residential real estate
development and real estate prices;
l interest rate fluctuations in response to economic conditions and the policies of various governmental and regulatory
agencies;
l evolving legislation and heightened regulatory scrutiny in emerging FinTech and banking-as-a-service sectors and our ability
to recruit and retain employees with industry expertise to comply with such legislation and regulatory scrutiny;
l ability to adapt to technological change and to successfully execute business plans, manage risks and achieve objectives,
including strategies related to investments in financial technology (“Fintech”);
l market, economic, operational, liquidity, credit and interest rate risks associated with our business;
l changes, volatility and disruption in local, national and international political and economic conditions, including, without
limitation, major developments such as wars, natural disasters, epidemics and pandemics, military actions, terrorist attacks
and geopolitical conflict, including the continuing escalation and conflict in Ukraine;
l climate change, severe weather and natural disasters which could have a material adverse effect on our business, financial
condition and results of operations;
l the length, severity, magnitude and duration of the COVID-19 pandemic and other pandemics in the future and the direct and
indirect impacts of the COVID-19 pandemic and other pandemics in the future, including their impact on our financial
condition and business operations, and any governmental or societal responses thereto;
l unanticipated changes in our liquidity position, including, but not limited to, changes in access to sources of liquidity and
capital to address our liquidity needs;
l deposits include certain concentrations with large customers and industries;
l the quality and composition of our loan and securities portfolios;
l ability to successfully conduct acquisitions and integrate acquired businesses and potential difficulties in expanding
businesses in existing and new markets;
l ability to successfully manage credit risk and the sufficiency of allowance for credit losses;
l increases in the levels of losses, customer bankruptcies, bank failures, claims and assessments;
l changes in government legislation and accounting policies, including the Dodd-Frank Act and Economic Growth, Regulatory
Relief and Consumer Protection Act (“EGRRCPA”);
l uncertainty about the transition away from the London Inter-bank Offered Rate (“LIBOR”) and to the Secured Overnight
Financing Rate ("SOFR") as the primary interest rate benchmark;
l competition and consolidation in the financial services industry;
l new legal claims against us, including litigation, arbitration and proceedings brought by governmental or self-regulatory
agencies or changes in existing legal matters;
l success in gaining regulatory approvals, when required, including for proposed mergers or acquisitions;
l changes in consumer spending and savings habits, including demand for loan products and deposit flow;
1
l increased competitive challenges and expanding product and pricing pressures among financial institutions and non-bank
financial companies;
l operational risks or risk management failures by us or critical third parties, including without limitation, with respect to data
processing, information systems, technological changes, vendor problems, business interruptions and fraud risk;
l increasing risk of continually evolving, sophisticated cybersecurity activities faced by financial institutions and others that
could result in, among other things, theft, loss, misuse or disclosure of confidential client, customer or corporate information
or assets and a disruption of computer, software or network systems and the potential impact from such risks, including
reputational damage, regulatory penalties, loss of revenues, additional costs (including repair, remediation and other costs),
exposure to litigation and other financial losses;
l risks, uncertainties and losses involved with the developing cryptocurrency industry, including the evolving regulatory
framework;
l failure or circumvention of internal controls;
l legislative or regulatory changes which adversely affect our operations or business, including the possibility of increased
regulatory oversight due to changes in the nature and complexity of our business model;
l increased emphasis by regulators on federal and state consumer protection laws that extensively govern customer
relationships;
l changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or
regulatory agencies, including the impact of adopting the current expected credit losses (“CECL”) standard;
l concentration risk in our deposit base, including risk of losing large clients and concentration in certain industries, such as
gaming deposits; and
l costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation (“FDIC”) insurance coverage
levels.
Certain risk factors that might cause actual results to differ materially from those presented are more fully described in this
Annual Report on Form 10-K within Part I, Item 1A – Risk Factors, included elsewhere in this report and from time to time, in
other filings with the Securities and Exchange Commission (“SEC”). Actual results may differ materially from those expressed in
or implied by any forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. Except to the extent required by law, we specifically disclaim any
obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included
herein to reflect future events or developments.
REFERENCES
Unless the context otherwise requires, references in this report to “MVB Financial,” “MVB,” the "Company,” “we,” “us,” “our,”
and “ours” refer to the registrant, MVB Financial Corp., and its subsidiaries consolidated for the purposes of its financial
statements.
2
ITEM 1. BUSINESS
Corporate Overview
PART I
MVB Financial Corp. is a financial holding company organized as a West Virginia corporation in 2003 that operates principally
through its wholly-owned subsidiary, MVB Bank, Inc. (the "Bank"). The Bank’s consolidated subsidiaries include MVB
Insurance, LLC, a title insurance company (“MVB Insurance”), ProCo Global, Inc. (“Chartwell,” which does business under the
registered trade name Chartwell Compliance), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Edge Ventures, LLC (“Edge
Ventures”). The Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”) and Edge Ventures wholly-owns Victor
Technologies, Inc. (“Victor”), as well as controlling interests in MVB Technology, LLC (“MVB Technology”) and Flexia
Payments, LLC (“Flexia”). The Bank also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”)
and MVB Financial Corp. owns equity method investments in Ayers Socure II, LLC ("Ayers Socure II") and Warp Speed
Holdings, LLC ("Warp Speed").
Edge Ventures serves as a management company providing oversight, alignment and structure for MVB’s Fintech companies and
allocates resources to help incubate venture businesses and technologies acquired and developed by MVB.
Through our professional services entities, which include Chartwell, Paladin Fraud and Trabian, we provide compliance and
consulting solutions to assist Fintech and corporate clients in building digital products and meeting their regulatory compliance
and fraud defense needs.
We have acquired a number of financial institutions and other financial services businesses. Future acquisitions and divestitures
will be consistent with our strategic direction. Our most recent acquisition activity includes the following:
l In March 2022, the Bank entered into an agreement to acquire a 37.5% interest in Warp Speed, a holding company whose
subsidiaries are focused on residential and commercial loan origination and servicing, business and personal insurance
brokerage and data analytics. In April 2022, we assumed the Bank's obligations under the Purchase Agreement. Effective
October 1, 2022, we completed the purchase with $38.4 million in cash, plus 313,030 shares of newly-issued common stock
of MVB, with an aggregate value of $9.6 million, based on the volume-weighted average closing price for shares of MVB
common stock for the 20 trading days ending the day prior to closing.
l In August 2022, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with
Integrated Holdings, Inc. (“IFH”). The Merger Agreement provided that, upon the terms and conditions therein, IFH would
merge with and into MVB (the “Merger”), with MVB continuing as the surviving corporation. Following the Merger, West
Town Bank & Trust (“West Town Bank”), a state bank chartered under the laws of Illinois and wholly-owned subsidiary of
IFH, would merge with and into the Bank, with the Bank as the surviving bank. In January 2023, the Merger Agreement was
approved by the board of directors and shareholders of MVB and IFH. We are awaiting required regulatory approvals in order
to execute the Merger.
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Business Overview
We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as
well as Fintech banking.
CoRe Banking
We offer our customers a full range of products and services including:
l Various demand deposit accounts, savings accounts, money market accounts and certificates of deposit;
l Commercial, consumer and real estate mortgage loans and lines of credit;
l Debit cards;
l Cashier’s checks;
l Safe deposit rental facilities; and
l Non-deposit investment services offered through an association with a broker-dealer.
Fintech Banking
We provide innovative strategies to independent banking and corporate clients throughout the United States. Our dedicated
Fintech sales team specializes in providing banking services to corporate Fintech clients, with a primary focus on operational risk
management and compliance. Managing banking relationships with clients in the payments, digital savings, cryptocurrency,
crowd funding, lottery and gaming industries is complex, from both an operational and regulatory perspective. We believe that the
complexity of serving these industries causes them to be underserved with quality banking services and provides us with a
significantly expanded pool of potential customers. When serviced in a safe and efficient manner, we believe these industries
provide a source of stable, low cost deposits and noninterest, fee-based income. We thoroughly analyze each industry in which
our customers operate, as well as any new products or services provided, from both an operational and regulatory perspective.
Edge Ventures
Edge Ventures, a wholly-owned subsidiary of the Bank, was created as a management company to provide oversight, alignment
and structure for our Fintech companies and allocate resources to help incubate venture businesses and technologies acquired and
developed by us. Subsidiaries of Edge Ventures include MVB Technology, Flexia and Victor, which are developing software to
enhance the products and services available to our customers.
MVB Technology
MVB Technology is a 93.4% owned subsidiary of Edge Ventures. MVB Technology's primary product, GRAND, provides fast,
cost effective payments from a modern bank account. Account holders fund their GRAND account using a bank account, card or
direct deposit and can then seamlessly transfer funds between their GRAND account and their favorite apps. GRAND helps drive
significant savings for online merchants through a streamlined process for transfers of customer funds.
Flexia
Edge Ventures owns an 80% interest in Flexia. Flexia is a Las Vegas-based Fintech company that licenses technology which
allows users to access a reloadable account that combines a debit card account and casino gaming accounts into one card and to
utilize them for non-cash transactions at participating casinos. Flexia's technology license provides Flexia with exclusive use of
the software in the United States and Canada.
Victor
Victor is a wholly-owned subsidiary of Edge Ventures. Victor was formed to develop technology to make it faster and easier to
launch and scale a broad spectrum of Fintech solutions for the gaming, payments, banking-as-a-service and digital asset sectors.
Within a matter of weeks, Fintech developers can build solutions to manage and move money with developer-friendly application
programming interfaces. Banks can onboard and manage more programs with Victor’s tailored due diligence, risk assessment and
oversight workflow tools. Recognizing the complexity of the Fintech ecosystem, Victor also supports seamless integration with a
proven network of value-added technology and service providers.
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Professional Services
Chartwell
Chartwell is a wholly-owned subsidiary of the Bank. Chartwell provides integrated regulatory compliance, state licensing,
financial crimes prevention and enterprise risk management services that include consulting, outsourcing, testing and training
solutions. Chartwell has expanded its services to both Fintech clients and banks, in coordination with the Bank’s current
compliance officers, to help create and implement strategy and provide expert compliance resources to aid the Bank in carrying
out stringent and faster new client due diligence. In February 2023, Ankura Consulting Group, LLC acquired Chartwell from the
Bank.
Paladin Fraud
Paladin Fraud is a wholly-owned subsidiary of the Bank. Paladin Fraud provides an extensive and customizable suite of fraud
prevention services for merchants, credit agencies, Fintech companies and other vendors to help clients and partners defend
against threats.
Trabian
The Bank owns an 80.8% interest in Trabian. Trabian builds digital products and web and mobile applications for forward-
thinking community banks, credit unions, digital banks and Fintech companies. Consistent with the Bank's mission to pursue
technology to accelerate community finance, Trabian has created technology platforms that have been instrumental to the success
of many of today’s leading Fintech companies.
Primary Market Areas and Customers
We consider our primary market area for CoRe banking services to be comprised of North Central West Virginia and Northern
Virginia, where we currently operate eight full-service branches: six in West Virginia and two in Virginia. We consider our
Fintech banking market to be customers located throughout the entire United States.
We believe that the current economic climate in our primary market areas reflect economic climates that are consistent with the
general national economic climate. Unemployment in the United States was 3.3%, 3.7% and 6.5% for December 2022, 2021 and
2020, respectively.
COVID-19 Pandemic
Since 2020, economies throughout the world have been severely disrupted as a result of the COVID-19 pandemic and its
subsequent variants. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on
our business and our clients, providers and third parties. The extent of such impact depends on future developments, including
resurgences, new variants or future pandemics, which are highly uncertain and cannot be predicted. We continue to actively
monitor and respond to any ongoing effects of the COVID-19 pandemic.
Segment Reporting
We have identified five reportable segments: CoRe banking; mortgage banking; professional services; Edge Ventures; and
financial holding company.
Revenue from CoRe banking activities consists primarily of interest earned on loans and investment securities and service charges
on deposit accounts. Our Fintech division is included in the CoRe banking segment.
Revenue from our mortgage banking segment is primarily comprised of our share of net income or loss from mortgage banking
activities of our equity method investments in ICM and Warp Speed. As we have elected to record our proportionate share of
earnings of Warp Speed on three month lag, results of Warp Speed are not included in our consolidated statement of income for
the year ended December 31, 2022 .
Professional services is the aggregate of Chartwell, Trabian and Paladin Fraud. Revenue from these operating segments is made
up of primarily of professional consulting income to banks and Fintech companies.
5
Edge Ventures is the aggregate of Victor, MVB Technology, Flexia and the Edge Ventures holding company. These operating
segments are aggregated together as Edge Ventures and are all start-up Fintech software development companies.
Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.
For more information about each of our reportable segments, please refer to Note 22 – Segment Reporting accompanying the
consolidated financial statements included elsewhere in this report.
Commercial Loans
At December 31, 2022, the Bank had outstanding approximately $1.61 billion in commercial loans, including commercial and
industrial, commercial real estate and financial loans. These loans represented approximately 68% of the total aggregate loan
portfolio as of that date.
Commercial lending entails significant additional risks as compared with consumer lending (i.e., single-family residential
mortgage lending and installment lending). In addition, the ability of a borrower to make payments on commercial loans typically
depends on adequate cash flow of a business and thus may be subject to adverse conditions in the general economy or in a specific
industry to a greater extent than consumer loans. Loan terms include amortization schedules commensurate with the purpose of
each loan, the source of repayment and the risk involved. The primary analysis technique used in determining whether to grant a
commercial loan is the review of a schedule of estimated cash flows to evaluate whether anticipated future cash flows will be
adequate to service both interest and principal due. In addition, the Bank reviews collateral to determine its value in relation to the
loan in the event of a foreclosure.
The Bank evaluates all new commercial loans and the Bank's Credit Department facilitates an annual loan review process that
ensures that a significant portion of the commercial loan portfolio, typically a minimum of 50%, is reviewed each year under a
risk-based approach. If deterioration in credit worthiness has occurred, the Bank takes prompt action designed to assure
repayment of the loan. Upon detection of the reduced ability of a borrower to meet original cash flow obligations, the loan is
considered for possible downgrading, and may be considered classified and potentially placed on non-accrual status.
Residential Mortgage Loans
At December 31, 2022, the Bank had approximately $628.2 million of residential real estate loans, home equity lines of credit and
construction mortgages outstanding, representing 26% of total loans outstanding.
The Bank generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the
appraised value of the real estate securing the loan, unless the borrower obtains private mortgage insurance for the percentage
exceeding 80%. Occasionally, the Bank may lend up to 100% of the appraised value of the real estate. Loans made in this lending
category are generally one to ten year adjustable rate, fully amortizing to maturity mortgages. The Bank also originates fixed rate
real estate loans and generally sells these loans in the secondary market. Most real estate loans are secured by first mortgages with
evidence of title in favor of the Bank in the form of an attorney’s opinion of the title or a title insurance policy. The Bank also
requires proof of hazard insurance with the Bank named as the mortgagee and as the loss payee. Full appraisals are obtained from
licensed appraisers for the majority of loans secured by real estate. In addition, the Bank purchases residential real estate loans
from ICM.
Residential construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on
improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of
the property’s value at completion of construction and the estimated cost (including interest) of construction. If the estimate of
construction cost proves to be inaccurate, we may advance funds beyond the amount originally committed to permit completion of
the project. Also, note that with respect to construction loans, the Bank generally makes loans to the homeowner, rather than to
the builder. At December 31, 2022, residential mortgage construction loans to individuals totaled approximately $90.6 million
with an average remaining life of three months and are generally refinanced to a permanent loan upon completion of the
construction.
Consumer Loans
At December 31, 2022 the Bank had approximately $131.6 million of consumer loans, including installment loans and personal
lines of credit, representing 6% of total loans outstanding. Consumer loans include installment loans used by clients to purchase
automobiles, boats and recreational vehicles.
6
Credit risk for consumer loans is similar to residential real estate loans described above as it is subject to the borrower’s
continuing financial stability and the value of the collateral securing the loan. This segment also includes subprime loans
purchased from a third-party originator related to purchases of personal automotive vehicles in Puerto Rico. Credit risk is unique
in comparison to the remainder of the consumer segment as these loans are being provided to consumers that cannot typically
obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer
loan.
Competition
Our business experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes
principally from other commercial banks, savings associations, insurance companies, governmental agencies, credit unions,
brokerage firms and pension funds. The primary factors in competing for loans are interest rates, loan terms and overall lending
services. Competition for deposits comes from other commercial banks, savings associations, money market funds and credit
unions, as well as from insurance companies and brokerage firms. Competition for deposits also comes from other Fintech-
focused banks and neobanks, which are online-only financial institutions. The primary factors in competing for deposits are
interest rates paid on deposits, account liquidity, convenience of office location, technology offerings and overall financial
condition.
Fintech companies also compete with us directly and in partnership with other banks and financial services providers in lending,
deposits, contactless payment cards, digital wallets and mobile payments solutions, installment or other buy now pay later
methods, real-time payment systems, peer-to-peer payments, card readers and other point of sale technologies, tools that simplify
merchant payments and other markets. We believe that our approach of integrating banking services with technology provides
flexibility, which enables the Bank to offer an array of banking products and services. ICM and Warp Speed face significant
competition from traditional financial institutions, Fintech-focused banks and neobanks and other national and local mortgage
banking operations.
We operate under a “needs-based” selling approach that management believes has proven successful in serving the financial needs
of most customers. It is not our strategy to compete solely on the basis of interest rates. Management believes that a focus on
customer relationships and service will promote our customers’ continued use of our financial products and services and will lead
to enhanced revenue opportunities. We are also involved in innovative strategies to provide independent banking to corporate
clients throughout the United States by leveraging recent investments in Fintech companies.
Human Capital Resources
As of December 31, 2022, we employed 477 team members. We seek to attract, retain and develop the most talented team
members possible, regardless of location, by promoting a strong, positive culture, offering competitive compensation, maintaining
a safe and healthy workplace, investing in training and education and emphasizing open communication with management.
Culture
We remain committed to maintaining and growing our culture by leveraging our purpose, values and associated behaviors. We
have successfully operationalized our Culture Initiative by embedding these elements into our day-to-day operations. Examples of
this can be found in our talent acquisition, onboarding, education and performance processes. We take time to listen to our team
members, to understand areas of opportunity and to provide support that enables us to execute on our business strategy.
Diversity Equity and Inclusion
Our goal is to create and sustain a visible commitment to diversity, equity and inclusion, recognizable to current and future team
members, clients and partners. We believe leveraging differences in thoughts, experiences, backgrounds and perspectives drives
team member engagement, innovation and financial success.
We established a Diversity, Equity and Inclusion Team Member Resource Group, composed of company volunteers across the
organization. We believe educating our team members about events and subjects related to diversity, equity and inclusion creates
a more inclusive culture and enables leaders across the organization to develop diverse teams and fosters collaboration and
innovation.
Total Rewards
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To attract and retain team members, we consistently assess the labor market and seek to improve our benefit and compensation
programs. We offer a competitive salary structure with short-term and long-term performance incentives. Our total compensation
programs are also designed to promote the interests of our team members and shareholders, while enabling us to attract and retain
top-quality executive talent.
We educate, support and empower team members and their dependents to improve and maintain their overall health and well-
being through healthy lifestyle choices and to create a culture of wellness. We offer competitive benefits plans, wellness
incentives, flexible work arrangements, parental leave and community service opportunities. We also support team members’
financial planning for the future by offering 401(k) plan matching, immediate vesting and access to retirement advisors.
Team Members Learning and Development
We remain committed to education and development for our team members. The remote work environment has created additional
opportunities for virtual and online learning. In 2022, team members were assigned position-specific curricula designed to support
ongoing compliance requirements and development within their individual positions. Team members experience on the job
training, as well as other company organized opportunities. In 2022, we held 156 internal learning events that provided 228 total
hours, or an average of 4.76 hours per week, of learning opportunities facilitated by our Learning & Development team.
We have a 40 hour annual education requirement for each team member as part of our annual performance evaluation process.
This also includes additional courses/content team members experience outside of our Learning Management System.
We also offer team member education assistance and tuition reimbursement programs. In 2022, 28 team members participated in
education assistance while four team members were approved for the tuition reimbursement program. The education assistance
program provides support to team members wanting to acquire training outside of MVB in support of their position and/or annual
certification requirements. Tracking these requests allows us to have visibility into the interest of team members. The tuition
reimbursement program provides support to team members who wish to further their education with accredited institutions.
Communication, Recognition and Engagement
We believe it is important to provide our team members with open communication with management. Our internal
communication structure includes various opportunities for team members to interact with our chief executive officer and other
members of the executive leadership team, including monthly all-hands town hall meetings. At the meetings, our chief executive
officer and members of the executive leadership team present informational topics in sessions open to all team members.
Supervision and Regulation
We are subject to extensive regulation under federal and state banking laws. Our earnings are affected by general economic
conditions, management policies, changes in state and federal laws and regulations and actions of various regulatory authorities,
including those referred to in this section. The following discussion describes elements of an extensive regulatory framework
applicable to bank holding companies, financial holding companies, banks and their affiliates and contains specific information
about us. Regulation of banks, bank holding companies, financial holding companies and their affiliates is intended primarily for
the protection of depositors, the insurance fund of the Federal Deposit Insurance Corporation (“FDIC”) and the stability of the
financial system, rather than for the protection of our shareholders and creditors.
In addition to banking laws, regulations and regulatory agencies, we are subject to various other laws, regulations, supervision and
examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of us and the
Bank and our ability to make distributions to shareholders. State and federal law govern the activities in which the Bank engages,
the investments it makes, the aggregate amount of loans that may be granted to one borrower and other similar areas of the Bank's
business. Various consumer and compliance laws and regulations also affect us and the Bank's operations.
The following discussion is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are
described herein. Such statutes, regulations and policies are continually under review by Congress and state legislatures and
federal and state regulatory agencies. The likelihood and timing of any changes and the impact such changes may have on us or
the Bank is impossible to determine with any certainty. A change in statutes, regulations or regulatory policies applicable to us
and our subsidiaries could have a material effect on our business, financial condition or results of operations.
Financial Regulatory Reform
8
During the past several years, there has been a significant increase in regulation and regulatory oversight for United States
financial services firms such as us, primarily resulting from the enactment of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the “Dodd-Frank Act”) in 2010. The Dodd-Frank Act is extensive, complicated and comprehensive legislation
that impacts many aspects of a banking organization, representing a significant overhaul of many aspects of the regulation of the
financial services industry. The Dodd-Frank Act implements numerous and far-reaching changes that affect financial companies,
including banks, bank holding companies and financial holding companies, such as us. The Dodd-Frank Act imposes prudential
regulation on depository institutions and their holding companies, which requires financial firms to control risks and hold
adequate capital as defined by capital requirements and liquidity requirements and by the imposition of concentration risk limits.
As such, we are subject to more stringent standards and requirements with respect to: (i) bank and non-bank acquisitions and
mergers; (ii) the “financial activities” in which we engage as a financial holding company; (iii) affiliate transactions; and (iv)
proprietary trading and investing in private equity or hedge funds, among other provisions.
In May 2018, the EGRRCPA was enacted, which repealed or modified certain provisions of the Dodd-Frank Act and eases
regulations on all but the largest banks. These modifications, among other changes: (i) exempt banks with less than $10 billion in
assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) eliminate the
requirement for appraisals for certain real estate transactions valued at less than $400,000 in rural areas; (iii) exempt banks that
originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act’s expanded data
disclosures; (iv) clarify that, subject to various conditions, reciprocal deposits of another depository institution obtained using a
deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be
considered brokered deposits subject to the FDIC’s brokered-deposit regulations; (v) raise eligibility for the 18-month exam cycle
from $1 billion to banks with $3 billion in assets; and (vi) simplify capital calculations by requiring regulators to establish for
institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a
percentage not less than 8% and not greater than 10% that upon the election of a bank would replace the risk-based capital
requirements. In addition, the Board of Governors of the Federal Reserve System (“Federal Reserve Board”) was required to raise
the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank holding
companies that are exempt from consolidated capital requirements, provided that such companies meet certain other conditions
such as not engaging in significant non-banking activities.
Certain provisions of the Dodd-Frank Act and other laws, such as the EGRRCPA, are subject to further rulemaking, guidance and
interpretation by the applicable federal regulators. New regulations and statutes are periodically proposed and/or adopted that
contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions
operating and doing business in the United States. Changes in leadership at various federal banking agencies, including the
Federal Reserve Board, can also change the policy direction of these agencies. Certain of these recent proposals and changes are
described below. We will continue to evaluate the impact of any new regulations so promulgated or under consideration,
including changes in regulatory costs and fees, modifications to consumer products or disclosures required by the Consumer
Financial Protection Bureau (“CFPB”) and the requirements of the enhanced supervision provisions, among others.
Regulatory Agencies
We are a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries. As a financial holding
company and a bank holding company, we are regulated under the Bank Holding Company Act of 1956, as amended (“BHCA”),
and we and our non-bank subsidiaries are subject to inspection, examination and supervision by the Federal Reserve Board. The
BHCA provides generally for “umbrella” regulation of financial holding companies such as us by the Federal Reserve Board and
for functional regulation of banking activities by bank regulators, securities activities by securities regulators and insurance
activities by insurance regulators. We are also under the jurisdiction of the SEC and are subject to the disclosure and regulatory
requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), each administered by the SEC.
The Bank is a West Virginia state chartered bank. The Bank is not a member bank of the Federal Reserve System (“non-member
bank”). Accordingly, the West Virginia Division of Financial Institutions and the FDIC are the primary regulators of the Bank and
the Bank's subsidiaries.
Bank Holding Company Activities
In general, the BHCA limits the business of bank holding companies to banking, managing or controlling banks and other
activities that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. In
addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire
9
and retain the shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial
activity (as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to
a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial
system generally (as solely determined by the Federal Reserve Board). Activities that are financial in nature include securities
underwriting and dealing, insurance underwriting and making merchant banking investments. Under current federal law, as a bank
holding company, we have elected and qualified to become a financial holding company.
Most of the financial activities that are permissible for financial holding companies also are permissible for a bank’s “financial
subsidiary,” except for insurance underwriting, insurance company portfolio investments, real estate investments and
development and merchant banking, which must be conducted by a financial holding company. In order for a financial subsidiary
of a bank to engage in permissible financial activities, federal law requires, among other conditions, that the parent bank be well
managed and have at least a satisfactory Community Reinvestment Act rating, and the parent bank and all of its bank affiliates
must be well capitalized.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must
be “well capitalized” and “well managed” under applicable Federal Reserve Board regulations and the depository institution
subsidiaries controlled by the financial holding company must have at least a satisfactory Community Reinvestment Act rating. A
depository institution subsidiary is considered to be “well capitalized” if it satisfies the requirements for this status discussed in
the sections captioned Capital Requirements and Prompt Corrective Action included in this item. A depository institution
subsidiary is considered “well managed” if it received a composite rating of 1 or 2 and management rating of at least
“satisfactory” in its most recent examination. If a financial holding company ceases to meet these capital and management
requirements, the Federal Reserve Board’s regulations provide that the financial holding company must enter into an agreement
with the Federal Reserve Board to comply with all applicable capital and management requirements. Until the financial holding
company returns to compliance with such requirements, the Federal Reserve Board may impose limitations or conditions on the
conduct of its activities, and the financial holding company may not commence any of the broader financial activities permissible
for financial holding companies or acquire a company engaged in such financial activities without prior approval of the Federal
Reserve Board. If the financial holding company does not return to compliance with such requirements within 180 days, the
Federal Reserve Board may require (i) divestiture of the holding company’s depository institutions or (ii) termination by the
financial holding company of any activity that is not an activity that is permissible for bank holding companies under section
4(c)(8) of the BHCA. If a depository institution receives a rating of less than satisfactory under the Community Reinvestment Act,
the financial holding company may not commence any additional financial activity or acquire a company engaged in financial
activity, until the bank subsidiary has achieved at least a rating of satisfactory under the Community Reinvestment Act.
Please refer to the section captioned Community Reinvestment Act included elsewhere in this item.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable grounds to believe that
continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability
of any bank subsidiary of the bank holding company.
As required by the EGRRCPA, in August 2018, the Federal Reserve Board issued an interim final rule that expanded applicability
of the Federal Reserve Board’s Small Bank Holding Company Policy Statement. The interim final rule raised the policy
statement’s asset threshold from $1 billion to $3 billion in total consolidated assets for a bank holding company or savings and
loan holding company that: (i) is not engaged in significant non-banking activities; (ii) does not conduct significant off-balance
sheet activities; and (iii) does not have a material amount of debt or equity securities, other than trust-preferred securities,
outstanding that are registered with the SEC. The interim final rule provides that, if warranted for supervisory purposes, the
Federal Reserve Board may exclude a company from the threshold increase. Management believes we meet the conditions of the
Federal Reserve Board’s Small Bank Holding Company Policy Statement and are therefore excluded from consolidated capital
requirements and are subject to specific debt to equity ratio requirements. To be considered well capitalized, a company subject to
the Small Bank Holding Company Policy Statement must meet certain requirements, including having a debt-to-equity ratio of
1.0:1 or less. Further, qualification as a small bank holding company allows us to file more abbreviated, and less frequent,
consolidated and holding company reports with the Federal Reserve. The Bank remains subject to regulatory capital requirements
administered by the federal banking agencies.
Federal Securities Regulation
10
We are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the
Exchange Act. We are subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which imposes numerous
reporting, accounting, corporate governance and business practices on companies, as well as financial and other professionals who
have involvement with the United States public markets. We are generally subject to these requirements and applicable SEC rules
and regulations.
Acquisitions
The BHCA, the Bank Merger Act, the Change in Bank Control Act (the “CIBCA”), West Virginia banking law, and other federal
and state statutes regulate investments in and acquisitions of commercial banks and their parent holding companies. The BHCA
requires the prior approval of the Federal Reserve Board for the direct or indirect acquisition by a bank holding company of more
than 5.0% of the voting shares of a commercial bank or its parent holding company. Under the Bank Merger Act, the prior
approval of the FDIC (in the case of a non-member bank) or other appropriate bank regulatory authority is required for a bank to
merge with another bank or purchase substantially all of the assets or assume any deposits of another bank. Under the CIBCA, a
filing with the Federal Reserve Board is required under certain circumstances if an investor acquires more than 9.9% of any class
of voting securities of a state member bank or a bank holding company. In reviewing applications seeking approval of merger and
acquisition transactions, the bank regulatory authorities will consider, among other things, the competitive effect and public
benefits of the transactions, the capital position and managerial strength of the combined organization, the risks to the stability of
the United States banking or financial system, the applicant’s performance record under the Community Reinvestment Act (please
refer to the section captioned Community Reinvestment Act included elsewhere in this item) and its compliance with consumer
protection laws and the effectiveness of the subject organizations in combating money laundering activities and other financial
crimes.
Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation.
Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, subject to
market share limitations and any state requirement that the target bank shall have been in existence and operating for a minimum
period of time. Under the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its
home state by establishing a de novo branch at any location in such host state at which a bank chartered in such a host state could
establish a branch. Applications to establish such branches must be filed with the appropriate bank regulators.
Other Safety and Soundness Regulations
The Federal Reserve Board has enforcement powers over bank holding companies and their non-banking subsidiaries. The
Federal Reserve Board has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of
law, rule, regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through
the issuance of cease and desist orders, civil money penalties or other enforcement and remedial actions.
Federal and state banking regulators also have broad enforcement powers over the Bank, including the power to impose fines and
other civil and criminal penalties and to appoint a receiver in order to conserve the assets of the Bank for the benefit of depositors
and other creditors. The West Virginia Commissioner of Banking also has the authority to take possession of a West Virginia state
bank in certain circumstances and to appoint the FDIC as receiver, including, among other things, when it appears necessary in
order to protect or preserve the assets of that bank for the benefit of depositors and other creditors.
Anti-Money Laundering and the USA PATRIOT Act
A major focus of governmental policy on financial institution regulations in recent years has been aimed at combating money
laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “Patriot Act”) substantially broadened the scope of
United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations,
creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The Patriot Act contains
anti-money laundering measures affecting insured depository institutions and their affiliates, broker-dealers and certain other
financial institutions. Financial institutions are prohibited from entering into specified financial transactions and account
relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and
implement a written customer identification program. Financial institutions must take certain steps to assist government agencies
in detecting and preventing money laundering and report certain types of suspicious transactions. The Patriot Act includes the
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which grants the Secretary of the United
States Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’
operations. The United States Treasury has issued a number of regulations to implement the Patriot Act under this authority
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requiring financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money
laundering and terrorist financing. Regulatory authorities routinely examine financial institutions for compliance with these
obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and
terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, financial and reputational
consequences for the institution, including imposing substantial money penalties and causing applicable bank regulatory
authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions
even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against
institutions found to be violating these obligations.
Office of Foreign Assets Control Regulation
The United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and
trade sanctions against targeted foreign countries, regimes and individuals, under authority of various laws, including designated
foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. We are responsible for,
among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and
financial transactions with them and reporting blocked transactions to OFAC after their occurrence. Failure to comply with these
sanctions could have serious legal, financial and reputational consequences, including the imposition of financial penalties,
causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is
required or to prohibit such transactions even if approval is not required.
Incentive Compensation
As part of its regular, risk-focused examination process, the Federal Reserve Board reviews the incentive compensation
arrangements of banking organizations that are not “large, complex banking organizations,” such as us. These reviews are tailored
to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive
compensation arrangements. The findings of this supervisory initiative will be included in reports of examination. Deficiencies
will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions
and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation
arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness
and the organization is not taking prompt and effective measures to correct the deficiencies.
In June 2010, the Federal Reserve Board, Office of the Comptroller of the Currency, and FDIC issued comprehensive final
guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations
do not undermine the safety and soundness of such organizations by encouraging excessive risk taking. The guidance, which
covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a
group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide
incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be
compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including
active and effective oversight by the organization’s board of directors.
In June 2016, the Federal Reserve Board, other federal banking agencies, and the SEC jointly published a proposed rulemaking
designed to strengthen the incentive-based compensation practices at covered institutions by better aligning the financial rewards
for covered persons with an institution’s long-term safety and soundness. The proposed rule uses a tiered approach that applies
provisions to covered financial institutions according to three categories of average total consolidated assets: Level 1 ($250 billion
or more), Level 2 ($50 billion to $250 billion) and Level 3 ($1 billion to $50 billion). For all covered institutions, the proposed
rule would (i) prohibit types and features of incentive-based compensation arrangements that encourage inappropriate risks
because they are “excessive” or “could lead to material financial loss” at a covered institution; (ii) require incentive-based
compensation arrangements to adhere to three basic principles: (1) a balance between risk and reward; (2) effective risk
management and controls; and (3) effective governance; and (iii) require appropriate board or directors (or committee) oversight
and record keeping and disclosures to the appropriate agency. For Level 1 and Level 2 institutions, the proposed rule would (i)
require the following: the deferral of awards for senior executive officers and significant risk takers; the subjecting of unpaid and
unvested incentive compensation to the risk of downward adjustments or forfeiture; the subjecting of paid incentive compensation
to the risk of “clawback;” establishing a board compensation committee; expanded risk-management and control standards;
additional record keeping requirements for senior executive officers and significant risk takers; and detailed policies and
procedures to ensure rule compliance; and (ii) prohibit certain inappropriate practices, including: the purchase of hedging
instruments that offset decreases in the value of incentive compensation; allowing a range of payouts that might encourage risk
taking; and basing compensation solely on comparison to peer and volume-driven incentives without regard to transaction quality
or compliance with sound risk management. The comment period ended in July 2016 and the agencies are evaluating the
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comments received.
If these or other regulations are adopted in a form similar to that initially proposed, they will impose limitations on the manner in
which we may structure compensation for our executives.
In addition, SEC regulations require public companies, like us, to provide various disclosures about executive compensation in
annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive
compensation.
The scope and content of the United States banking regulators’ policies on incentive compensation and SEC rulemaking with
respect to executive compensation are continuing to develop.
The Volcker Rule
The Volcker Rule implements section 619 of the Dodd-Frank Act and prohibits insured depository institutions and affiliated
companies and foreign banks which engage in the banking business in the United States (together, “banking entities”) from
engaging in proprietary trading of certain securities, derivatives and commodity futures and options on these instruments, for their
own account and prohibits banking entities from investing in or sponsoring certain types of funds (“covered funds”) unless
otherwise permitted by the Volcker Rule. EGRRCPA exempts from the Volcker Rule banking entities with $10 billion or less in
total consolidated assets and have total trading assets and trading liabilities that are less than 5% of total consolidated assets. As of
July 22, 2019, the effective date for the rulemaking implementing the EGRRCPA exemption, and December 31, 2022, we and the
Bank are below these thresholds and thus exempt from the Volcker Rule.
Limit on Dividends
We are a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries. Our ability to obtain funds
for the payment of dividends to our shareholders and for other cash requirements largely depends on the amount of dividends the
Bank declares. However, the Federal Reserve Board expects us to serve as a source of financial and managerial strength to the
Bank to reduce potential loss exposure to the Bank’s depositors and to the FDIC insurance fund in the event the Bank becomes
insolvent or is in danger of becoming insolvent or is otherwise experiencing financial stress. Under this requirement, we are
expected to commit resources to support the Bank, including at times when we may not be in a financial position to provide such
resources. Any capital loans by us to the Bank would be subordinate in right of payment to depositors and to certain other
indebtedness of the Bank. In the event of bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the
capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Accordingly, the Federal Reserve Board may require us to retain capital for further investment in the Bank, rather than pay
dividends to our shareholders. The Bank may not pay dividends to us if, after paying those dividends, the Bank would fail to meet
the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. The Bank
must have the approval from the West Virginia Division of Financial Institutions if a dividend in any year would cause the total
dividends for that year to exceed the sum of the current year’s net earnings and the retained earnings for the preceding two years,
less required transfers to surplus. These provisions could limit our ability to pay dividends on our outstanding common shares.
In addition, we and the Bank are subject to other regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums (please refer to the Capital Requirements section
below). The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the
financial condition of a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice
and to prohibit payment thereof. The appropriate federal regulatory authorities have stated that paying dividends that deplete a
bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations
should generally pay dividends only out of current operating earnings. In addition, the Federal Reserve Board has indicated that
bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum
allowable levels unless both asset quality and capital are very strong.
Transactions with Affiliates
Transactions with affiliates are regulated under federal banking law. The Federal Reserve Act, made applicable to the Bank by
section 8(j) of the Federal Deposit Insurance Act (the “FDIA”), imposes quantitative and qualitative requirements and collateral
requirements on “covered transactions” by the Bank with, or for the benefit of, its affiliates and generally requires those
transactions to be on arm's length terms at least as favorable to the Bank as if the transaction were conducted with an unaffiliated
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third-party. Covered transactions are defined by the Federal Reserve Act to include a loan or extension of credit, as well as a
purchase of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from
the affiliate, certain derivative transactions that create a credit exposure by a bank to an affiliate, the acceptance of securities
issued by the affiliate as collateral for a loan and the issuance of a guarantee, acceptance or letter of credit on behalf or for the
benefit of an affiliate. In general, any such transaction by the Bank or its subsidiaries must be limited to certain thresholds on an
individual and aggregate basis and, for credit transactions with any affiliate, must be secured by designated amounts of specified
collateral.
Federal law also limits a bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to
entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are
substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the
normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit
extended to such persons individually and in the aggregate.
Capital Requirements
Federal regulations require FDIC-insured depository institutions, such as the Bank, to comply with applicable federal capital
adequacy standards (the “Capital Rules”). State chartered banks, such as the Bank, are subject to similar capital requirements
adopted by their state regulators, which, in our case, is the West Virginia Division of Financial Institutions.
The Capital Rules include a “Common Equity Tier 1” (“CET1”) measure, specify that Tier 1 capital consists of CET1 and
“Additional Tier 1 capital” instruments meeting certain revised requirements, define CET1 narrowly by requiring that most
deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and expand
the scope of the deductions/adjustments to capital as compared to existing regulations.
Under the Capital Rules, the minimum capital ratios currently effective are:
l 4.5% CET1 to risk-weighted assets;
l 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
l 8.0% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
l 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage
ratio”).
In addition to establishing the minimum regulatory capital requirements, the Capital Rules limit capital distributions and certain
discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of
CET 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
The Capital Rules prescribe a standardized approach for risk weightings that expanded the risk-weighting categories from the
general risk-based capital rules to a much larger and more risk-sensitive number of categories, depending on the nature of the
assets, generally ranging from 0% for United States government and agency securities, to 600% for certain equity exposures, and
resulting in higher risk weights for a variety of asset categories.
The optional community bank leverage ratio ("CBLR") framework, which was issued through interagency guidance, provides a
simple alternative measure of capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA.
Under the CBLR, if a qualifying depository institution elects to use such measure, such institution (i) will be considered well
capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds a 9% threshold, subject to
a limited two quarter grace period, during which period the leverage ratio cannot go 100 basis points below the then applicable
threshold and (ii) will not be required to calculate and report risk-based capital ratios. The bank elected to begin using the CBLR
framework for the first quarter of 2021 and intends to use this measure for the foreseeable future.
Eligibility criteria to utilize the CBLR includes the following:
●
●
●
●
●
Total assets of less than $10 billion;
Total trading assets plus liabilities of 5% or less of consolidated assets;
Total off-balance sheet exposures of 25% or less of consolidated assets;
Cannot be an advanced approaches banking organization; and
Leverage ratio greater than 9% or temporarily prescribed threshold established in response to COVID-19.
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We have policies and procedures in place to establish internal capital levels and to monitor and stress-test such levels on a regular
basis to ensure we remain above regulatory capital limits. The Bank's CBLR at December 31, 2022 was 9.83%.
Prompt Corrective Action
The FDIA requires, among other things, that the federal banking agencies take “prompt corrective action” in respect of depository
institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository
institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other
factors, as established by regulation. The relevant capital measures, which reflect changes under the Capital Rules that became
effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio and the leverage ratio.
A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio
of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater and a leverage ratio of 5.0% or greater, and is not subject to
any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital
measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio
of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio of 4.0% or greater and is not “well
capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio
less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; (iv) “significantly
undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less than 3.0%, a Tier
1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the
institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded
to, or deemed to be within, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe
or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital
category is determined solely for the purpose of applying prompt corrective action regulations and the capital category may not
constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
As noted above, the EGRRCPA eliminated these risk-based capital requirements for banks with less than $10.0 billion in assets
who elect to follow the CBLR.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or
paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.”
“Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies
may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely
to succeed in restoring the depository institution’s capital to an acceptable level. In addition, for a capital restoration plan to be
acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital
restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of
the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the
time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution
into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan.
If a depository institution fails to submit an acceptable plan, it will thereafter be treated as if it is “significantly undercapitalized”
until such capital deficiency is corrected.
“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cessation of
receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a
receiver or conservator.
The appropriate federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository
institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking
agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the
institution to be engaging in one or more unsafe or unsound practices. The appropriate agency is also permitted to require an
adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the
next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory
information other than the capital levels of the institution.
In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a
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variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of
deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.
For further information regarding the capital ratios and leverage ratio of us and the Bank, please refer to the discussion under the
section captioned Capital and Stockholders’ Equity included in Item 7 – Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 16 – Regulatory Capital Requirements accompanying the consolidated financial
statements included elsewhere in this report.
Safety and Soundness Standards
The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal
controls, information systems, internal audit systems, cybersecurity, liquidity, data protection, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits
and such other operational and managerial standards as the agencies deem appropriate. Guidelines adopted by the federal bank
regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits, among other
subjects. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk
and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and
describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal stockholder.
In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been
given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after
being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an
acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized institution is subject under the “prompt corrective action”
provisions of the FDIA. Please refer to the Prompt Corrective Action section above. If an institution fails to comply with such an
order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties and cease and desist
orders.
Deposit Insurance
The Bank’s deposits are insured by the FDIC up to the limits set forth under applicable law. The FDIC imposes a risk-based
deposit premium assessment system that determines assessment rates for an insured depository institution based on an assessment
rate calculator, which is based on a number of elements to measure the risk each insured depository institution poses to the FDIC
insurance fund. The assessment rate is applied to total average assets, less tangible equity, as defined under the Dodd-Frank Act.
The assessment rate schedule can change from time to time at the discretion of the FDIC, subject to certain limits. Under the
current system, premiums are assessed quarterly.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
Depositor Preference
The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of
depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for
administrative expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If
an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead
of unsecured, non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the
parent bank holding company, with respect to any extensions of credit they have made to such insured depository institution.
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Federal Home Loan Bank Membership
The Federal Home Loan Bank (“FHLB”) provides credit to its members in the form of advances. As a member of the FHLB of
Pittsburgh, the Bank must maintain an investment in the capital stock of that FHLB in an amount equal to 0.10% of the calculated
Member Asset Value (“MAV”), plus 4.0% of outstanding advances and 0.75% of outstanding letters of credit. The MAV is
determined by taking line item values for various investment and loan classes and applying an FHLB haircut to each item. At
December 31, 2022, the Bank held capital stock of FHLB in the amount of $10.0 million.
Federal and State Consumer Laws
We are subject to a number of federal and state consumer protection laws that extensively govern the relationships between us, the
Bank and the Bank's consumer customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act,
the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the
Home Mortgage Disclosure Act (“HMDA”), the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt
Collection Practices Act, the Service Members Civil Relief Act and these federal laws’ respective state-law counterparts, as well
as state usury laws and state and federal laws regarding unfair and deceptive acts and practices. These and other federal laws,
among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights,
prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections,
prohibit unfair, deceptive and abusive practices, restrict our and the Bank's ability to raise interest rates in certain respects and
subject us and the Bank to substantial regulatory oversight. Violations of applicable consumer protection laws can result in
significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees.
Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce
consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights,
action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to
comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for
merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval
is not required.
The CFPB is a federal agency responsible for implementing federal consumer protection laws. The CFPB has broad rulemaking
authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to
prohibit “unfair, deceptive or abusive” acts and practices. The Dodd-Frank Act permits states to adopt consumer protection laws
and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys
general to enforce compliance with both the state and federal laws and regulations. The CFPB also has examination and
enforcement authority over all banks with more than $10 billion in assets, as well as their affiliates, which authority would not
apply to us or the Bank. As the Bank’s principal federal regulator, the FDIC has examination and enforcement authority over the
Bank.
The CFPB has concentrated certain of its rulemaking efforts on a variety of mortgage-related topics required under the Dodd-
Frank Act, including mortgage origination disclosures, minimum underwriting standards and ability to repay, high-cost mortgage
lending and servicing practices. The CFPB issued final rules changing the reporting requirements for lenders under the HMDA.
The rules expand the range of transactions subject to these requirements to include most securitized residential mortgage loans
and credit lines. The rules also increase the overall amount of data required to be collected and submitted, including additional
data points about the loans and borrowers.
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Financial Privacy
Federal law currently contains extensive customer privacy protection provisions, including substantial customer privacy
protections provided under the Financial Services Modernization Act of 1999 (commonly known as the Gramm-Leach-Bliley
Act). Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship
and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal
financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide
such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be
so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense,
except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or
deceptive means. In December 2015, Congress amended the Gramm-Leach-Bliley Act privacy provisions to include an exception
under which a financial institution is not required to provide annual privacy notices to customers if such financial institution meets
certain conditions. In August 2018, the CFPB finalized a rule implementing this provision and that rule became effective
September 17, 2018.
Automated Overdraft Payment Regulation
Federal regulators have adopted consumer protection regulations and guidance related to automated overdraft payment programs
offered by financial institutions. Regulation E prohibits financial institutions from charging consumers fees for paying overdrafts
on automated teller machine and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service
for those types of transactions. Financial institutions must also provide consumers with a notice that explains the financial
institution’s overdraft services, including the fees associated with the service and the consumer’s choices. In addition, FDIC-
supervised institutions must monitor overdraft payment programs for “excessive or chronic” customer use and undertake
“meaningful and effective” follow-up action with customers that overdraw their accounts more than six times during a rolling 12-
month period. Financial institutions must also impose daily limits on overdraft charges, review and modify check-clearing
procedures, prominently distinguish account balances from available overdraft coverage amounts and ensure board and
management oversight regarding overdraft payment programs.
Community Reinvestment Act
The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their
market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet
the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and
communities. The CRA requires the Bank’s primary federal bank regulatory agency, the FDIC, to assess the Bank’s record in
meeting the credit needs of the communities served by the Bank, including low- and moderate-income neighborhoods and
persons. Institutions are assigned one of four ratings: (i) “Outstanding,” (ii) “Satisfactory,” (iii) “Needs to Improve” or (iv)
“Substantial Noncompliance.”
In order for a financial holding company to commence any new activity permitted by the BHCA, or to acquire any company
engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding
company must have received a rating of at least “Satisfactory” in its most recent examination under the CRA. Furthermore,
banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction to
consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch
office.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial
institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management
processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate
customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s
management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption
and maintenance of the institution’s operations after a cyberattack involving destructive malware. A financial institution is also
expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network
capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyberattack. If we fail to
observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and
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to store sensitive data. We employ a variety of preventative and detective tools to monitor, block and provide alerts regarding
suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding our defensive measures, the
threat from cyberattacks is continuous and severe, attacks are sophisticated and increasing in volume and attackers respond
rapidly to changes in defensive measures. While to date we are not aware of having experienced a significant compromise,
significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and
third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly
evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and
other technology-based products and services by us and our customers. For further discussion of risks related to cybersecurity,
please refer to Item 1A – Risk Factors included elsewhere in this report.
Monetary Policy and Economic Conditions
The business of financial institutions is affected not only by general economic conditions, but also by the policies of various
governmental regulatory agencies, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit
conditions and interest rates to influence general economic conditions primarily through open market operations in United States
government securities, changes in the discount rate on bank borrowings and changes in the reserve requirements against
depository institutions’ deposits. These policies and regulations significantly affect the overall growth and distribution of loans,
investments and deposits and the interest rates charged on loans, as well as the interest rates paid on deposit accounts.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of financial institutions
in the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the
economy and the money markets, the activities of monetary and fiscal authorities and the recent reports of a significant growth in
inflationary pressures, we cannot predict future changes in interest rates, credit availability or deposit levels.
Effect of Environmental Regulation
Our primary exposure to environmental risk is through our lending activities. In cases when management believes environmental
risk potentially exists, we mitigate our environmental risk exposures by requiring environmental site assessments at the time of
loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal potential for
environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites.
Environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.
With regard to residential real estate lending, management reviews those loans with inherent environmental risk on an individual
basis and makes decisions based on the dollar amount of the loan and the materiality of the specific credit. We do not currently
anticipate any material effect on anticipated capital expenditures, earnings or competitive position as a result of compliance with
federal, state or local environmental protection laws or regulations. The recent focus on environmental, sustainable and
governance and climate change considerations in the business community and among our and the Bank's other constituents may
over time affect our and the Bank's approach to evaluating and addressing environmental risk and may increase the costs
associated with monitoring and mitigating those risks.
Other Regulatory Matters
We are subject to examinations and investigations by federal and state banking regulators, as well as the SEC, various taxing
authorities and various state regulators. We periodically receive requests for information from regulatory authorities in various
states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities,
concerning our business and accounting practices. Such requests are considered incidental to the normal conduct of business.
Future Legislation and Regulation
From time to time, Congress may enact legislation that affects the regulation of the financial services industry and state
legislatures may enact legislation affecting the regulation of financial institutions chartered by or operating in those states. Federal
and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which
existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof,
cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate
and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory
capital, require modifications to our business strategy or limit our ability to pursue business opportunities in an efficient manner.
A change in statutes, regulations or regulatory policies applicable to us or any of our subsidiaries could have a material, adverse
effect on our business, financial condition and results of operations.
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Corporate and Available Information
We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and any other filings required by the SEC. We make available through our website (http://www.mvbbanking.com), free
of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all
amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC. The information on our website is not incorporated by reference into this Annual Report on Form 10-K or in any other
report or document we file with the SEC.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC.
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ITEM 1A. RISK FACTORS
Please carefully consider the risks described below, together with all other information included or incorporated by reference in
this Annual Report on Form 10-K. If any of the following risks actually occur, our business, financial condition, results of
operations and cash flows could be materially adversely affected. In these circumstances, the market price of our common stock
could decline significantly. Other factors that could affect our financial condition and operations are discussed in the Forward-
Looking Statements at the beginning of this report.
Risks Related to Economic and Market Conditions
Continued elevated levels of inflation could adversely impact our business and results of operations.
Recently, there have been market indicators of a pronounced rise in inflation and the Federal Reserve Board has indicated its
intention to raise certain benchmark interest rates in an effort to combat inflation, which rates have increased in 2022 and the first
quarter of 2023. Continued levels of inflation could have complex effects on our business and results of operations, some of
which could be materially adverse. For example, as interest rates rise in response to, or as a result of, elevated levels of inflation,
the value of our securities portfolio becomes negatively impacted. In addition, while we generally expect any inflation-related
increases in our interest expense to be offset by increases in our interest revenue, inflation-driven increases in our levels of
noninterest expense could negatively impact our results of operations. Continued elevated levels of inflation could also cause
increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability
to repay indebtedness. It is also possible that governmental responses to the current inflation environment could adversely affect
our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price
controls. The duration and severity of the current inflationary period cannot be estimated with precision.
Financial challenges at other banking institutions could lead to depositor concerns that spread within the banking
industry causing disruptive deposit outflows and other destabilizing results.
In March 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large
deposit outflows, resulting in the institutions being placed into FDIC receiverships. In the aftermath, there has been substantial
market disruption and indications that deposit concerns could spread within the banking industry, leading to deposit outflows and
other destabilizing results. These market events could materially adversely affect our business.
We may continue to face risks and ongoing effects related to the COVID-19 pandemic or other pandemics.
The full impact of COVID-19 is unknown and continually evolving. The outbreak of COVID-19, its subsequent variants, and
other pandemics in the future and any preventative or protective actions that we, our clients or governmental authorities may take
in response to such pandemics may result in a period of disruption in our financial reporting capabilities and our operations, and
could potentially impact our clients, providers and third parties.
The extent to which the COVID-19 pandemic impacts and future pandemics may impact our future operating results and the
broader economy and markets in which we serve are uncertain and will depend on the duration and severity of the pandemic and
on future developments. These developments include the availability, efficacy and distribution of vaccines, governmental actions
to contain the virus or treat its impact, the ultimate length of any restrictions and accompanying effects and macroeconomic
impacts, including lower stock prices for many companies, increased credit risk, market instability, altered labor market due to the
transition to remote and hybrid work policies, high inflation rates and continued global disruptions to the supply chain. These
factors could result in further decline in demand for banking products and services and could negatively impact, among other
things, liquidity, regulatory capital and future growth.
Banking and financial services have been designated essential businesses; therefore, our operations are expected to continue in the
event of a pandemic. However, even after COVID-19 has subsided, we may continue to experience materially adverse impacts to
our business as a result of the virus’ global economic impact, including the availability of credit, adverse impacts on liquidity and
any recession that has occurred or may occur in the future. As a result, the ultimate impact of a pandemic is highly uncertain and
subject to change.
Our business depends upon the general economic conditions and real estate markets of the State of West Virginia and
the Commonwealth of Virginia, and may be adversely affected by downturns in these and the other local economies in
which we operate.
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Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of
outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we
offer, is highly dependent upon the business environment in the markets where we operate, including the State of West Virginia,
the Commonwealth of Virginia and the United States as a whole.
Unlike larger national or other regional banks that are more geographically diversified, we provide banking and financial services
primarily to customers across West Virginia and Virginia. The local economic conditions in these areas have a significant impact
on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral
securing loans and the stability of our deposit funding sources. Moreover, approximately 34.3% of the securities in our municipal
securities portfolio were issued by political subdivisions or agencies within West Virginia and Virginia. A significant decline in
general economic conditions in West Virginia or Virginia, whether caused by recession, inflation, unemployment, changes in
crude oil prices, changes in securities markets, acts of terrorism, outbreak of hostilities or other international or domestic
occurrences or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our
business, financial condition and results of operations.
Additionally, nearly 69.0% of our total loans are real estate interests (residential and non-residential, including both owner-
occupied and investment real estate and construction and land development) mainly concentrated in West Virginia and Virginia, a
relatively small geographic area. As a result, declining real estate values in these markets could negatively impact the value of the
real estate collateral securing such loans. If we are required to liquidate a significant amount of collateral during a period of
reduced real estate values in satisfaction of any non-performing or defaulted loans, our earnings and capital could be adversely
affected.
Severe weather (including climate change) and natural disasters could have significant effects on our business.
Our business is subject to risk from external climate-related events that could affect the stability of our deposit base, impair the
ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage,
result in loss of revenue and/or cause additional expenses. Although management has established disaster recovery and business
continuity policies and procedures, the occurrence of any such event could have a material adverse effect on our business,
financial condition and results of operations.
Climate change exposes us to physical risk as its effects may lead to more frequent and extreme shifts in weather patterns and
more extreme weather events that could damage, destroy or otherwise impact the value or productivity of our properties and other
assets; reduce the availability of insurance to cover losses; and/or disrupt our operations through prolonged outages. Such events
and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing
borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could
have a broader impact on the economy, supply chains and distribution networks.
Furthermore, banking regulators and other supervisory authorities, investors and other stakeholders have increasingly viewed
financial institutions as important in helping to address the risks related to climate change both directly and with respect to their
customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management
of their climate risks and related lending and investment activities. Given that climate change could impose systemic risks upon
the financial sector, we face regulatory risk of increasing focus on our resilience to climate-related risks, including in the context
of stress testing for various climate stress scenarios. Ongoing legislative or regulatory changes regarding climate risk management
and practices may result in higher regulatory, compliance, credit and reputational risks and costs. Additionally, our reputation and
ability to maintain client relationships and attract and retain employees may depend on the sufficiency of our policies and
practices related to climate change, including our direct or indirect involvement in certain industries.
Risks Related to Our Business
Our non-residential real estate loans expose us to greater risks of non-payment and loss than residential mortgage
loans, which may cause us to increase our allowance for loan losses, which would reduce net income.
At December 31, 2022, $1.74 billion, or approximately 73%, of our loan portfolio consisted of non-residential real estate and
other non-residential loans. Non-residential real estate and other non-residential loans generally expose a lender to greater risk of
non-payment and loss than residential mortgage loans because repayment of the loans often depends on the successful operation
of the property and the income stream of the borrowers. Such loans expose us to additional risks because they typically are made
on the basis of the borrower’s ability to make repayments from the cash flow of the borrower’s business and are secured by
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collateral that may depreciate over time. These loans typically involve larger loan balances to single borrowers or groups of
related borrowers compared to residential mortgage loans. Because such loans generally entail greater risk than residential
mortgage loans, we may need to increase our allowance for loan losses in the future to account for the likely increase in probable
incurred credit losses associated with the growth of such loans, which would reduce net income. Also, many of our non-
residential real estate borrowers have more than one loan outstanding. Consequently, an adverse development with respect to one
loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with
respect to a residential mortgage loan.
Our investment in sub-prime automobile loans expose us to greater risks of non-payment, which may cause us to
increase our allowance for loan losses, which would reduce net income.
As of December 31, 2022, our loan portfolio consisted of $58.1 million of sub-prime automobile loans. Considering the higher
interest rates of sub-prime automobile loans and lower credit ratings of sub-prime borrowers, these types of loans are generally
considered to have a greater risk of delinquency and non-payment than conforming loans and may require greater provisions for
loan losses. We have experienced slight increases in delinquencies or non-payment in this portfolio compared to our other
automobile loans and our loan portfolio may be adversely affected if we continue to experience an increase in delinquencies or
non-payment. Consequently, we could sustain loan losses and be required to establish a higher provision for loan losses.
Our allowance for loan losses could become inadequate and reduce earnings and capital.
The Bank maintains an allowance for loan losses that it believes is adequate for absorbing the estimated future losses inherent in
its loan portfolio. Management conducts a periodic review and consideration of the loan portfolio to determine the amount of the
allowance for loan losses based upon general market conditions, credit quality of the loan portfolio and performance of the Bank’s
clients relative to their financial obligations with it. However, the amount of future losses is susceptible to changes in economic
and other market conditions, including changes in interest rates and collateral values, which are beyond the Bank’s control, and
these future losses may exceed its current estimates. Management performs stress tests on the loan portfolios to estimate future
loan losses, but additional provisions for loan losses could be required in the future, including as a result of changes in the
economic assumptions underlying management’s estimates and judgments, adverse developments in the economy on a national
basis or in the Bank’s market area or changes in the circumstances of particular borrowers. We cannot predict with certainty the
amount of losses or guarantee that the allowance for loan losses is adequate to absorb future losses in the loan portfolio. Excessive
loan losses could have a material adverse effect on our financial condition and results of operations.
The earnings from our investments in ICM and Warp Speed will be significantly reduced if ICM and Warp Speed are
not able to sell mortgages.
The profitability of ICM and Warp Speed depend in large part upon their ability to originate a high volume of loans and to sell
them in the secondary market. Thus, they are dependent upon (i) the existence of an active secondary market and (ii) their ability
to sell loans into that market. Volatile interest rate environments could increase this risk initially. However, past performance
supports our ability to fund the increase in ICM's production.
ICM and Warp Speed’s ability to readily sell mortgage loans is dependent upon the availability of an active secondary market for
single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae,
Freddie Mac and other institutional and non-institutional investors. These entities account for a substantial portion of the
secondary market in residential mortgage loans. Some of the largest participants in the secondary market, including Fannie Mae
and Freddie Mac, are government-sponsored enterprises with substantial market influence whose activities are governed by
federal law. Any future changes in laws that significantly affect the activity of these government-sponsored enterprises and other
institutional and non-institutional investors or any impairment of their ability to participate in such programs could, in turn,
adversely affect our results of operations.
Our largest source of revenue (net interest income) is subject to interest rate risk.
The Bank’s financial condition and results of operations are significantly affected by changes in interest rates. The Bank’s
earnings depend primarily upon its net interest income, which is the difference between its interest income earned on its interest-
earning assets, such as loans and investment securities, and its interest expense paid on its interest-bearing liabilities, consisting of
deposits and borrowings. Moreover, the loans included in our interest-earning assets are primarily comprised of variable and
adjustable rate loans. Net interest income is subject to interest rate risk in the following ways:
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l In general, for a given change in interest rates, the amount of change in value (positive or negative) is larger for assets and
liabilities with longer remaining maturities. The shape of the yield curve may affect new loan yields, funding costs and
investment income differently.
l The remaining maturity of various assets or liabilities may shorten or lengthen as payment behavior changes in response to
changes in interest rates. For example, if interest rates decline sharply, loans may prepay, or pay down, faster than anticipated,
thus reducing future cash flows and interest income. Conversely, if interest rates increase, depositors may cash in their
certificates of deposit prior to maturity (notwithstanding any applicable early withdrawal penalties) or otherwise reduce their
deposits to pursue higher yielding investment alternatives.
l Re-pricing frequencies and maturity profiles for assets and liabilities may occur at different times. For example, in a falling
rate environment, if assets re-price faster than liabilities, there will be an initial decline in earnings. Moreover, if assets and
liabilities re-price at the same time, they may not be by the same increment. For instance, if the federal funds rate increased 50
basis points, rates on demand deposits may rise by ten basis points; whereas rates on prime-based loans will instantly rise 50
basis points.
The Federal Reserve Board decreased benchmark interest rates significantly, to near zero, in response to the COVID-19
pandemic. The Federal Reserve Board is now reversing its policy of near zero interest rates given its concerns over inflation. In
recent periods, market interest rates have risen in response to the Federal Reserve Board’s recent rate increases. The increase in
market interest rates could have an adverse effect on our net interest income and profitability. Although the Federal Reserve acted
with the goal of avoiding abrupt or unpredictable changes in economic or financial conditions which would disrupt the financial
systems, also known as “shocks,” the continuing impact of these changes cannot be certain. Vulnerabilities in the financial system
can amplify the impact of an initial shock following rate increases, potentially leading to unintended volatility, as well to
disruptions in the provision of financial services, such as clearing payments, the provision of liquidity and the availability of
credit. Financial instruments do not respond in a parallel fashion to rising or falling interest rates. Given the interconnectedness of
the global financial system, these vulnerabilities could impact our business operations and financial condition. Furthermore, any
asymmetry in the magnitude of changes to net interest income, net economic value and investment income resulting from the
hypothetical increases and decreases in interest rates could have an adverse effect on our results of operations. Interest rate risk is
more fully described in Item 7A – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.
Our gaming initiative has contributed significantly to an increase in our noninterest bearing deposits, which has
driven the Bank’s funding costs to levels that may not be sustainable and creates concentration risk in our deposit
base.
Our gaming initiative has contributed significantly to an increase in our noninterest bearing deposits, and has allowed us to
generate attractive returns on lower risk assets through increased investments in securities and loan growth. We have increased
our noninterest bearing deposits as a percentage of total deposits from 10.9% as of December 31, 2017 to 47.9% as of
December 31, 2022, an increase that is largely attributable to our gaming initiative. Gaming deposits totaled $652.1 million as of
December 31, 2022, compared to $911.6 million as of December 31, 2021. Of the gaming deposits, $536.9 million is with our
three largest clients at December 31, 2022. Our future growth may be adversely impacted if we are unable to retain and grow this
strong, low-cost deposit base. There may be competitive pressures to pay higher interest rates on deposits to our gaming
customers, which could increase funding costs and compress net interest margins. Further, even if we are otherwise able to grow
and maintain our noninterest bearing deposit base, our deposit balances may still decrease if our gaming customers are offered
more attractive returns from our competitors. If our gaming customers withdraw deposits, we could lose a low cost source of
funds which would likely increase our funding costs and reduce our net interest income and net interest margin. These factors
could have a material adverse effect on our business, financial condition and results of operations.
We may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have
exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial
services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients. Many of
these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be
exacerbated when the collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
credit or derivative exposure due. Any such losses could have a material adverse effect on our business, financial condition and
results of operations.
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We operate in a highly competitive industry and market area and failure to effectively compete could have a material
adverse effect on our business, financial condition and results of operations.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger
and may have more financial resources. Such competitors primarily include national, regional and community banks within the
various markets where we operate. We also face competition from many other types of financial institutions, including, without
limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial
intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and
technological changes and continued consolidation. Also, technology and other changes have lowered barriers to entry and made
it possible for non-banks to offer products and services traditionally provided by banks. For example, consumers can maintain
funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also
complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of
eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of
customer deposits and the related income generated from those deposits. Further, many of our competitors have fewer regulatory
constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve
economies of scale and, as a result, may offer a broader range of products and services, as well as better pricing for those products
and services than we can.
Our ability to compete successfully depends on a number of factors, including, among other things:
l Ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical standards
and safe, sound assets;
l Ability to expand our market position;
l Scope, relevance and pricing of products and services offered to meet customer needs and demands;
l Rate at which we introduce new products and services relative to our competitors;
l Customer satisfaction with our level of service; and
l Industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our
growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of
operations.
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2022, we had $5.6 million of goodwill and other intangible assets. A significant decline in our expected
future cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline
in the price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other
intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would
record the appropriate charge, which could have a material adverse effect on our business, financial condition and results of
operations. As of December 31, 2022 our equity method investment ICM also had $17.7 million of goodwill. A future write-down
of goodwill at ICM could have a material adverse effect on our results of operations based on our proportionate share of equity
method investment income.
Transition away from LIBOR to SOFR as the primary interest rate benchmark may adversely impact the Bank, as well
as the value of, and the return on, our financial instruments that are indexed to LIBOR.
LIBOR and interest rate benchmarks are the subject of recent national, international and other regulatory guidance and reform.
Based on guidance from the United Kingdom Financial Conduct Authority, who regulates LIBOR, all existing LIBOR obligations
have or will transition to another benchmark by June 30, 2023, or earlier. On July 29, 2021, the Alternative Reference Rates
Committee (“ARRC”) formally recommended SOFR as its preferred alternative replacement rate for LIBOR. The Bank has
adopted SOFR as the LIBOR replacement rate and began offering SOFR-based products to customers in 2022.
However, the transition from LIBOR to SOFR could create considerable costs and additional risk. Since SOFR rates are
calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The uncertainty
or differences in the calculation of applicable interest rates or payment amounts depending on the terms of governing instruments
and may also increase operational and other risks to us and the industry.
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The transition may change the Bank’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product
design and hedging strategies. Furthermore, failure to adequately manage this transition process with customers could adversely
impact the Bank’s reputation or could have a material adverse effect on our business, financial condition and results of operations.
Additionally, because the Bank still has certain loans and investment securities indexed to LIBOR to calculate the interest rate, it
could be subject to disputes or litigation with counterparties regarding the interpretation and enforceability of provisions in
existing LIBOR-based fallback language or other related provisions, as the economics of SOFR and various alternative reference
rates differ from LIBOR.
New lines of business or new products and services, including FinTech investments and cryptocurrency, may subject
us to additional risks.
We are focused on our long-term growth and have undertaken various new business initiatives, many of which involve activities
that are new to it, or in some cases, are in the early stages of development. From time to time, we may develop, grow and/or
acquire new lines of business or offer new products and services within existing lines of business. There are substantial risks and
uncertainties associated with these efforts, particularly in instances where the markets for these products and services are not fully
developed.
For example, we are involved in new innovative strategies to provide independent banking to corporate clients throughout the
United States by leveraging recent investments and depositor relationships in the Fintech industry. Our evolving business and
product diversification, these new initiatives may subject us to, among other risks, increased business, reputational and
operational risk, as well as more complex legal, regulatory and compliance costs and risks. Additionally, the Bank is engaged in
relationships with clients in the payments, digital savings, cryptocurrency, crowd funding, lottery and gaming industries and any
change in regulations could impact us from both an operational and regulatory perspective.
Investing in these newer industries presents some risks. For example, earnings from our Fintech investments can be volatile and
difficult to predict. Furthermore, we often invest in Fintech companies for strategic purposes. Where we are a minority
shareholder, we may be unable to influence the activities of these organizations, which could have an adverse impact on our
ability to execute our strategic initiatives and successfully develop and implement the banking platform we are developing with
these and other partners.
Similarly, cryptocurrency markets and related stocks have been, and are expected to continue to be, volatile and may be
influenced by a wide variety of factors, including speculative activity. This volatility may materially impact us if our clients
experience significant losses. This volatility may also materially impact our financial statements and thus affect our common
stock market price. The SEC and Treasury have continued to focus on registration for certain digital assets and reporting of
transactions to the IRS. Any change in regulations could impact us from both an operational and regulatory perspective.
In addition to new lines of business, we have strategies to acquire and internally develop technologies in order to scale and
diversify our banking capabilities. There may be significant costs to acquire and/or develop such technologies and there is no
certainty as to the timing for these investments to become profitable, if at all.
In developing and marketing new lines of business and/or new products and services, we may invest significant time and
resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may
not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations,
competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business
or a new product or service. For example, as we expand our banking-as-a-service business and consider entering into other
services, there may be heightened regulatory scrutiny of consumer compliance, including clear and transparent account
origination and servicing user experiences and disclosures, such as modifications to consumer products or disclosures required by
the CFPB.
Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our
system of internal controls. All service offerings, including current offerings and those which may be provided in the future, may
become more risky due to changes in economic, competitive and market conditions beyond our control. Failure to successfully
manage these risks in the development and implementation of new lines of business or new products or services could have a
material adverse effect on our business, results of operations and financial condition.
Potential acquisitions may disrupt our business and dilute stockholder value.
We generally seek merger or acquisition partners that are culturally similar, have experienced management and possess either
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significant market presence or have potential for improved profitability through financial management, economies of scale or
expanded services. Acquiring other banks, businesses or branches involves various risks commonly associated with acquisitions,
including, among other things:
l Potential exposure to unknown or contingent liabilities of the target company;
l Exposure to potential asset quality issues of the target company;
l Potential disruption to our business;
l Potential diversion of management’s time and attention;
l Possible loss of key employees and customers of the target company;
l Difficulty in estimating the value of the target company; and
l Potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions typically involve the payment of a premium over book and market values, and therefore, some dilution of our
tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, failure
to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits
from an acquisition could have a material adverse effect on our business, financial condition and results of operations.
Our acquisition of IFH could be more difficult, costly or time-consuming than expected and may fail to realize the
anticipated benefits.
In August 2022, MVB and IFH entered into the Merger Agreement. The Merger Agreement provided that, upon the terms and
conditions therein, IFH would merge with and into MVB, with MVB continuing as the surviving corporation. Following the
Merger, West Town Bank, a state bank chartered under the laws of Illinois and wholly-owned subsidiary of IFH, would merge
with and into MVB Bank, Inc., a West Virginia state chartered bank and wholly-owned subsidiary of MVB, with MVB Bank as
the surviving bank. In January 2023, the Merger Agreement was approved by the board of directors and shareholders of MVB and
IFH. We are awaiting required regulatory approvals in order to execute the Merger.
The success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from combining the businesses
of MVB and IFH, without adversely affecting current revenues and future growth. If MVB and IFH are not able to successfully
achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize
than expected. In addition, the actual cost savings of the Merger could be less than anticipated, and integration may result in
additional and unforeseen expenses.
An inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the
merger agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues,
levels of expenses and operating results of the combined company following the completion of the Merger, which may adversely
affect the value of the common stock of the combined company following the completion of the Merger.
We may face difficulties integrating, retaining employees and operating as a combined company following our merger
with IFH.
MVB and IFH have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that
the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or
inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain
relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the
merger. These integration matters could have an adverse effect on each of MVB and IFH during this transition period and for an
undetermined period after completion of the merger on the combined company.
The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key
employees currently employed by MVB and IFH. If MVB and IFH are unable to retain key employees, including management,
who are critical to the successful integration and future operations of the companies, MVB and IFH could face disruptions in their
operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment
costs. In addition, the combined company’s business activities may be adversely affected, and management’s attention may be
diverted by working to successfully locate, hire and retain suitable replacements, all of which may cause the combined company’s
business to suffer.
Additionally, following the Merger, the size of the business of the combined company will increase beyond the current size of
27
either MVB’s or IFH’s business. Managing this expanded business may pose challenges, including challenges related to the
management and monitoring of new operations and associated increased costs and complexity. The combined company may also
face increased scrutiny from governmental authorities as a result of the increased size of its business. There can be no assurances
that the combined company will be successful or that it will realize the expected operating efficiencies, revenue enhancement or
other benefits currently anticipated from the merger.
We are subject to liquidity risk, which could disrupt the ability to meet our financial obligations.
Liquidity refers to the ability of us to ensure sufficient levels of cash to fund operations, such as meeting deposit withdrawals,
funding loan commitments, paying expenses and meeting periodic payment obligations under certain subordinated debentures
issued by us in connection with the issuance of floating rate redeemable trust preferred securities. The source of the funds for our
debt obligations is dependent on the Bank.
Any significant restriction or disruption of our ability to obtain funding from these or other sources could have a negative effect
on our ability to satisfy our current and future financial obligations, which could materially affect our financial condition.
A deterioration in economic conditions or the loss of confidence in financial institutions may result in deposit base outflows and
limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings and
borrowings from the Federal Reserve and FHLB. In addition, account and deposit balances may decrease when clients perceive
alternative investments, such as the stock market or real estate, as providing a better risk/return tradeoff. Furthermore, the portion
of our deposit portfolio that is comprised of large uninsured deposits may be more likely to be withdrawn rapidly under adverse
economic conditions. If our clients move money out of bank deposits into investments or to other financial institutions, we could
lose a relatively low-cost source of funds.
Limited availability of borrowings and liquidity from the FHLB system and other sources could negatively impact
earnings.
The Bank is currently a member bank of the FHLB of Pittsburgh. Membership in this system of quasi-governmental, regional
home loan-oriented agency banks allows it to participate in various programs offered by the FHLB. The Bank borrows funds from
the FHLB, which are secured by a blanket lien on certain residential and commercial mortgage loans, and if applicable,
investment securities with collateral values in excess of the outstanding balances. Current and future earnings shortfalls and
minimum capital requirements of the FHLB may impact the collateral necessary to secure borrowings and limit the borrowings
extended to their member banks, as well as require additional capital contributions by member banks. Should this occur, the
Bank's short-term liquidity needs could be negatively impacted. If the Bank were restricted from using FHLB advances due to
weakness in the system or with the FHLB of Pittsburgh, it may be forced to find alternative funding sources. If the Bank is
required to rely more heavily on higher cost funding sources, revenues may not increase proportionately to cover these costs,
which would adversely affect results of operations and financial position.
Interruption to our information systems or breaches in security, including as a result of cyberattacks or other cyber
incidents, could adversely affect our operations or otherwise harm our business.
We rely on information systems and communications for operating and monitoring all major aspects of business, as well as
internal management functions. Any failure, interruption, intrusion or breach in security of these systems could result in failures
or disruptions in the customer relationship, management, general ledger, deposit, loan and other systems.
There have been several cyberattacks on websites of large financial services companies. Even if not directed at us specifically,
attacks on other entities with whom we do business, or on whom we otherwise rely, or attacks on financial or other institutions
important to the overall functioning of the financial system could adversely affect, directly or indirectly, aspects of our business.
Cyberattacks on third-party retailers or other business establishments that widely accept debit card or check payments could
compromise sensitive Bank customer information, such as debit card and account numbers. Such an attack could result in
significant costs to the Bank, such as costs to reimburse customers, reissue debit cards and open new customer accounts.
In addition, there have been efforts on the part of third parties to breach data security at financial institutions, including through
the use of social engineering schemes such as “phishing.” The ability of customers to bank remotely, including online and through
mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches. Because
the techniques used to attack financial services company communications and information systems change frequently (and
generally increase in sophistication), attacks are often not recognized until launched against a target and we may be unable to
28
address these techniques in advance of attacks, including by implementing adequate preventative measures. We may also be
unable to prevent attacks that are supported by foreign governments or other well-financed entities and that may originate from
less regulated and remote areas of the world.
The occurrence of any such failure, disruption or security breach of our information systems, particularly if widespread or
resulting in financial losses to our customers, could damage our reputation and our relationships with our partners and customers,
result in a loss of customer business, subject us to additional regulatory scrutiny and expose us to civil litigation and possible
financial liability. These risks could have a material effect on our business, results of operations and financial condition.
We continually encounter technological change and failure to continually adapt to such change could materially
impact our financial condition and results of operations.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services. Our future success depends, in part, upon our ability to address the needs of customers
by using technology to provide products and services that will satisfy customer demands, as well as to create additional
efficiencies in operations. Many of our competitors have substantially greater resources to invest in technological improvements.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these
products and services to our customers. Failure to successfully keep pace with technological change affecting the financial
services industry could have a material adverse effect on our business, financial condition and results of operations.
Consumers may decide not to use banks to complete their financial transactions, or deposit funds electronically with
banks having no branches within our market area, which could affect net income.
Technology and other changes allow parties to complete financial transactions without banks. For example, consumers can pay
bills and transfer funds directly without banks. Consumers can also shop for higher deposit interest rates at banks across the
country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically.
This process could result in the loss of fee income, as well as the loss of client deposits and the income generated from those
deposits, in addition to increasing funding costs.
Our operations rely on certain external vendors who may not perform in a satisfactory manner.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.
Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual
arrangements or service level agreements. We maintain a system of policies and procedures designed to monitor vendor risks
including, among other things, (i) changes in the vendor’s organizational structure; (ii) changes in the vendor’s financial
condition; and (iii) changes in the vendor’s support for existing products and services. The failure of an external vendor to
perform in accordance with applicable contractual arrangements or the service level agreements could be disruptive to operations,
which could have a material adverse impact on our business, financial condition and results of operations.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose
on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found
on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal
injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the
affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may increase exposure to environmental liability.
Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential
environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could
have a material adverse effect on our business, financial condition and results of operations.
Financial services companies depend on the accuracy and completeness of information about customers and
counterparties which, if inaccurate, could have a material adverse impact on our financial condition and results of
operations.
In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of
customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on
29
representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and
completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial
information could have a material adverse impact on our business, financial condition and results of operations.
We are at risk for an adverse impact on business due to damage to our reputation.
Our ability to compete effectively, to attract and retain customers and employees, and to grow our business is dependent on
maintaining our reputation and having the trust of our customers and employees. Many types of developments, if publicized, can
negatively impact a company’s reputation with adverse consequences to our business.
To an increasing extent, financial services companies, including us, may face criticism for engaging in business with specific
customers or with customers in particular industries, where the customers’ activities, even if legal, are perceived as having
harmful impacts on matters such as environment, consumer health and safety or society at large. Criticism can come in many
forms, including for providing banking services to companies engaged in, for example, the gaming industry or cryptocurrency.
Many of these issues are divisive without broad agreement as to the appropriate steps a company should take and often with
strong feelings on both sides. As a result, however we respond to such criticism, we expose ourselves to the risks that current or
potential customers decline to do business with us or current or potential employees refuse to work for us. This can be true
regardless of whether we are perceived by some as not having done enough to address concerns or by others as having
inappropriately yielded to pressures. This pressure can also be a factor in decisions as to which business opportunities and
customers we pursue, potentially resulting in foregone profit opportunities.
We may also face criticism in response to changes in overall strategic direction, the addition of new lines of business, the exit of
current lines of business or with openings or closures of certain banking centers.
Changes in card network rules or standards could adversely affect our business.
We provide merchant services through the third-party business model in which we process credit and debit card transactions on
behalf of merchants. In order to provide such merchant services, we are members of the Visa and MasterCard card brand
networks. As such, we are subject to card network rules that could subject us or our merchants to a variety of fines or penalties
that may be assessed on us and our merchants. The termination of our membership or any changes in card network rules or
standards could increase the cost of operating our merchant servicer business or limit our ability to provide merchant services to
or through our customers and could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to the Legal and Regulatory Environment
Changes in tax law may adversely affect our performance and create the risk that we may need to adjust our
accounting for these changes.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and
ad valorem taxes. Changes to our taxes could have a material adverse effect on our performance. In addition, customers are
subject to a wide variety of federal, state and local taxes. Changes in taxes paid by customers may adversely affect their ability to
purchase homes or consumer products, which could adversely affect their demand for loans and deposit products. In addition,
such negative effects on customers could result in defaults on the loans and decrease the value of mortgage-backed securities in
which we have invested.
We are subject to extensive government regulation and supervision and possible enforcement and other legal actions
that could detrimentally affect our business.
We, primarily through the Bank and certain non-bank subsidiaries, are subject to extensive federal and state regulation and
supervision, which vests a significant amount of discretion in the various regulatory authorities. Banking regulations are primarily
intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders.
These regulations and supervisory guidance affect our lending practices, capital structure, investment practices, dividend policy
and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and
policies for possible changes. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory
regimes. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation
or implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways.
Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase
30
the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws,
regulations, policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities,
including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by
regulatory agencies, civil money penalties and/or reputational damage. In this regard, government authorities, including the bank
regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving
financial activities, which heightens the risks associated with actual and perceived compliance failures. Any of the foregoing
could have a material adverse effect on our business, financial condition and results of operations.
For further detail, please refer to the sections captioned Supervision and Regulation included in Item 1 – Business and Note 16 –
Regulatory Capital Requirements accompanying the consolidated financial statements included elsewhere in this report.
Failure to meet any of the various capital adequacy guidelines which we are subject to could adversely affect our
operations and could compromise our status as a financial holding company.
We and the Bank are required to meet certain regulatory capital adequacy guidelines and other regulatory requirements imposed
by the Federal Reserve Board, the FDIC and the United States Department of Treasury. If we or the Bank fail to meet these
minimum capital guidelines and other regulatory requirements, our financial condition and results of operations would be
materially and adversely affected and could compromise our status as a financial holding company. Please refer to the sections
captioned Supervision and Regulation – Capital Requirements included in Item 1 – Business and Note 16 – Regulatory Capital
Requirements accompanying the consolidated financial statements included elsewhere in this report, for detailed capital guidelines
for bank holding companies and banks.
We are a financial holding company and our sources of funds are limited.
We are a financial holding company and our operations are primarily conducted by the Bank, which is subject to significant
federal and state regulation. Cash available to pay dividends to shareholders of us is derived primarily from dividends paid by the
Bank. As a result, our ability to receive dividends or loans from the Bank is restricted. Under federal law, the payment of
dividends by the Bank is subject to capital adequacy requirements. The Federal Reserve Board and/or the FDIC prohibit a
dividend payment by us or the Bank that would constitute an unsafe or unsound practice. Please refer to the sections captioned
Supervision and Regulation – Limit on Dividends included in Item 1 – Business and Note 16 – Regulatory Capital Requirements
accompanying the consolidated financial statements included elsewhere in this report.
The inability of the Bank to generate profits and pay such dividends to us, or regulator restrictions on the payment of such
dividends to us even if earned, would have an adverse effect on our financial condition and results of operations and our ability to
pay dividends to our shareholders.
In addition, since we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of
the Bank upon the Bank’s liquidation, reorganization or otherwise will be subject to the prior claims of the Bank’s creditors,
which will generally take priority over the Bank’s shareholders.
Risks Related to Our Common Stock
The trading volume in our common stock is less than that of other larger financial services companies.
Shares of our common stock began trading on the Nasdaq Capital Market in December 2017 under the symbol “MVBF” and were
previously traded on the OTC Bulletin Board. There has been limited trading in our shares over the last 12 months. If limited
trading in our common stock continues, it may be difficult for investors to sell such shares in the public market at any given time
at prevailing prices. Also, the sale of a large block of our common stock could depress the market price of the common stock to a
greater degree than a company that typically has a higher volume of trading of our securities.
If we are unable to maintain compliance with Nasdaq listing requirements, our stock could be delisted, and the
trading price, volume and marketability of the stock could be adversely affected.
There can be no assurances that we will be able to maintain compliance with Nasdaq’s present listing standards, or that Nasdaq
will not implement additional listing standards with which we will be unable to comply. Failure to maintain compliance with
Nasdaq listing requirements could result in the delisting of our shares from trading on the Nasdaq system, which could have a
material adverse effect on the trading price, volume and marketability of the common stock.
31
Our stock price can be volatile.
Stock price volatility may make it more difficult for shareholders to resell their common stock when they want and at prices they
find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
l actual or anticipated variations in quarterly results of operations;
l recommendations by securities analysts;
l operating and stock price performance of other companies that investors deem comparable to us;
l news reports relating to trends, concerns and other issues in the financial services industry;
l perceptions in the marketplace regarding us and/or our competitors;
l new technology used, or services offered, by competitors;
l significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors;
l failure to integrate acquisitions or realize anticipated benefits from acquisitions;
l changes in government regulations; and
l geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, including real or anticipated changes in the strength of the economies we serve; industry factors and
general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes, crude oil
price volatility or credit loss trends could also cause our stock price to decrease, regardless of operating results.
Our ability to pay dividends is not certain and we may be unable to pay future dividends. As a result, capital
appreciation, if any, of our common stock may be shareholders' sole opportunity for gains on their investment for the
foreseeable future.
Our ability to pay dividends in the future is not certain. Any future determination relating to dividend policy will be made at the
discretion of our Board of Directors and will depend on a number of factors, including future earnings, capital requirements,
financial condition, future prospects, regulatory restrictions and other factors that our Board of Directors may deem relevant. The
holders of our common stock are entitled to receive dividends when, and if declared by our Board of Directors out of funds legally
available for that purpose. As part of our consideration of whether to pay cash dividends, we intend to retain adequate funds from
future earnings to support the development and growth of our business. In addition, our ability to pay dividends is restricted by
federal policies and regulations and by the terms of our existing indebtedness. It is the policy of the Federal Reserve Board that
bank holding companies should pay cash dividends on common stock only out of net income available over the past year and only
if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. For further
information, please refer to the section captioned Supervision and Regulation – Limit on Dividends in Item 1 – Business included
elsewhere in this report.
General Risk Factors
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. At December 31, 2022, we have no material
weaknesses in our internal control over financial reporting; however, a material weakness could occur in the future. A “material
weakness” is a control deficiency, or combination of significant deficiencies that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be prevented or detected. If we fail to maintain a
system of internal control over financial reporting that meets the requirements of Section 404, we may be subject to sanctions or
investigation by regulatory authorities. Additionally, failure to comply with Section 404 or the report we provide of a material
weakness may cause investors to lose confidence in our financial statements and our stock price may be adversely affected. If we
fail to remedy any material weakness, our financial statements may be inaccurate, we may not have access to the capital markets,
and our stock price may be adversely affected.
32
The value of the securities in our investment securities portfolio may be negatively affected by disruptions in securities
markets.
Due to credit and liquidity risks and economic volatility, making the determination of the value of a securities portfolio is less
certain. A decline in market value associated with these disruptions could result in other-than-temporary or permanent
impairments of these assets, which would lead to accounting charges which could have a material negative effect on the our
financial condition and results of operations.
Our accounting policies and estimates are critical to how we report our financial condition and results of operations,
and any changes to such accounting policies and estimates could materially affect how we report our financial
condition and results of operations.
Accounting policies and estimates are fundamental to how our records and reports our financial condition and results of
operations. Our management makes judgments and assumptions in selecting and adopting various accounting policies and in
applying estimates so that such policies and estimates comply with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain
the valuations of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is
obtained either when earning income, recognizing an expense, recovering an asset, valuing an asset or liability or reducing a
liability. Because of the uncertainty surrounding management's judgments and the estimates pertaining to these matters, actual
outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of
estimates, the Bank could need to significantly increase its allowance for loan losses if actual losses are more than the amount
reserved. Any increase in its allowance for loan losses or loan charge-offs could have a material adverse effect on our financial
condition and results of operations. In addition, we cannot guarantee that we will not be required to adjust accounting policies or
restate prior financial statements. Please refer to the section captioned Allowance for Loan Losses in Item 7 – Management's
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report for further discussion
related to our process for determining the appropriate level of the allowance for loan losses.
Further, from time to time, the FASB and SEC change the financial accounting and reporting standards that govern the
preparation of our financial statements. Recent economic conditions have resulted in continuing scrutiny of accounting standards
by legislators and regulators, particularly as they relate to fair value accounting principles. In addition, ongoing efforts to achieve
convergence between U.S. GAAP and International Financial Reporting Standards may result in changes to U.S. GAAP. These
changes can be hard to predict and can materially impact how we record and reports our financial condition and results of
operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior
period financial statements or otherwise adversely affecting our financial condition or results of operations.
Our accounting estimates and risk management processes rely on analytical and forecasting models which may prove
to be inadequate or inaccurate which could result in unexpected losses, insufficient allowances for loan losses or
unexpected fluctuations in the value of our financial instruments.
The processes we use to estimate our inherent loan losses and to measure the fair value of financial instruments, as well as the
processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results
of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be
accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the
models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models
used for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon
changes in market interest rates or other market measures. If the models we use for determining our probable loan losses are
inadequate, the allowance for loan losses may not be sufficient to support future charge-offs. If the models used to measure the
fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may
not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our
analytical or forecasting models could have a material adverse effect on our business, financial condition and results of
operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
33
ITEM 2. PROPERTIES
We, through the Bank, own our main office located at 301 Virginia Avenue in Fairmont, WV. Our subsidiaries own or lease
various other offices in the counties and cities in which they operate. As of December 31, 2022, we operated eight full-service
banking branches in the locations further described in Item 1 – Business included elsewhere in this report. Four of the eight full-
service banking branches are owned and the remaining four are leased.
No one facility is material to us. Management believes that the facilities are generally in good condition and suitable for the
operations for which they are used.
ITEM 3. LEGAL PROCEEDINGS
From time to time in the ordinary course of business, we and our subsidiaries may be subject to claims, asserted or unasserted or
named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation, in
particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be
predicted with any certainty, and in the case of more complex legal proceedings, the results can be difficult to predict. We are not
aware of any material pending legal proceedings to which we or any of our subsidiaries is a party or of which any of their
property is the subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Capital Market under the symbol “MVBF.”
As of March 15, 2023, we had approximately 850 stockholders of record.
In 2022, 2021 and 2020, we paid dividends totaling $0.68, $0.51 and $0.36, respectively, per share and currently expect that
comparable dividends will continue to be paid in the future.
The following five-year performance graph compares the cumulative total shareholder return (assuming reinvestment of
dividends) on our common stock to the KBW Bank Index and the Russell 2000 Index. The stock performance graph assumes
$100 was invested on December 31, 2017 and the cumulative return is measured as of each subsequent fiscal year end.
Total Return Performance
e
u
l
a
V
x
e
d
n
I
$225
$200
$175
$150
$125
$100
$75
$50
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
Period Ending
MVB Financial Corp.
KBW Bank Index
Russell 2000
Index
MVB Financial Corp.
KBW Bank Index
Russell 2000
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
$
100.00 $
100.00
100.00
90.39 $
80.40
87.82
125.65 $
106.24
108.65
116.29 $
91.76
128.60
212.65 $
123.91
146.21
118.93
94.51
114.69
Equity Compensation Plan Information
Information about our equity compensation plan is disclosed below under Item 12, Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters, in Part III of this Annual Report on Form 10-K.
35
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by Issuer and Affiliated Purchasers
There were no repurchases of common stock during the three months ended December 31, 2022.
ITEM 6. [RESERVED]
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information that management believes is necessary to understand our financial
condition, results of operations and cash flows for the year ended December 31, 2022, as compared to 2021. This information
should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this
report. A discussion of changes in our results of operations from 2020 to 2021 may be found in Item 7 – Management's
Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended
December 31, 2021, filed with the SEC on March 10, 2022. Further, we encourage you to revisit the Forward-Looking Statements
at the beginning of this report.
Executive Summary
During 2022, we adapted our business model due to challenging market conditions, primarily brought on by an environment of
increasing interest rates and a slowing economy. We remained committed to key Fintech industry gaming and payments
initiatives and implemented cost-saving measures. We continue to expand the Bank's treasury services function to support the
banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably
through the expansion of deposit acquisition and fee income strategies through the Fintech division. We entered into agreements
for card issuing and acquiring program sponsorships to further enhance fee income and noninterest income. In addition, we
continue to expand into the Fintech industry through the acquisition of technology in order to scale and diversify our banking
capabilities.
Financial Results
Net interest income increased $34.6 million to $111.8 million, noninterest income decreased $24.3 million to $38.3 million and
noninterest expense increased $19.9 million to $117.4 million during 2022 compared to 2021. Our yield on earning assets (tax-
equivalent) in 2022 was 4.54% compared to 3.52% in 2021. Total loans increased by $526.0 million to $2.40 billion as of
December 31, 2022 from $1.87 billion as of December 31, 2021. Our overall cost of interest-bearing liabilities was 1.03% in 2022
compared to 0.44% in 2021. The increase in earning assets yield, partially offset by the increase in the cost of interest-bearing
liabilities, resulted in an increase in our net interest margin (tax-equivalent) to 4.04% in 2022 from 3.26% in 2021.
Net income in 2022 totaled $15.0 million, compared to $39.1 million in 2021, a decrease of $24.1 million. The 2022 earnings
equated to a return on average assets of 0.5% and a return on average equity of 5.9%, compared to 2021 results of 1.5% and
15.6%, respectively. Basic and diluted earnings per share were $1.23 and $1.17, respectively, in 2022 compared to $3.32 and
$3.10, respectively, in 2021.
Net Interest Income and Net Interest Margin (Average Balance Schedules)
The following tables present, for the periods indicated, information about (1) average balances, the total dollar amount of interest
income from interest-earning assets and the resultant average yields; (2) average balances, the total dollar amount of interest
expense on interest-bearing liabilities and the resultant average rates; (3) the interest rate spread; (4) net interest income and
margin; and (5) net interest income and margin (on a tax-equivalent basis). The average balances presented are derived from daily
average balances.
37
Average Balances and Analysis of Net Interest Income
2022
Interest
Income/
Expense
Average
Balance
Yield/
Cost
Average
Balance
2021
Interest
Income/
Expense
Yield/
Cost
Average
Balance
2020
Interest
Income/
Expense
Yield/
Cost
$ 232,935 $
1,033
1,613
0.69 % $ 249,801 $
24
2.32
10,406
305
201
0.12 % $ 125,259 $
1.93
12,484
191
246
0.15 %
1.97
236,344
139,353
3,496
1.48
$ 231,450
5,166
3.71
201,532
2,405
1.04
6,328
3.14
121,607
144,389
2,448
2.01
5,361
3.71
1,594,069
87,845
5.51
1,387,273
63,551
4.58
4,661
487,044
103,345
203
4.36
15,721
3.23
13,017
12.60
6,646
307,829
15,890
300
4.51
9,662
3.14
2,069
13.02
$ 1,136,858
$
8,966
$ 403,166
6,973
54,434
4.79
422
4.70
18,100
4.49
465
6.67
2,189,119
116,786
5.33
1,717,638
75,582
4.40
1,555,963
73,421
4.72
2,798,784
127,085
4.54
2,410,827
84,821
3.52
1,959,702
81,667
4.17
(22,248)
5,670
244,861
$ 3,027,067
(25,682)
13,874
201,904
$ 2,600,923
(18,079)
26,460
181,439
$ 2,149,522
(Dollars in thousands)
Assets
Interest-bearing deposits in banks
CDs with banks
Investment securities:
Taxable
Tax-exempt 2
Loans and loans held-for-sale: 1 3
Commercial
Tax-exempt 2
Real estate
Consumer
Total loans
Total earning assets
Allowance for loan losses
Cash and due from banks
Other assets
Total assets
Liabilities
Deposits:
Negotiable order of withdrawal
$ 707,282 $
4,724
0.67 % $ 673,547 $
1,612
0.24 % $ 408,110 $
2,521
0.62 %
Money market checking
Savings
IRAs
CDs
Repurchase agreements
FHLB and other borrowings
Senior term loan
Subordinated debt
330,208
1,449
0.44
56,697
6,216
418
0.74
71
1.14
469,010
42,800
9,674
883
0.19
458,606
2,680
0.58
5
0.01
121
1.25
45,420
13,691
6
0.01
218
1.59
170,648
3,814
2.24
134,250
1,355
1.01
349,787
4,869
1.39
10,987
15,494
2,328
73,159
6
0.05
437
163
2.82
7.00
10,821
25,275
—
13
93
—
0.12
0.37
—
3,072
4.20
51,149
2,188
4.28
9,856
68,407
—
7,568
23
0.23
1,049
1.53
—
—
261
3.45
Total interest-bearing liabilities
1,373,019
14,154
1.03
1,416,526
6,270
0.44
1,361,445
11,627
0.85
Noninterest-bearing demand deposits
Other liabilities
Total liabilities
1,357,426
41,098
2,771,543
Stockholders’ equity
Preferred stock
Common stock
Additional paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders' equity attributable to
parent
Noncontrolling interest
Total stockholders' equity
—
13,320
147,728
(16,741)
138,135
(26,918)
255,524
637
256,161
895,024
38,100
2,349,650
730
12,614
140,610
(16,741)
112,842
534
250,589
683
251,272
Total liabilities and stockholders’ equity
$ 3,027,067
$ 2,600,912
502,457
61,169
1,925,071
7,334
12,047
130,312
(2,637)
77,044
351
224,451
—
224,451
$ 2,149,522
Net interest spread (tax-equivalent)
Net interest income and margin (tax-equivalent) 2
Less: Tax-equivalent adjustments
Net interest spread
$ 112,931
(1,128)
3.51
4.04 %
3.47
$ 78,551
(1,392)
3.08
3.26 %
3.02
$ 70,040
(1,214)
3.32
3.57 %
3.25
Net interest income and margin
$ 77,159
1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment
$ 111,803
$ 68,826
3.20 %
3.99 %
3.51 %
38
securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the twelve months ended December 31, 2022, 2021 and 2020, which
is a non-U.S. 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.
3 Our PPP loans, totaling $13.6 million, $131.7 million and $82.0 million at December 31, 2022, 2021 and 2020, respectively, are included in this amount for the
years ended December 31, 2022, 2021 and 2020, respectively.
(Dollars in thousands)
Net interest margin - U.S. GAAP basis
Net interest income
Average interest-earning assets
Net interest margin
Net interest margin - non-U.S. GAAP basis
Net interest income
Plus: Impact of fully tax-equivalent adjustment
Net interest income on a fully-tax equivalent basis
Average interest-earning assets
Net interest margin on a fully tax-equivalent basis
Rate Volume Calculation
Year Ended December 31,
2022
2021
2020
$
111,803
$
77,159
$
2,798,784
3.99 %
2,410,827
3.20 %
$
$
$
111,803
$
77,159
$
1,128
112,931
2,798,784
$
$
4.04 %
1,392
78,551
2,410,827
$
$
3.26 %
68,826
1,959,702
3.51 %
68,826
1,214
70,040
1,959,702
3.57 %
The year over year change in rate volume to 2022 from 2021 is as follows:
(Dollars in thousands)
Earning Assets
Loans:
Commercial
Tax-exempt
Real estate
Consumer
Investment securities:
Taxable
Tax-exempt
Interest-bearing deposits in banks
CDs with banks
Total earning assets
Interest-bearing liabilities
Negotiable order of withdrawal
Money market checking
Savings
IRAs
CDs
Repurchase agreements
FHLB and other borrowings
Senior term loan
Subordinated debt
Total interest-bearing liabilities
Total
Change in Volume
Change in Rate
Total Change
$
$
$
$
9,473 $
(90)
5,625
11,387
51
(1,952)
(21)
(181)
24,292 $
81 $
(261)
2
(43)
367
—
(36)
—
942
1,052
23,240 $
14,821 $
(7)
434
(439)
1,040
790
1,329
4
17,972 $
3,031 $
827
411
(7)
2,092
(7)
380
163
(58)
6,832
11,140 $
24,294
(97)
6,059
10,948
1,091
(1,162)
1,308
(177)
42,264
3,112
566
413
(50)
2,459
(7)
344
163
884
7,884
34,380
39
Key Metrics
(Dollars in thousands, except per share data)
Book value per common share
Tangible book value per common share 4
Efficiency ratio 1 4
Overhead ratio 2 4
Net loan charge-offs to total loans receivable 3
Allowance for loan losses to total loans receivable
Nonperforming loans
Nonperforming loans to total loans receivable
Equity to assets
Community Bank Leverage Ratio
$
$
Year ended December 31,
2022
2021
$
$
20.69
20.25
78.2 %
3.9 %
0.4 %
1.00 %
22.70
22.17
69.7 %
3.7 %
0.1 %
0.98 %
$
11,165
$
17,713
0.5 %
8.5 %
9.8 %
0.9 %
9.8 %
11.6 %
1 Noninterest expense as a percentage of net interest income and noninterest income
2 Noninterest expense as a percentage of average assets
3 Charge-offs less recoveries
4 Non-U.S. GAAP metric
Tangible book value ("TBV") per common share was $20.25 and $22.17 as of December 31, 2022 and 2021, respectively. TBV
per common share is a non-U.S. GAAP measure that we believe is helpful to interpreting financial results. A reconciliation of
TBV per common share is included below.
Goodwill
Intangibles
Total intangibles
Total equity attributable to parent
Less: Total intangibles
Tangible common equity
Tangible common equity
Common shares outstanding (000s)
Tangible book value per common share
Net Interest Income
December 31, 2022
December 31, 2021
$
$
$
$
$
$
3,988 $
1,631
5,619 $
261,084 $
(5,619)
255,465 $
255,465 $
12,618
20.25 $
3,988
2,316
6,304
274,328
(6,304)
268,024
268,024
12,087
22.17
Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-
bearing liabilities. Interest-earning assets include loans, investment securities and certificates of deposit in banks. Interest-bearing
liabilities include interest-bearing deposits and borrowed funds such as sweep accounts, repurchase agreements, subordinated debt
and the senior term loan. Net interest income, which is the primary source of revenue for the Bank, is also impacted by changes in
market interest rates and the mix of interest-earning assets and interest-bearing liabilities.
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 (tax equivalent) was 4.04% in 2022 compared to 3.26% in 2021. The
year over year increase in net interest margin was due primarily to strong loan growth at favorable interest rates during 2022,
primarily driven by our strategic lending partnerships and broad-based growth throughout CoRe Banking business.
40
In 2022, the Federal Reserve raised its key interest rate from a range of 0.00% to 0.25% to a range of 4.25% to 4.50% as of
December 31, 2022. 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.
Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-
bearing liabilities in an effort to maximize net interest, while maintaining an appropriate level of interest rate risk. Net interest
spread (tax-equivalent) was 3.51% in 2022 compared to 3.08% in 2021. The difference between the net interest margin (tax-
equivalent) and net interest spread (tax-equivalent) was 53 basis points in 2022 compared to 18 basis points in 2021. This was
driven by the 102 basis point increase in yield on earning assets and the increase of $462.4 million in average noninterest-bearing
demand deposits outpacing the 59 basis point increase in the cost of interest-bearing liabilities.
During 2022, net interest income increased $34.6 million, or 44.8%. This increase is largely due to the increase in earning assets
of $388.0 million, primarily funded by the increase in average noninterest-bearing demand deposits of $462.4 million. Total
interest income increased $42.5 million, or 51.0%, in 2022. The increase in total interest income was driven by higher yields from
new loan production at favorable interest rates, as well as the change in our loan portfolio, including the increase in consumer
loans and accelerated accretion on PCI loans as a result of a loan sale in the second quarter of 2022, which resulted in the increase
in yield on earning assets of 102 basis points. Average total loans increased $471.5 million in 2022, primarily as the result of a
$206.8 million increase in average commercial loans. The yield on loans increased 93 basis points.
Average investment securities decreased $57.3 million in 2022, or 13.2%, as the result of a $62.2 million decrease in tax-exempt
investments and a $4.9 million increase in taxable investments. The yield on tax-exempt securities increased 57 basis points and
the taxable securities yield increased 44 basis points.
Average interest-bearing liabilities decreased $43.5 million in 2022, or 3.1%, primarily the result of a $138.8 million decrease in
the average balance of money market checking accounts and $9.8 million in FHLB and other borrowings, partially offset by an
increase of $33.7 million in average balance of negotiable order of withdrawal accounts, $22.1 million in subordinated debt and
$36.4 million in certificates of deposit.
Average interest-bearing deposits decreased $58.2 million in 2022. Total interest expense increased by $7.9 million, primarily due
to a $6.5 million increase in deposit interest and a $0.9 million increase in interest on subordinated debt. The result was a 59 basis
point increase in the cost of interest-bearing liabilities, primarily from increases in interest rates, despite the improved deposit mix
resulting from the replacement of high-cost deposits with noninterest-bearing deposits.
The cost of interest bearing liabilities increased to 1.03% in 2022 from 0.44% in 2021. This increase is primarily the result of an
increase of 245 basis points in the cost of FHLB and other borrowings and a 52 basis point increase in the cost of deposits.
Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements
included elsewhere in this report.
Provision for Loan Losses
Our provision for loan losses for 2022 was $14.2 million and our release of allowance for loan losses for 2021 was $6.3 million.
The provision for loan losses, which is a product of management’s analysis, is recorded in response to inherent losses in the loan
portfolio. The increase in loan loss provision is primarily the result of the changes to the outstanding balances of the loan
portfolios, including an increase in our consumer loan segment, level of recognized charge-offs and resulting historical loss rates,
as well as adjustments to the risk grading of loans within the portfolio.
Meanwhile, total loan receivable balances increased $502.8 million in 2022 versus an increase of $415.0 million in 2021. The
commercial loan portfolio increased by $116.5 million in 2022, in comparison to an increase of $332.3 million in 2021, while the
residential mortgage loan portfolio increased by $299.0 million and $53.3 million in 2022 and 2021, respectively. Partially
offsetting the commercial and residential loan volume increases are the decrease in PPP loans, totaling $13.6 million as of
December 31, 2022 compared to $131.7 million as of December 31, 2021. In addition, net charge-offs in 2022 totaled $8.6
million, in comparison to net charge-offs of $1.3 million in 2021. Lastly, the provision for loan losses was impacted by a $1.3
million increase in the specific loan loss allocations in 2022, relative to a $0.8 million decrease in 2021.
Noninterest Income
Payment card and service charge income, consulting compliance income, equity method investment income and gains on sale of
41
loans generally account for the majority of our noninterest income. Also from time to time, we recognize gains or losses on
acquisition and divestiture activity, sales of assets or our investment portfolio. Total noninterest income for 2022, 2021 and 2020
was $38.3 million, $62.6 million and $91.8 million, respectively.
The decrease in noninterest income for 2022 compared to 2021 was primarily the result of a decrease of $18.1 million in equity
method investment income, a $10.8 million decrease in gains on acquisition and divestiture activity, a $6.8 million decrease in
investment portfolio gains and a $2.5 million decrease in gain on sale of portfolio loans. These decreases were partially offset by
increases of $5.9 million in compliance consulting income, $5.0 million in gain on sale of assets, $4.1 million in payment card
and service charge income and $1.9 million in an equity method investment gains.
Equity method investment income decreased $18.1 million, primarily due to lower mortgage banking revenue. Gain on sale of
available-for-sale securities decreased $3.3 million due to the decreased sale of available-for-sale securities totaling $60.6 million
in 2022 compared to $146.0 million in 2021 and market conditions. Gain on sale of portfolio loans decreased $2.5 million
primarily driven by the $3.8 million loss on sale of bitcoin mining loans, which represented our entire crypto-lending exposure as
we elected to exit our bitcoin mining portfolio. This was offset by the gain on sale of SBA loans of $5.5 million. Compliance and
consulting income increased $5.9 million, primarily driven by revenue growth from professional services companies. Gain on sale
of assets increased $5.0 million, primarily due to sale of mortgage servicing rights. Payment card and service charge income
increased $4.1 million due to increased interchange income from our banking-as-a-service relationships and increased service
charges on deposit accounts. The equity method investment gain of $1.9 million resulted from an in substance sale of an equity
method investment from our portfolio.
Noninterest Expense
Noninterest expense was $117.4 million, $97.5 million and $97.1 million in 2022, 2021 and 2020, respectively. Approximately
61%, 62% and 63% of noninterest expense for 2022, 2021 and 2020, respectively, related to personnel costs. Personnel costs are a
significant part of our noninterest expense as such costs are critical to services organizations. The increase relative to the year
ended December 31, 2021 primarily reflects higher salaries and employee benefit costs of $12.0 million as headcount increased in
2022 as compared to 2021, which resulted in a 16% increase in average full time equivalent employees. Beginning in the fourth
quarter of 2022, we implemented cost-savings initiatives to drive a 12% reduction from our annualized third quarter 2022
noninterest expense base, which partially offset the increase related to headcount.
Income Taxes
We incurred income tax expense of $4.1 million, $9.9 million and $9.5 million in 2022, 2021 and 2020, respectively. Our
effective tax rate was 22%, 20% and 20% in 2022, 2021 and 2020, respectively. Our effective tax rate is affected by certain
permanent tax differences caused by statutory requirements in the tax code. The largest permanent difference relates to tax-
exempt interest income related to municipal investments and loans held by us. Other, smaller permanent differences arise from
income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses. For
2022, we expect to file tax returns in 40 states.
Return on Assets and Equity
Assets
Our return on average assets was 0.5% in 2022, compared to 1.5% in 2021. The decreased return in 2022 is a result of a $24.1
million, or 61.6%, decrease in earnings and an increase in average total assets of $426.2 million, or 16.4%, as compared to 2021.
The increase in average total assets was mainly as a result of a $471.5 million, or 27.5%, increase in average total loans and a
$43.0 million, or 21.3%, increase in other assets. The increase in average total loans and other assets were partially offset by a
$16.9 million decrease in average interest-bearing cash balances with banks and a $57.3 million decrease in average investment
securities.
Equity
Our return on average stockholders’ equity was 5.9% in 2022, compared to 15.6% in 2021. The decreased return in 2022 is a
result of a $24.1 million, or 61.6%, decrease in earnings compared to 2021, while average equity increased by $4.9 million to
$255.5 million.
42
Statement of Financial Condition
Cash and Cash Equivalents
Cash and cash equivalents totaled $40.3 million at December 31, 2022, compared to $307.4 million at December 31, 2021. We
believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and
cash equivalents fluctuate daily due to transactions in process and other liquidity demands.
Investment Securities
Investment securities totaled $418.6 million at December 31, 2022, compared to $453.9 million at December 31, 2021.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. The available-for-sale
securities are reported at estimated fair value.
December 31, (Dollars in thousands)
Available-for-sale securities:
United States government agency securities
United States sponsored mortgage-backed securities
United States treasury securities
Municipal securities
Corporate debt securities
Other debt securities
Other securities
Total investment securities available-for-sale
Equity securities
2022
2021
44,814 $
56,571
120,909
138,636
10,560
7,500
824
379,814 $
40,437
76,108
110,389
175,012
11,142
7,500
878
421,466
38,744 $
32,402
$
$
$
At December 31, 2022, 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 security balances during 2022 was primarily driven by unrealized holding
losses. At December 31, 2022, the amortized cost of available-for-sale investment securities totaled $427.1 million, resulting in a
net unrealized loss in the investment portfolio of $47.3 million. Management has the intent and ability to hold the investments to
maturity and they are all high quality investments with no other than temporary impairment. The municipal securities continue to
give us the ability to pledge and to decrease the effective tax rate.
At December 31, 2022, equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in
12 companies with a carrying value of $32.9 million. These securities do not have readily determinable fair values; therefore, they
are classified as equity securities and are recorded at cost and adjusted for observable price changes for underlying transactions
for identical or similar investments.
43
The following table shows the maturities for the available-for-sale investment securities portfolio at December 31, 2022:
Within one year
After one year, but
within five
After five years, but
within ten
After ten years
Total investment
securities
(Dollars in
thousands)
Amortized
Cost
Weighted-
Avg. Yield
Amortized
Cost
Weighted-
Avg. Yield
Amortized
Cost
Weighted-
Avg. Yield
Amortized
Cost
Weighted-
Avg. Yield
Amortized
Cost
Fair
Value
United States
government
agency securities
United States
sponsored
mortgage-backed
securities
United States
treasury
securities
Municipal
securities
Corporate debt
securities
Other debt
securities
Other securities
$
—
— % $
3,695
3.55 % $
24,794
2.45 % $
22,947
2.17 % $
51,436 $ 44,814
—
—
—
1,374
4.08
2,581
1.77
64,312
1.84
68,267
56,571
—
130,689
1.15
—
—
—
—
130,689
120,909
280
4.21
912
4.78
4,575
3.37
152,075
3.54
157,842
138,636
4,754
8.00
3,900
10.36
1,916
6.16
—
—
—
—
—
—
—
—
7,500
824
—
—
—
—
—
—
—
—
10,570
10,560
7,500
824
7,500
824
Total
$
5,034
7.79 % $ 140,570
1.52 % $
42,190
2.20 % $ 239,334
2.95 % $ 427,128 $ 379,814
Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or early redemptions that
may occur.
Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through the Asset and
Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in the management of interest
rate risk for us. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity
is maintained to satisfy depositor requirements and the various credit needs of our customers. Management believes the risk
characteristics inherent in the investment portfolio are acceptable based on these parameters.
Loans
Our primary market areas are North Central West Virginia and Northern Virginia. The 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 $2.37 billion as of December 31, 2022, an increase of $502.8 million from $1.87 billion as of
December 31, 2021.
Major classification of loans held for investment at December 31, are as follows:
(Dollars in thousands)
Business
Real estate
Acquisition, development and construction
Commercial
Residential
Home equity lines of credit
Consumer
Total loans
Deferred loan origination fees and costs, net
Loans receivable
$
$
$
$
2022
2021
851,072 $
632,839
126,999
1,610,910 $
609,452
18,734
131,566
2,370,662 $
1,983
2,372,645 $
821,615
572,736
100,080
1,494,431
310,498
22,186
44,332
1,871,447
(1,609)
1,869,838
At December 31, 2022, commercial and non-residential real estate loans represented the largest portion of the portfolio at 68.0%.
Commercial and non-residential real estate loans totaled $1.61 billion at December 31, 2022, compared to $1.49 billion at
December 31, 2021. Management expects to continue to focus on the enhancement and growth of the commercial loan portfolio
while maintaining appropriate underwriting standards and risk/price balance. Paycheck Protection Program (“PPP”) loans are
included in the totals above and have outstanding balances of $13.6 million and $131.7 million as of December 31, 2022 and
2021, respectively.
44
Residential real estate loans to retail customers, including PCI loans, account for the second largest portion of the loan portfolio,
comprising 25.7%. Residential real estate loans totaled $609.5 million at December 31, 2022, compared to $310.5 million at
December 31, 2021. Management believes residential real estate lending continues to represent a primary focus due to the lower
risk factors associated with this type of loan and the opportunity to provide service to those in the North Central West Virginia
and Northern Virginia markets.
Consumer loans totaled $131.6 million at December 31, 2022, compared to $44.3 million at December 31, 2021. This increase
was concentrated in two loan products: purchased automotive loans originated by a third-party in Puerto Rico, which increased
from $40.7 million at December 31, 2021 to $84.5 million at December 31, 2022, and purchased residential real estate loans also
originated by a third-party, which we began purchasing in 2022 and had a balance of $35.4 million at December 31, 2022.
At December 31, 2022, Special Mention loans amounted to $31.3 million compared to $30.3 million. The balance is comprised of
40 loans, which include two loans totaling $11.9 million to a single borrower for commercial real estate hospitality loans,
$5.3 million to finance two multifamily housing construction projects to two related borrowers, a $4.8 million commercial real
estate loan to a senior care facility and a $2.1 million commercial real estate loan to finance an office building. In addition, there
are 34 loans to various unrelated borrowers totaling $7.2 million in commercial, home equity line of credit ("HELOC"),
installment and mortgage loans. These are loans for which information about the borrowers’ possible credit problems causes
management to have doubts as to the borrowers’ ability to comply with the loan repayment terms in the future. However, most of
these loans were significantly impacted by the pandemic and as a result have qualified for government financial support and/or
debt service relief from the Bank. These loans are being monitored closely, but were not considered impaired loans at
December 31, 2022.
There were 12 additional loans that management identified as Substandard loans not yet impaired, totaling $23.5 million as of
December 31, 2022. These loans include $19.2 million in three loans to finance hospitality properties to three related borrowers, a
$2.0 million loan to finance a multifamily real estate property, a $1.0 million loan secured by receivables and a $0.9 million loan
secured by residential lots. In addition, there are six loans to various unrelated borrowers totaling $0.3 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 12 loans discussed above, as to the borrowers’ ability to comply with the loan
repayment terms in the future. Most of these loans were significantly impacted by the pandemic and as a result have qualified for
government financial support and/or debt service relief from the Bank. These loans are being monitored closely, but as of year-
end were not considered impaired loans.
The following table provides loan maturities at December 31, 2022:
(Dollars in thousands)
Commercial
Residential
Home equity lines of credit
Consumer
Total loans
One Year
or Less
One Through
Five Years
Five Through
Fifteen Years
Due After
Fifteen Years
Total
$
$
355,221 $
85,405
1,051
4,216
445,893 $
871,266 $
491
1,486
29,362
902,592 $
351,645 $
8,155
540
56,017
416,358 $
32,778 $ 1,610,910
609,452
515,401
18,734
15,657
41,971
131,566
605,819 $ 2,370,662
The following table reflects the sensitivity of loans to changes in interest rates as of December 31, 2022 that mature after one
year:
(Dollars in thousands)
Predetermined fixed interest rate
Floating or adjustable interest rate
Total as of December 31, 2022
Loan Concentration
Commercial and
non-residential
real estate
Residential
Home equity
lines of credit
Consumer
Total
$
$
547,102 $
220,172 $
46 $
84,625 $
851,945
1,063,808
389,280
18,688
46,941
1,518,717
1,610,910 $
609,452 $
18,734 $
131,566 $ 2,370,662
At December 31, 2022, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. A
large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and
industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While
45
the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in
numerous different industries, primarily located in our market areas.
Allowance for Loan Losses
Management is responsible for establishing the allowance for loan losses (“ALL”) and the Loan Review Committee provides
oversight for the adequacy of the ALL. The Committee’s determination is based on management’s assessment of risk in the loan
portfolios which is calculated through the ALL model. Management continually monitors the risk in the loan portfolio through
routine delinquency reporting and the internal loan review system, which directly inform the ALL calculation. Specific loss
estimates are derived for individual loans based on specific criteria such as current delinquent status, related deposit account
activity where applicable and changes in the local and national economy. When appropriate, management also considers public
knowledge and/or verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.
The result of the evaluation of the adequacy at each period presented herein indicated that the ALL was considered by
management to be adequate to absorb losses inherent in the loan portfolio.
At December 31, 2022 and 2021, impaired loans totaled $15.9 million and $22.5 million, respectively. A portion of the ALL of
$1.7 million and $0.5 million was allocated to cover any loss in these loans at December 31, 2022 and 2021, respectively. Loans
past due more than 30 days were $15.5 million and $18.1 million, respectively, at December 31, 2022 and 2021.
Loans past due more than 30 days to gross loans
Loans past due more than 90 days to gross loans
December 31,
2022
2021
0.7 %
0.1 %
1.0 %
0.5 %
For tables reflecting the allocation of the ALL, please refer to Note 3 – Loans and Allowance for Loan Losses accompanying the
consolidated financial statements included elsewhere in this report.
The following table summarizes the primary segments of the ALL, excluding the ALL related to loans individually evaluated for
impairment as of December 31, 2022 and 2021:
(Dollars in thousands)
2022
2021
December 31,
Commercial and non-residential real estate
Residential
Home equity lines of credit
Consumer and other
Total
Amount
% of loans in each
category to total loans
Amount
$
$
15,539
2,880
131
5,287
23,837
68 % $
26
1
5
100 % $
14,100
1,492
128
2,546
18,266
% of loans in each
category to total loans
80 %
17
1
2
100 %
The ALL increase in the consumer and other loan segment was driven by a $43.8 million increase in purchased automotive loans
throughout 2022. This segment realizes elevated charge offs, and therefore is allocated against at a much higher rate than
commercial, residential or home equity. We continue to monitor this segment closely.
Non-performing assets consist of loans that are no longer accruing interest, loans that have been renegotiated to below market
rates based upon financial difficulties of the borrower and real estate acquired through foreclosure. When interest accruals are
suspended, accrued interest income is reversed with current year accruals charged to earnings and prior year amounts generally
charged off as a credit loss. 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
approximately $0.5 million, $0.4 million and $0.6 million for 2022, 2021 and 2020, respectively, if loans had performed in
accordance with their terms.
46
Non-performing assets and past due loans as of December 31, are as follows:
(Dollars in thousands)
Non-accrual loans
Commercial
Real estate and home equity
Consumer and other
Total non-accrual loans
Accruing loan past due 90 days or more
Total non-performing loans
Other real estate, net
Total non-performing assets
Allowance for loan losses
Non-performing loans to gross loans
Allowance for loan losses to total loans
Allowance for loan losses to non-performing loans
Non-performing assets to total assets
$
$
$
2022
2021
$
$
$
7,528
2,286
1,351
11,165
—
11,165
1,194
12,359
23,837
0.5 %
1.0 %
213.5 %
0.4 %
9,845
7,853
259
17,957
—
17,957
2,330
20,287
18,266
0.9 %
1.0 %
103.1 %
0.7 %
Impaired loans have decreased by $6.6 million, or 29.3%, during 2022. This change is the net effect of multiple factors, primarily
the reclassification of $5.9 million of previously reported impaired loans to performing loans, the identification of $3.4 million of
recently impaired loans, principal curtailments/payoffs of $1.1 million, normal loan amortization of $2.9 million and $0.1 million
in charge offs.
The $3.4 million of recently impaired loans were concentrated in sixty-seven purchased subprime auto loans totaling $1.1 million,
or 32%, of the recently impaired loans and one commercial loan representing $0.9 million, or 26%, of the recently impaired loans.
The subprime auto loans change on a quarterly basis as individual loans are either charged off or resume payments. The
commercial loan is currently involved in legal proceedings.
The $1.1 million of principal curtailments/payoffs were concentrated in two commercial relationships, one in which the note was
curtailed through the sale of collateral, and one in which two notes to a single borrower were refinanced into a third restructured
note. These two relationships represented $0.8 million, or 74%, of the total principal curtailments.
The $0.1 million of charged off loans were concentrated in one mortgage relationship representing $0.1 million, or 100%, of the
charge offs. The relationship of $0.1 million is secured by a residence.
Loans classified as Special Mention totaled $31.3 million and $30.3 million as of December 31, 2022 and December 31, 2021,
respectively. The increase of $1.0 million, or 3.3%, was concentrated in the commercial loan portfolio. This increase is primarily
the result of the payoff of 27 existing loans totaling $5.2 million to 16 borrowers, the risk grade upgrade of three loans to two
separate loan relationships, totaling $10.0 million, offset by the risk grade downgrade of six loans to four relationships, totaling
$4.5 million. There were also two loans originated in 2022 that were classified as Special Mention at year end, totaling $4.5
million, a commercial real estate hotel note of $4.5 million and a commercial note of less than $0.1 million. Of the 11 loans
recently classified as Special Mention, there were two commercial real estate hotel loans to one relationship for $11.9 million, two
commercial real estate loans secured by movie theaters totaling $2.5 million and a PPP commercial loan for $2.0 million. The
$5.2 million in payoffs included one note to a relationship totaling $4.2 million secured by an industrial trucking property, thirteen
notes to five borrowers previously associated with purchased loans totaling $0.9 million and seven remaining notes to various
borrowers totaling $0.1 million.
Loans classified as Substandard totaled $35.3 million and $63.9 million as of December 31, 2022 and December 31, 2021,
respectively. The decrease of $28.6 million, or 44.8%, was concentrated in the commercial loan portfolio. The decrease is
primarily due the risk grade upgrade of seven loans to six separate commercial and mortgage loan relationships, totaling $18.1
million, the payoff of 49 existing loans totaling $4.5 million and the continued curtailment of the loans that remained within the
portfolio. This decrease is further enhanced by the downgrade to Substandard of three residential mortgages totaling $1.3 million.
The $4.5 million in payoffs included a 30 notes to 14 borrowers previously associated with purchased loans totaling $2.8 million
and nineteen remaining notes to various borrowers totaling $1.7 million.
47
Loans classified as Doubtful totaled $4.7 million and $6.2 million as of December 31, 2022 and December 31, 2021, respectively.
The decrease of $1.5 million, or 24.2%, was concentrated in the commercial loan portfolio and is the result of the implementation
of the workout of these loans resulting in principal reduction from paydowns, loan sales and foreclosures of various loans to
unrelated borrowers obtained as part of the First State acquisition, as well as a charge-off of a commercial loan totaling $0.1
million secured by residential real estate. As of December 31, 2022, there is $1.0 million in calculated loan loss reserve allocation
against seven legacy MVB loans totaling $2.5 million. The largest of purchased loans had a balance of $1.3 million, while the
remaining two loans had balances totaling $0.4 million.
Funding Sources
The Bank considers a number of alternatives, including but not limited to deposits, short-term borrowings and long-term
borrowings when evaluating funding sources. Deposits continue to be the most significant source of funds, totaling $2.57 billion,
or 92.9% of funding sources, at December 31, 2022, versus $2.38 billion, or 96.6% of such funding sources, at December 31,
2021. Of these amounts, gaming deposits totaled $652.1 million and $911.6 million at December 31, 2022 and 2021, respectively.
Borrowings, consisting of subordinated debt, senior term loan and FHLB and other borrowings represented 6.7% of funding
sources at December 31, 2022, versus 3.0% at December 31, 2021. Repurchase agreements, which are available to large corporate
customers, represented 0.4% and 0.5% of funding sources at December 31, 2022 and 2021, respectively.
Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for the
Company. At December 31, 2022, noninterest-bearing balances totaled $1.23 billion, compared to $1.12 billion at December 31,
2021, or 47.9% and 47.1%, respectively, of total deposits. Interest-bearing deposits totaled $1.34 billion at December 31, 2022,
compared to $1.26 billion at December 31, 2021, or 52.1% and 52.9%, respectively, of total deposits.
The following table sets forth the balance of each of the deposit categories for the years ended December 31, 2022 and
2021:
(Dollars in thousands)
Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand
Interest-bearing demand
Savings and money markets
Time deposits including CDs and IRAs
Total deposits
Time deposits that meet or exceed the FDIC insurance limit
2022
2021
$
$
$
1,231,544 $
720,074
284,447
334,417
2,570,482 $
1,120,433
651,016
510,068
96,088
2,377,605
4,386 $
9,573
Average interest-bearing deposits totaled $1.27 billion during 2022 compared to $1.33 billion during 2021. Average noninterest
bearing deposits totaled $1.36 billion during 2022 compared to $895.0 million during 2021.
Maturities of time deposits that met or exceeded the FDIC insurance limit as of December 31, 2022:
(Dollars in thousands)
Under three months
Over three to 12 months
Over one to three years
Over three years
Total
$
$
2022
1,581
1,497
—
1,308
4,386
Along with deposits, the Bank has access to both short-term borrowings from FHLB and overnight repurchase agreements to fund
its operations and investments. For details on our borrowings, please refer to Note 7 – Borrowed Funds accompanying the
consolidated financial statements included elsewhere in this report.
Capital Resources
During the year ended December 31, 2022, stockholders’ equity decreased approximately $13.9 million to $261.4 million from
$275.3 million. This decrease consists of net income for the year of $14.4 million, common stock options exercised totaling $2.1
million, stock-based compensation of $2.8 million, common stock issued related to Warp Speed acquisition of $9.6 million and
stock-based compensation related to equity method investment of $0.4 million, respectively. These changes were offset by a $34.1
48
million decrease in accumulated other comprehensive income, dividends paid to common shareholders totaling $8.4 million and
minimum tax withholding on restricted stock units issued of $0.7 million, respectively.
With stockholders’ equity decreasing as noted above and with the growth in assets of $276.5 million, the equity to assets ratio
decreased from 9.8% at December 31, 2021 to 8.5% at December 31, 2022. We paid dividends to common shareholders of $8.4
million in 2022 and $6.0 million in 2021, compared to earnings of $15.0 million in 2022 versus $39.1 million in 2021, resulting in
an increase in the dividend payout ratio to 55.5% in 2022 from 15.4% in 2021.
We and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on our consolidated financial statements. The Bank is required to comply
with applicable capital adequacy standards established by the federal banking agencies. West Virginia state chartered banks, such
as the Bank, are subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions. Bank
regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios
reflect the relative risks of various assets companies hold in their portfolios. A weight category of 0% (lowest risk assets), 20%,
50%, 100% or 150% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning our risk-
based capital ratios can be found in Supervision and Regulation in Item 1 – Business and Note 16 – Regulatory Capital
Requirements accompanying the consolidated financial statements included elsewhere in this report.
The optional CBLR framework, which is issued through interagency guidance, intends to provide a simple alternative measure of
capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA. Under the CBLR, if a qualifying
depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital
to average total consolidated assets (i.e., leverage ratio) exceeds a 9% threshold, subject to a limited two quarter grace period,
during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to
calculate and report risk-based capital ratios.
In April 2020, under the CARES Act, the 9% leverage ratio threshold was temporarily reduced to 8% in response to the
COVID-19 pandemic. The threshold increased to 8.5% in 2021 and has returned to 9% in 2022. 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:
●
●
●
●
●
Total assets of less than $10 billion;
Total trading assets plus liabilities of 5% or less of consolidated assets;
Total off-balance sheet exposures of 25% or less of consolidated assets;
Cannot be an advanced approaches banking organization; and
Leverage ratio greater than 9% or temporarily prescribed threshold established in response to COVID-19.
The Bank's CBLR at December 31, 2022 was 9.83%, which is above the well-capitalized standard of 9%. Management currently
believes that capital continues to provide a strong base for profitable growth.
Liquidity
Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the
ability to meet anticipated operating cash needs, loan demand and deposit withdrawals without incurring a sustained negative
impact on net interest income. It is our policy to optimize the funding of the balance sheet, continually balancing the stability and
cost factors of various funding sources. We believe liquidity needs are satisfied by the current balance of cash and cash
equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan
portfolios that mature within one year. These sources of funds should enable us to meet cash obligations as they come due.
Our main source of liquidity comes through deposit growth. Liquidity is also provided from cash generated from investment
maturities, principal payments from loans and income from loans and investment securities. During the year ended December 31,
2022, cash flows from operating, investing and financing activities totaled $65.2 million, ($629.0) million and $296.6 million,
respectively. Cash flows from operating, investing and financing activities during the year ended December 31, 2021 totaled
$34.8 million, ($572.0) million and $580.7 million, respectively. Significant changes in operating cash flows during the year
ended December 31, 2022 include proceeds of loans sold of $141.3 million, primarily consisting of the SBA lending program,
sale of PCI loans and subprime consumer loans, partially offset by loans originated for sale of $101.4 million related to the SBA
lending program. Additionally, significant changes in operating cash flows during the year include outflows in other liabilities of
49
$12.4 million, primarily related to federal tax liability and SBA participation payments in process. Significant changes in cash
flows from investing activities during the year include outflows of $576.3 million from net increase in loans, $89.6 million from
purchases of available-for-sale investment securities, $61.2 million from purchases of restricted bank stock and $38.4 million of
purchases of equity method investments. These outflows were partially offset by cash inflows of $60.6 million in sales of
available-for-sale investment securities, $53.0 million in redemptions of restricted bank stock and $21.0 million in maturities/
paydowns of available-for-sale investment securities. Significant changes in cash flow from financing activities during the year
include a decrease in the net change in deposits of $192.9 million in 2022 compared to $558.3 million in 2021, partially offset by
the increased cash of $102.3 million from FHLB and other borrowings. When appropriate, the Bank has the ability to take
advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs,
the Federal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. Additionally, on
March 12, 2023, the Federal Reserve implemented the Bank Term Funding Program to support federally-insured depository
institutions in response to prevailing market uncertainty about the banking industry resulting from the insolvencies of certain
regional depository institutions. These external sources often provide attractive interest rates and flexible maturity dates that
enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as
available-for-sale and can be utilized as an additional source of liquidity.
We have an effective shelf registration covering $75 million of debt and equity securities, all of which is available, subject to
authorization from the Board of Directors and market conditions, to issue debt or equity securities at our discretion. While we
seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to
sell securities on acceptable terms, or at all.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. Our significant accounting policies are described in Note 1
– Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this
report. The preparation of these statements requires us to make certain assumptions, judgments and estimates that affect the
reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities and
commitments as of the date of our financial statements. We analyze and base our estimates on historical experience and various
other assumptions that we believe to be reasonable under the circumstances. Changes in facts and circumstances or additional
information may result in revised estimates and actual results may differ from these estimates. We have identified the following
estimate as critical to the understanding of our financial position and results of operations and which require the application of
significant judgment by management.
Allowance for Loan Losses
The ALL represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of
the ALL requires significant judgment and the use of estimates related to the amount and timing of losses inherent in the loan
portfolio consisting of specific and general components.
We estimate the general component of the ALL based on the Bank’s historical loss experience and consideration of qualitative
factors, both internal and external, all of which may be susceptible to significant change. The qualitative factors include items
such as the nature and volume of the portfolio; the volume and severity of problem credits; collateral values; portfolio
concentrations; economic and business conditions; lending policies and procedures; experience of lending management and staff;
and quality of the loan review system. Within each of our eight portfolio segments, each of these individual factors are assigned a
rating between zero and seven, representing a measure of the risk that we believe each factor creates for the Bank's loan portfolio.
Each factor is also weighted based on the relative risk we believe it poses to the Bank’s portfolio to determine a proportionate risk
rating. As of December 31, 2022, the "economic and business conditions" factor was generally the highest weighted qualitative
factor, with a weighting of 25% to 30%, and given a risk grade of three out of seven for seven of the eight portfolio segments.
Increasing the risk grade by one for all segments would have resulted in an additional allowance of approximately $3.2 million at
December 31, 2022 and decreasing the risk grade by one would have resulted in a reduction to the allowance of approximately
$1.7 million.
In addition to the above judgments and estimates, the specific reserves on impaired loans is an important input to the ALL due to
the increased risks inherent in those loans. This evaluation requires significant judgment and estimates related to the amount and
timing of expected future cash flows and collateral values. To the extent actual outcomes differ from our estimates, we may need
additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings.
50
Recent Accounting Pronouncements and Developments
Recent accounting pronouncements and developments applicable to us are described further in Note 1 – Summary of Significant
Accounting Policies accompanying the consolidated financial statements included elsewhere in this report.
51
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk refers to potential losses arising from, amongst other items, changes in interest rates, foreign exchange rates, equity
prices and commodity prices. Our market risk is composed primarily of interest rate risk. The ALCO is responsible for reviewing
the interest rate sensitivity position and establishes policies to monitor and coordinate our sources, uses and pricing of funds.
Interest Rate Risk
The objective of the asset/liability management function is to structure the balance sheet in ways that maintain consistent growth
in net interest income and minimize exposure to market risks within our policy guidelines. This objective is accomplished through
management of balance sheet liquidity and interest rate risk exposure based on changes in economic conditions, interest rate
levels and customer preferences. We manage balance sheet liquidity through the investment portfolio, sales of commercial and
residential real estate loans and through the utilization of diversified funding sources, including retail deposits, a variety of
wholesale funding sources and borrowings through the FHLB. Interest rate risk is managed through the use of interest rate caps,
commercial loan swap transactions and interest rate lock commitments on mortgage loans held-for-sale, as well as the structuring
of loan terms that provide cash flows to be consistently re-invested along the rate cycle.
Our primary market risk is interest rate fluctuation. Interest rate risk results from the traditional banking activities in which the
Bank engages, such as gathering deposits and extending loans. Many factors, including economic conditions, financial conditions,
movements in interest rates and consumer preferences affect the difference between interest earned on assets and interest paid on
liabilities. Our interest rate risk represents the levels of exposure our income and market values have to fluctuations in interest
rates. Interest rate risk is measured as the change in earnings and the theoretical market value of equity that results from changes
in interest rates. The ALCO oversees the management of interest rate risk and our objective is to maximize stockholder value,
enhance profitability and increase capital, serve customer and community needs and protect us from any material financial
consequences associated with changes in interest rates.
Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); changing
rate relationships across yield curves that affect bank activities (basis risk); changing rate relationships across the spectrum of
maturities (yield curve risk); and interest rate related options embedded in certain bank products (option risk). Changes in interest
rates may also affect a bank’s underlying economic value. The values of a bank’s assets, liabilities and interest-rate related, off-
balance sheet contracts are affected by changes in rates because the present values of future cash flows, and in some cases the
cash flows themselves, are changed when discounting by different rates.
We believe that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management and
the Board of Directors have chosen an interest rate risk profile that is consistent with our strategic business plan. While
management carefully monitors the exposure to changes in interest rates and takes actions as warranted to decrease any adverse
impact, there can be no assurance about the actual effect of interest rate changes on net interest income.
Our Board of Directors has established a comprehensive interest rate risk management policy, which is administered by the
ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a
measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at
risk) resulting from a hypothetical change in interest rates. We measure the potential adverse impacts that changing interest rates
may have on short-term earnings, long-term value and liquidity by employing simulation analysis through the use of computer
modeling. The simulation model captures optionality factors, such as call features and interest rate caps and floors embedded in
investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent
in the interest rate modeling methodology employed. When interest rates change, actual movements in different categories of
interest-earning assets and interest-bearing liabilities, loan prepayments and withdrawals of time and other deposits, may deviate
significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher
rates may have on adjustable-rate loan customers’ ability to service their debts or the impact of rate changes on demand for loan
and deposit products.
A base case forecast is prepared using market consensus rate forecasts and alternative simulations reflecting more and less
extreme behavior of rates each quarter. The analysis is presented to the ALCO and the Board of Directors. In addition, more
frequent forecasts are produced when interest rates are particularly uncertain, when other business conditions so dictate, or when
necessary to model potential balance sheet changes.
The balance sheet is subject to quarterly testing for interest rate shock possibilities to indicate the inherent interest rate risk.
Average interest rates are shocked by +/- 100, 200, 300 and 400 basis points (“bp”). The goal is to structure the balance sheet so
52
that net interest-earnings at risk over 12-month and 24-month periods and the economic value of equity at risk do not exceed
policy guidelines at the various interest rate shock levels and scenarios.
At December 31, 2022, we are shown in an asset sensitive position for the first year after rate shocks. Management continuously
strives to reduce higher costing fixed rate funding instruments, while increasing assets that are more fluid in their repricing.
Theoretically, an asset sensitive position is more favorable in a rising rate environment, since more assets than liabilities will
reprice in a given time frame as interest rates rise. Similarly, a liability sensitive position is theoretically favorable in a declining
interest rate environment, since more liabilities than assets will reprice in a given time frame as interest rates decline.
Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of
the direction of interest rates.
Estimated Changes in Net Interest Income
Change in interest rates
Policy Limit
December 31, 2022
December 31, 2021
(25.0) %
30.0 %
55.4 %
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
(20.0) %
21.3 %
39.9 %
(15.0) %
12.5 %
24.6 %
(10.0) %
4.1 %
10.4 %
(10.0) %
(13.3) %
(9.2) %
(15.0) %
(22.7) %
(13.7) %
(20.0) %
(31.7) %
(15.9) %
(25.0) %
(38.7) %
(16.5) %
Net interest income is first compared to the Global Insight Rate Forecast that we received from a third-party banking solution.
This establishes an expectation of interest rate movement over the next two years. Then, the shocks are applied based on the rate
expectation. In comparing the expectations as of each of December 31, 2021 and December 31, 2022, at December 31, 2021, the
expectation was that interest rates were going to rise and, accordingly volatility was higher in the up-rate shocks due to the rates
also being assumed to be rising based on the forecast. That is also why the shock is less in the down rate environment, which
would be closer to a flat rate environment, rather than a true down-rate environment. At December 31, 2022, the expectation is for
rates to move slightly throughout the next year, then drop slightly over year two. Due to that forecast, volatility is higher in down-
rate environments as rates are expected to remain close to flat.
Net interest income at risk exceeded policy limits in the -100 bp, -200 bp, -300 bp and -400 bp parallel instantaneous interest rate
shock scenarios. The policy violations in these scenarios are driven largely by the general level or market interest rates described
above, as well as our cost of funding. Our deposit costs are low and have little room to reprice to a lower interest rate in a falling
rate environment. However, our floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling
rate environment.
The discussion above assumes net interest income at risk in various shock scenarios; scenarios in which interest rates immediately
move by a large margin. Our net interest income profile exhibits declining net interest income when rates fall gradually; however,
the impact is not as extreme as is suggested in a shock scenario. A gradual interest rate decline scenario smooths the impact of
falling rates over a 12 or 24 month period. Our expectation is that over any given one to two year period, interest rates will likely
move at a gradual pace.
As interest rates fall, mortgage companies experience a higher volume of loan originations and refinance activity. This benefit is
not reflected in measures of net interest income at risk, as origination and refinance activity are classified as fee income. This
increase in fee income represents a benefit to net income that offsets the losses to net interest income experienced in a falling rate
environment.
The measures of equity value at risk indicate the ongoing economic value of us by considering the effects of changes in interest
rates on all of our cash flows and by discounting the cash flows to estimate the present value of assets and liabilities. The
difference between these discounted values of the assets and liabilities is the economic value of equity, which theoretically
approximates the fair value of our net assets.
Estimated Changes in Economic Value of Equity (EVE)
Change in interest rates
Policy Limit
December 31, 2022
December 31, 2021
(35.0) %
14.7 %
14.2 %
(25.0) %
11.4 %
10.8 %
+300 bp
+400 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
(17.0) %
8.0 %
8.7 %
(12.0) %
3.9 %
4.5 %
(12.0) %
(4.6) %
(7.8) %
(17.0) %
(11.4) %
(12.2) %
(25.0) %
(19.9) %
(6.2) %
(35.0) %
(29.3) %
(0.5) %
The increase in economic value of equity in rising rate environments is largely attributable to the effect that an increase in interest
rates has on the present value of non-interest-bearing deposits. The discount rate for non-interest-bearing deposits rises as interest
rates rise; however, these deposits pay a rate of zero. The cost of these liabilities does not increase as interest rates rise, but the
53
discount rate applied to the expected future cash flows of these liabilities increases with interest rates. Any increase in the market
rates used to discount the cash flows of these liabilities reduces the present value of these liabilities. The decrease in present value
of these liabilities results in a net increase to economic value of equity. A falling rate environment would result in a higher net
present value for these liabilities and would lead to a net decrease to economic value of equity.
Additionally, interest-bearing deposits contribute to the large declines in economic value of equity in falling rate environments as
a result of their low cost. Interest-bearing deposit costs are modeled with a floor of zero, meaning that the interest rates paid on
deposits cannot be negative. In the event of a large downward interest rate shock, deposit costs would not move below zero.
However, the discount rates applied to the expected future cash flows of these deposits could sustain a large decline in interest
rates before reaching zero. This has the effect of increasing the present value of the interest-bearing-deposit liability and
ultimately decreasing economic value of equity.
Credit Risk
We have counter-party risk which may arise from the possible inability of third-party investors to meet the terms of their forward
sales contracts. We work with third-party investors that are generally well-capitalized, are investment grade and exhibit strong
financial performance to mitigate this risk. We monitor the financial condition of these third parties on an annual basis and we do
not currently expect these third parties to fail to meet their obligations.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
55
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors
MVB Financial Corp. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MVB Financial Corp. and
Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of
income, comprehensive income, changes in stockholders' equity, and cash flows, for each of the three
years in the period ended December 31, 2022, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2022 and 2021, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16,
2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
56
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
financial statements that was communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of the critical
audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses
As described in Notes 1 and 3 to the financial statements, the Company’s allowance for loan losses
(“allowance”) balance was $23.8 million on gross loans of $2.36 billion as of December 31, 2022, and
consisted primarily of specific and general components. The specific component relates to loans that are
impaired. The general component covers all loans that are not impaired and is based upon historical loss
experience adjusted for qualitative factors. The amount of the allowance is based on management’s
continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of
current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and
anticipated loss experience and the amount of non-performing loans. Certain qualitative factors are
evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in
the historical loss percentages. The allowance evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
We identified the Company’s estimate of the qualitative factor adjustments applied in the allowance
calculation, as a critical audit matter. The principal considerations for our determination of the allowance
for loan losses as a critical audit matter are the complexity and subjectivity involved in developing the
qualitative factor assumptions used by management in their allowance model to calculate the reserve as
well as the significant auditor judgments made in evaluating this estimate. Due to the lack of observable
data to support the qualitative factor allocations, a significant degree of management judgment is
required. Finally, applying audit procedures to evaluate the qualitative factors assumptions requires a
high degree of auditor subjectivity.
The primary audit procedures we performed to address this critical audit matter included:
57
l We obtained an understanding of the Company’s process for establishing the allowance.
l We evaluated the design and tested the operating effectiveness of key controls relating to the
Company’s allowance, including controls over:
m The accuracy of data inputs within the model;
m The determination of the basis of the qualitative factor assumptions used by management to
develop the estimate, and the adjustments therein; and
m Management’s review and approval of the allowance model and resulting estimate, including the
qualitative components.
l We performed substantive testing procedures to evaluate the reasonableness of management’s
estimates and judgements related to the qualitative factors within the allowance. Those procedures
included:
m Evaluating the appropriateness of the qualitative factor framework established by management,
including assessment of identified factors, basis point adjustments and weightings;
m Evaluating the relevancy and reliability of the underlying data used to develop the qualitative
factor framework and apply basis point adjustments and weightings within the model; and
m
Compared the total reserve to internal, external and/or peer data to ensure movement in a
directionally consistent manner relative to credit quality indicators and changes in the Company’s
loan portfolio.
l We tested the mathematical application of the qualitative factor allocations, as determined by
management, when subsequently combined with each loan segment’s historical loss rates and
applied to the respective risk grade populations segmented by location and loan type.
l We performed analytical procedures on the overall level and various components of the allowance,
including historical reserves, qualitative reserves, and specific reserves.
/s/ FORVIS, LLP
(Formerly Dixon Hughes Goodman LLP)
We have served as the Company’s auditor since 2014.
Tampa, Florida
March 16, 2023
58
Report of Independent Registered Public Accounting Firm
Stockholders and the Board of Directors
MVB Financial Corp.
Opinion on the Internal Control over Financial Reporting
We have audited MVB Financial Corp. and Subsidiaries (the “Company”) internal control over financial
reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated
Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated
Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December
31, 2022 and 2021, and for each of the three years in the period ended December 31 2022, and our
report dated March 16, 2023, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of reliable financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
59
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ FORVIS, LLP
(Formerly Dixon Hughes Goodman LLP)
Tampa, Florida
March 16, 2023
60
MVB Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except per share data)
December 31, 2022 and 2021
ASSETS
Cash and cash equivalents:
Cash and due from banks
Interest-bearing balances with banks
Total cash and cash equivalents
Certificates of deposit with banks
Investment securities available-for-sale
Equity securities
Loans held-for-sale
Loans receivable
Allowance for loan losses
Loans receivable, net
Premises and equipment, net
Bank-owned life insurance
Equity method investments
Accrued interest receivable and other assets
Goodwill
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Accrued interest payable and other liabilities
Repurchase agreements
FHLB and other borrowings
Subordinated debt
Senior term loan
Total liabilities
STOCKHOLDERS’ EQUITY
Common stock - par value $1; 20,000,000 shares authorized; 13,466,281 and 12,618,265 shares issued and
outstanding, respectively, as of December 31, 2022 and 12,934,966 and 12,086,950 shares issued and
outstanding, respectively, as of December 31, 2021
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock - 848,016 shares as of December 31, 2022 and December 31, 2021, at cost
Total equity attributable to parent
Noncontrolling interest
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements
61
$
$
$
2022
2021
5,290 $
34,990
40,280
—
379,814
38,744
23,126
8,878
298,559
307,437
2,719
421,466
32,402
—
2,372,645
(23,837)
2,348,808
23,653
43,239
76,223
90,975
3,988
3,068,850 $
1,869,838
(18,266)
1,851,572
25,052
42,257
40,013
65,543
3,988
2,792,449
1,231,544 $
1,338,938
2,570,482
41,556
10,037
102,333
73,286
9,765
2,807,459
1,120,433
1,257,172
2,377,605
55,126
11,385
—
73,030
—
2,517,146
13,466
157,152
144,911
(37,704)
(16,741)
261,084
12,935
143,521
138,219
(3,606)
(16,741)
274,328
307
261,391
3,068,850 $
975
275,303
2,792,449
$
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except per share data)
Years ended December 31, 2022, 2021 and 2020
INTEREST INCOME
Interest and fees on loans
Interest on deposits with banks
Interest on investment securities
Interest on tax-exempt loans and securities
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on short-term borrowings
Interest on subordinated debt
Interest on senior term loan
Total interest expense
NET INTEREST INCOME
Provision (release of allowance) for loan losses
Net interest income after provision (release of allowance) for loan losses
NONINTEREST INCOME
Payment card and service charge income
Mortgage fee income
Insurance and investment services income
Gain on sale of available-for-sale securities, net
Gain (loss) on sale of equity securities, net
Gain on derivatives, net
Gain on sale of loans, net
Holding gain (loss) on equity securities
Compliance and consulting income
Equity method investments income (loss)
Equity method investment gain
Gains on acquisition and divestiture activity
Gain on sale of assets
Other operating income
Total noninterest income
NONINTEREST EXPENSES
Salaries and employee benefits
Occupancy expense
Equipment depreciation and maintenance
Data processing and communications
Mortgage processing
Professional fees
Insurance, tax and assessment expense
Travel, entertainment, dues and subscriptions
Other operating expenses
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Net loss attributable to noncontrolling interest
Net income attributable to parent
Preferred dividends
Net income available to common shareholders
Earnings per common share - basic
Earnings per common share - diluted
Weighted-average shares outstanding - basic
Weighted-average shares outstanding - diluted
2022
2021
2020
$
116,583 $
1,637
3,496
4,241
125,957
75,282 $
506
2,405
5,236
83,429
72,999
437
2,448
4,569
80,453
10,294
1,072
261
—
11,627
68,826
16,579
52,247
2,821
33,427
872
914
3,501
2,341
332
374
4,436
24,174
—
17,640
14
991
91,837
61,629
4,599
3,672
5,375
1,744
8,453
2,090
3,390
6,189
97,141
46,943
9,532
37,411
—
37,411
461
36,950
10,476
443
3,072
163
14,154
111,803
14,194
97,609
11,648
—
849
650
(56)
—
1,655
(1,543)
15,504
(713)
1,874
—
4,978
3,448
38,294
72,162
4,051
5,557
4,198
—
10,871
2,610
7,998
9,941
117,388
18,515
4,128
14,387
660
15,047
—
15,047 $
3,977
105
2,188
—
6,270
77,159
(6,275)
83,434
7,524
—
1,003
3,875
5
—
4,178
3,776
9,625
17,428
—
10,783
—
4,399
62,596
60,210
4,347
4,642
4,431
—
10,770
2,032
5,092
5,928
97,452
48,578
9,882
38,696
425
39,121
35
39,086 $
$
$
$
1.23 $
1.17 $
3.32 $
3.10 $
12,279,462
12,870,734
11,778,557
12,613,620
3.13
3.06
11,821,574
12,088,106
See Notes to Consolidated Financial Statements
62
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Years ended December 31, 2022, 2021 and 2020
Net income before noncontrolling interest
Other comprehensive income (loss):
2022
2021
$ 14,387 $ 38,696 $ 37,411
2020
Unrealized holding gains (losses) on securities available-for-sale
Reclassification adjustment for gain recognized in income
Change in defined benefit pension plan
Reclassification adjustment for amortization of net actuarial loss recognized in income
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income
(45,730)
(650)
815
429
(83)
(5,839)
(3,875)
770
507
862
6,979
(914)
(1,403)
420
(473)
Other comprehensive income (loss), before tax
(45,219)
(7,575)
4,609
Income taxes related to items of other comprehensive income (loss):
Unrealized holding gains (losses) on securities available-for-sale
Reclassification adjustment for gain recognized in income
Change in defined benefit pension plan
Reclassification adjustment for amortization of net actuarial loss recognized in income
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income
Income taxes related to items of other comprehensive income (loss):
11,252
152
(201)
(103)
21
11,121
1,367
908
(180)
(119)
(233)
1,743
(1,635)
214
329
(98)
128
(1,062)
Total other comprehensive income (loss), net of tax
(34,098)
(5,832)
3,547
Comprehensive loss attributable to noncontrolling interest
660
425
—
Comprehensive income (loss)
$ (19,051) $ 33,289 $ 40,958
See Notes to Consolidated Financial Statements
63
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands except per share data)
Years ended December 31, 2022, 2021 and 2020
Balance as of
January 1, 2020
Net income
Other
comprehensive
income
Cash dividends
paid ($0.36 per
share)
Dividends on
preferred stock
Stock-based
compensation
Common stock
options exercised
Restricted stock
units issued
Common stock
repurchased
Common stock
issued related to
Paladin
acquisition
Balance as of
December 31,
2020
Net income
Other
comprehensive
(loss)
Cash dividends
paid ($0.51 per
share)
Dividends on
preferred stock
Stock-based
compensation
Stock-based
compensation
related to equity
method
investment
Common stock
options exercised
Restricted stock
units issued
Minimum tax
withholding on
restricted stock
units issued
Noncontrolling
interests due to
acquisition
Common stock
issued related to
contingent
consideration
Common stock
issued related to
Trabian
acquisition
Common stock
issued related to
Interchecks
investment
MVB
Technology
membership
units issued
Preferred stock
Common stock
Shares
Amount
Shares
Amount
Additional
paid-in capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury stock
Shares
Amount
Total
stockholders'
equity
attributable to
parent
Noncontrolling
interest
Total
stockholders'
equity
733 $
7,334
11,995,366 $
11,995
$
122,516
$ 72,496
$
(1,321)
51,077 $
(1,084) $
211,936
$
—
$
211,936
733
7,334
12,374,322
12,374
129,119
105,171
2,226
848,016
(16,741)
239,483
—
239,483
39,121
(425)
38,696
37,411
—
—
3,547
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
305,697
306
53,981
—
19,278
54
—
19
—
—
—
—
2,353
4,153
(124)
—
221
(4,275)
(461)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
37,411
3,547
(4,275)
(461)
2,353
4,459
525
(7)
(77)
—
—
—
—
—
—
796,414
(15,650)
(15,650)
—
—
—
240
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
316,682
77,050
—
—
—
—
—
—
317
77
—
—
—
—
2,634
574
4,613
(77)
(6,579)
(7)
(242)
—
47,966
—
48
—
1,952
39,121
—
—
(5,832)
(6,038)
(35)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,832)
(6,038)
(35)
2,634
—
—
574
—
—
—
—
—
—
4,930
—
(249)
—
—
—
—
—
—
—
—
—
37,411
3,547
(4,275)
(461)
2,353
4,459
(77)
(15,650)
240
—
—
—
—
—
—
—
—
(5,832)
(6,038)
(35)
2,634
574
4,930
—
(249)
—
—
—
900
900
—
—
2,000
—
2,000
—
—
17,597
18
582
—
—
—
—
600
—
600
—
—
107,928
108
4,366
—
—
—
—
4,474
—
4,474
—
—
—
—
—
—
—
—
—
—
500
500
64
Redemption of
preferred stock
Balance as of
December 31,
2021
Net income
Other
comprehensive
loss
Cash dividends
paid ($0.68 per
share)
Stock-based
compensation
Stock-based
compensation
related to equity
method
investment
Common stock
options exercised
Restricted stock
units issued
Minimum tax
withholding on
restricted stock
units issued
Common stock
issued related to
Warp Speed
acquisition
Stock purchase
from
noncontrolling
interest
Balance as of
December 31,
2022
(733)
(7,334)
—
—
—
—
—
—
—
(7,334)
—
(7,334)
—
—
12,934,966
12,935
143,521
138,219
(3,606)
848,016
(16,741)
274,328
975
275,303
Preferred stock
Common stock
Shares
Amount
Shares
Amount
Additional
paid-in capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Treasury stock
Shares
Amount
Total
stockholders'
equity
attributable to
parent
Noncontrolling
interest
Total
stockholders'
equity
—
—
—
—
—
160,527
75,354
—
—
—
—
—
161
75
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,047
—
—
(34,098)
—
(8,355)
2,800
417
1,908
(75)
—
—
—
—
—
15,047
(660)
14,387
—
—
—
—
—
—
—
—
(34,098)
(8,355)
2,800
—
—
417
—
—
—
—
—
—
2,069
—
(670)
—
—
—
—
—
—
—
—
—
—
—
—
—
(34,098)
(8,355)
2,800
417
2,069
—
(670)
(17,596)
(18)
(652)
—
—
313,030
313
9,266
—
—
—
—
9,579
—
9,579
—
—
—
—
(33)
—
—
—
—
(33)
(8)
(41)
— $
—
13,466,281 $
13,466
$
157,152
$ 144,911
$
(37,704)
848,016 $ (16,741) $
261,084
$
307
$
261,391
-See Notes to Consolidated Financial Statements
65
MVB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31, 2022, 2021 and 2020
OPERATING ACTIVITIES
Net income before noncontrolling interest
Adjustments to reconcile net income to net cash from operating activities:
Net amortization and accretion of investments
Net amortization of deferred loan costs
Provision (release of allowance) for loan losses
Depreciation and amortization
Stock-based compensation
Stock-based compensation related to equity method investment
Loans originated for sale
Proceeds of loans sold
Holding (gain) loss on equity securities
Mortgage fee income
Gain on sale of available-for-sale securities, net
(Gain) loss on sale of equity securities, net
Gain on sale of loans held-for-sale
Gains on acquisition and divestiture activity
Gain on sale of other real estate owned
Income on bank-owned life insurance
Deferred income taxes
Equity method investment (income) loss
Equity method investment gain
Return on equity method investment
Other assets
Other liabilities
Net cash from operating activities
INVESTING ACTIVITIES
Purchases of available-for-sale investment securities
Maturities/paydowns of available-for-sale investment securities
Sales of available-for-sale investment securities
Purchases of premises and equipment
Disposals of premises and equipment
Net increase in loans
Gain on sale of loans held for investment
Purchases of restricted bank stock
Redemptions of restricted bank stock
Proceeds from maturities of certificates of deposit with banks
Purchases of certificates of deposit with banks
Proceeds from sale of other real estate owned
Purchase of bank-owned life insurance
Purchase of equity method investments
Purchase of equity securities
Sales of equity securities
Net cash transferred for banking center sale
Cash paid for acquisitions, net of cash acquired
Net cash from investing activities
FINANCING ACTIVITIES
Net increase in deposits
Net change in repurchase agreements
Net change in FHLB and other borrowings
Issuance of subordinated debt
Payment of subordinated debt issuance costs
Issuance of senior term loan
Payment of senior debt issuance costs
Principal payments on senior term loan
Preferred stock redemption
Common stock repurchased
Common stock options exercised
Withholding cash issued in lieu of restricted stock
Cash dividends paid on common stock
66
2022
2021
2020
14,387
38,696 $
37,411
2,596
2,526
14,194
5,322
2,800
417
(101,382)
141,261
1,543
—
(650)
56
(5,487)
—
(47)
(975)
(3,631)
713
(1,874)
8,275
(2,438)
(12,426)
65,180
(89,600)
20,973
60,635
(3,041)
49
(576,303)
3,832
(61,245)
53,048
2,719
—
1,482
(7)
(38,400)
(4,452)
1,356
—
—
(628,954)
192,877
(1,348)
102,333
—
—
10,000
(123)
(125)
—
—
2,069
(670)
(8,355)
4,054
2,969
(6,275)
4,198
2,634
574
(30,033)
22,024
(3,776)
—
(3,875)
(5)
(4,178)
(10,783)
(1,396)
(995)
6,129
(17,428)
—
31,032
(1,440)
2,689
34,815
1,892
1,692
16,579
3,292
2,353
—
(1,334,910)
1,477,063
(374)
(33,427)
(914)
(3,501)
(332)
(17,640)
—
(888)
(3,386)
(27,574)
—
3,400
(27,200)
18,699
112,235
(216,621)
49,248
146,011
(4,865)
300
(460,672)
—
(1,410)
2,364
9,084
—
3,818
—
(500)
(2,982)
543
(95,500)
(772)
(571,954)
558,342
1,119
—
30,000
(552)
—
—
—
(7,334)
—
4,930
(249)
(6,038)
(269,790)
64,493
54,023
(6,615)
1,687
(70,186)
—
(25,831)
38,048
1,739
(993)
8,309
(5,000)
—
(9,918)
4,622
(136,005)
57,306
(294,111)
574,691
94
(180,283)
40,000
(717)
—
—
—
—
(15,746)
4,464
—
(4,275)
Cash dividends paid on preferred stock
Issuance of subsidiary membership units
Stock purchase from noncontrolling interest
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Cash payments for:
Interest on deposits, repurchase agreements and borrowings
Income taxes
Business combination non-cash disclosures:
Assets acquired in business combination, net of cash acquired
Liabilities assumed in business combination
Supplemental disclosure of cash flow information:
Fair value of noncontrolling interests at acquisition date
Loans transferred to other real estate owned
Change in unrealized holding gains (losses) on securities available-for-sale
Restricted stock units vested
Employee stock-based compensation tax withholding obligations
Creation of servicing assets from loan sales
Loans transferred to loans held-for-sale
Common stock issued related to acquisitions
See Notes to Consolidated Financial Statements
2022
—
—
(41)
296,617
2021
(35)
500
—
580,683
2020
(461)
—
—
417,767
235,891
43,544 T
(267,157)
307,437
28,002
263,893
40,280 $ 307,437 $ 263,893
$
$
12,285 $
2,285
6,152 $
11,960
12,271
11,966
$
$
— $
—
739 $
605
87,722
148,731
— $
299
47,508
75
18
1,296
914
9,579
1,400 $
357
(9,595)
77
7
—
—
5,074
—
—
800
6,193
49
35
—
—
240
67
Note 1 – Summary of Significant Accounting Policies
Business and Organization
MVB Financial Corp. is a financial holding company organized as a West Virginia corporation in 2003 that operates principally
through its wholly-owned subsidiary, MVB Bank, Inc. (the "Bank"). The Bank’s consolidated subsidiaries include MVB
Insurance, LLC, a title insurance company (“MVB Insurance”), ProCo Global, Inc. (“Chartwell,” which does business under the
registered trade name Chartwell Compliance), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Edge Ventures, LLC (“Edge
Ventures”). The Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”) and Edge Ventures wholly-owns Victor
Technologies, Inc. (“Victor”), as well as controlling interests in MVB Technology, LLC (“MVB Technology”) and Flexia
Payments, LLC (“Flexia”). The Bank also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”)
and MVB Financial Corp. owns equity method investments in Ayers Socure II, LLC ("Ayers Socure II") and Warp Speed
Holdings, LLC ("Warp Speed").
Edge Ventures serves as a management company providing oversight, alignment and structure for MVB’s Fintech companies and
allocates resources to help incubate venture businesses and technologies acquired and developed by MVB.
Through our professional services entities, which include Chartwell, Paladin Fraud and Trabian, we provide compliance and
consulting solutions to assist Fintech and corporate clients in building digital products and meeting their regulatory compliance
and fraud defense needs.
We have acquired a number of financial institutions and other financial services businesses. Future acquisitions and divestitures
will be consistent with our strategic direction. Our most recent acquisition and divestiture activity includes the following:
l In March 2022, the Bank entered into an agreement to acquire a 37.5% interest in Warp Speed, a holding company whose
subsidiaries are focused on residential and commercial loan origination and servicing, business and personal insurance
brokerage and data analytics. In April 2022, we assumed the Bank's obligations under the Purchase Agreement. Effective
October 1, 2022, we completed the purchase with $38.4 million in cash, plus 313,030 shares of newly-issued common stock
of MVB, with an aggregate value of $9.6 million, based on the volume-weighted average closing price for shares of MVB
common stock for the 20 trading days ending the day prior to closing.
l In August 2022, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with
Integrated Holdings, Inc. (“IFH”). The Merger Agreement provided that, upon the terms and conditions therein, IFH would
merge with and into MVB (the “Merger”), with MVB continuing as the surviving corporation. Following the Merger, West
Town Bank & Trust (“West Town Bank”), a state bank chartered under the laws of Illinois and wholly-owned subsidiary of
IFH, would merge with and into the Bank, with the Bank as the surviving bank. In January 2023, the Merger Agreement was
approved by the board of directors and shareholders of MVB and IFH. We are awaiting required regulatory approvals in order
to execute the Merger.
68
We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as
well as Fintech banking.
CoRe Banking
We offer our customers a full range of products and services including:
l Various demand deposit accounts, savings accounts, money market accounts and certificates of deposit;
l Commercial, consumer and real estate mortgage loans and lines of credit;
l Debit cards;
l Cashier’s checks;
l Safe deposit rental facilities; and
l Non-deposit investment services offered through an association with a broker-dealer.
Fintech Banking
We provide innovative strategies to independent banking and corporate clients throughout the United States. Our dedicated
Fintech sales team specializes in providing banking services to corporate Fintech clients, with a primary focus on operational risk
management and compliance. Managing banking relationships with clients in the payments, digital savings, cryptocurrency,
crowd funding, lottery and gaming industries is complex, from both an operational and regulatory perspective. We believe that the
complexity of serving these industries causes them to be underserved with quality banking services and provides us with a
significantly expanded pool of potential customers. When serviced in a safe and efficient manner, we believe these industries
provide a source of stable, low cost deposits and noninterest, fee-based income. We thoroughly analyze each industry in which
our customers operate, as well as any new products or services provided, from both an operational and regulatory perspective.
Edge Ventures
Edge Ventures, a wholly-owned subsidiary of the Bank, was created as a management company to provide oversight, alignment
and structure for our Fintech companies and allocate resources to help incubate venture businesses and technologies acquired and
developed by us. Subsidiaries of Edge Ventures include MVB Technology, Flexia and Victor, which are developing software to
enhance the products and services available to our customers.
MVB Technology
MVB Technology is a 93.4% owned subsidiary of Edge Ventures. MVB Technology's primary product, GRAND, provides fast,
cost effective payments from a modern bank account. Account holders fund their GRAND account using a bank account, card or
direct deposit and can then seamlessly transfer funds between their GRAND account and their favorite apps. GRAND helps drive
significant savings for online merchants through a streamlined process for transfers of customer funds.
Flexia
Edge Ventures owns an 80% interest in Flexia. Flexia is a Las Vegas-based Fintech company that licenses technology which
allows users to access a reloadable account that combines a debit card account and casino gaming accounts into one card and to
utilize them for non-cash transactions at participating casinos. Flexia's technology license provides Flexia with exclusive use of
the software in the United States and Canada.
Victor
Victor is a wholly-owned subsidiary of Edge Ventures. Victor was formed to develop technology to make it faster and easier to
launch and scale a broad spectrum of Fintech solutions for the gaming, payments, banking-as-a-service and digital asset sectors.
Within a matter of weeks, Fintech developers can build solutions to manage and move money with developer-friendly application
programming interfaces. Banks can onboard and manage more programs with Victor’s tailored due diligence, risk assessment and
oversight workflow tools. Recognizing the complexity of the Fintech ecosystem, Victor also supports seamless integration with a
proven network of value-added technology and service providers.
69
Professional Services
Chartwell
Chartwell is a wholly-owned subsidiary of the Bank. Chartwell provides integrated regulatory compliance, state licensing,
financial crimes prevention and enterprise risk management services that include consulting, outsourcing, testing and training
solutions. Chartwell has expanded its services to both Fintech clients and banks, in coordination with the Bank’s current
compliance officers, to help create and implement strategy and provide expert compliance resources to aid the Bank in carrying
out stringent and faster new client due diligence.
Paladin Fraud
Paladin Fraud is a wholly-owned subsidiary of the Bank. Paladin Fraud provides an extensive and customizable suite of fraud
prevention services for merchants, credit agencies, Fintech companies and other vendors to help clients and partners defend
against threats.
Trabian
The Bank owns an 80.8% interest in Trabian. Trabian builds digital products and web and mobile applications for forward-
thinking community banks, credit unions, digital banks and Fintech companies. Consistent with the Bank's mission to pursue
technology to accelerate community finance, Trabian has created technology platforms that have been instrumental to the success
of many of today’s leading Fintech companies.
COVID-19 Pandemic
Since 2020, economies throughout the world have been severely disrupted as a result of the COVID-19 pandemic and its
subsequent variants. Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on
our business and our clients, providers and third parties. The extent of such impact depends on future developments, including
resurgences, new variants or future pandemics, which are highly uncertain and cannot be predicted. We continue to actively
monitor and respond to any ongoing effects of the COVID-19 pandemic.
Basis of Presentation
The financial statements are consolidated to include the accounts of MVB and its subsidiaries, including the Bank and the Bank’s
subsidiaries. In our opinion, the accompanying consolidated financial statements contain all normal recurring adjustments
necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) as presented through the FASB's Accounting Standards Codification
("ASC") the and with rules and interpretive guidance of the SEC. All significant intercompany accounts and transactions have
been eliminated in consolidated financial statements. Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with U.S. GAAP have been omitted.
Wholly-owned investments or investments in which we have a controlling financial interest, whether majority owned or in certain
circumstances a minority interest, are required to be consolidated into our financial statements. We evaluate investments in
entities on an ongoing basis to determine the need to consolidate.
The Bank owns controlling interests in Flexia, Trabian and MVB Technology. We own an 80.0% interest in Flexia, an 80.8%
interest in Trabian and a 93.4% interest in MVB Technology. Accordingly, we are required to consolidate 100% of each entity
within the consolidated financial statements. The remaining interests of these entities are accounted for separately as
noncontrolling interests within our consolidated financial statements. Noncontrolling interest represents the portion of ownership
and profit or loss that is attributable to the minority owners of these entities.
Unconsolidated investments where we have the ability to exercise significant influence over the operating and financial policies of
the respective investee are accounted for using the equity method of accounting. Those investments that are not consolidated or
accounted for using the equity method of accounting are accounted for under cost or fair value accounting. For investments
accounted for under the equity method, we record our investment in non-consolidated affiliates and the portion of income or loss
in equity in earnings of non-consolidated affiliates. We periodically evaluate these investments for impairment. As of
December 31, 2022, we hold three equity method investments.
70
Preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates
are based upon the best available information and actual results could differ from those estimates. An estimate that is particularly
significant to the consolidated financial statements relates to the determination of the allowance for loan losses (“ALL”).
In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the
current presentation.
We have evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial
statements were issued.
Cash and Cash Equivalents
Cash equivalents include cash on hand, deposits in banks and interest-earning deposits. Interest-earning deposits with original
maturities of 90 days or less are considered cash equivalents. Net cash flows are reported for loans, deposits and short-term
borrowing transactions.
Investment Securities
Investment securities at the time of purchase are classified as one of the following:
Available-for-Sale Securities - Includes debt that will be held for indefinite periods of time. These securities may be sold in
response to changes in market interest or prepayment rates, needs for liquidity and changes in the availability of and yield of
alternative investments. Such securities are reported at fair value, with unrealized holding gains and losses excluded from earnings
and reported as a separate component of stockholders’ equity, net of estimated income tax effect. The income tax effect is
released when the securities are sold.
Equity Securities - Includes equity securities that are adjusted to fair value on a monthly basis, with the change in value recorded
directly on the income statement. We have elected to measure the equity securities without readily determinable fair values at cost
minus impairment, if any, plus or minus changes resulting from observable price changes for underlying transactions for identical
or similar investments of new issues.
The amortized cost of investment in debt securities is adjusted for amortization of premiums and accretion of discounts, computed
by a method that results in a level yield. Gains and losses on the sale of investment securities are computed on the basis of specific
identification of the adjusted cost of each security.
Securities are periodically reviewed for other-than-temporary impairment. For debt securities, management considers whether the
present value of future cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined
as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and our intent to sell the security
or whether it is more likely than not that we would be required to sell the security before its anticipated recovery in market value,
to determine whether the loss in value is other than temporary. If a decline in value is determined to be other than temporary, if
we do not intend to sell the security, and it is more-likely-than-not that we will not be required to sell the security before recovery
of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference
between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive
income, net of applicable taxes. A decline in value that is considered to be other-than-temporary is recorded as a loss within
noninterest income in the consolidated statement of income.
71
The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh, and as such, is required to maintain a minimum
investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of December 31, 2022 and
2021, the Bank holds $10.0 million and $1.8 million of stock, respectively, which is included in accrued interest receivable and
other assets. The stock is bought from and sold to the FHLB based upon its $100 per share par value. The stock does not have a
readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated by management for
impairment. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary
declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following:
(i) a significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has
persisted; (ii) commitments by the FHLB to make payments required by law or regulation and the level of such payments in
relation to the operating performance; (iii) the impact of legislative and regulatory changes on the customer base of the FHLB;
and (iv) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for
the periods presented herein.
Management considered that the FHLB’s regulatory capital ratios have improved in the most recent quarters, no issues of liquidity
are evident, new shares of FHLB stock continue to trade at the $100 per share par value and the FHLB has repurchased shares of
excess capital stock from its members during 2022 and 2021.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered non-accrual
when scheduled principal or interest payments are 90 days past due. Interest income on loans is recognized on an accrual basis.
The allowance for loan losses is maintained at a level deemed adequate to absorb probable losses inherent in the loan portfolio.
We consistently apply a quarterly loan review process to continually evaluate loans for changes in credit risk. This process serves
as the primary means by which we evaluate the adequacy of the allowance for loan losses, and is based upon periodic review of
the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may
affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes
available.
The allowance consists of specific and general components. The specific component relates to loans that are impaired. The
general component covers all loans that are not impaired, and is based upon historical loss experience adjusted for qualitative
factors.
We allocate the allowance based on the factors described below, which conform to our loan classification policy. In reviewing
risk within the loan portfolio, management has determined there to be several different risk categories within the loan portfolio.
The allowance for loan losses consists of amounts applicable to: (i) residential real estate loans; (ii) commercial and commercial
real estate secured loans; (iii) home equity loans; and (iv) consumer and other loans. Factors considered in this process include
general loan terms, collateral and availability of historical data to support the analysis. Historical loss percentages for each loan
category are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to
determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages.
These factors are then added to the historical allocation percentages to get the adjusted factor to be applied to non-classified loans
on a weighted basis, by risk grade. The following qualitative factors are analyzed:
l Lending policies and procedures
l Nature and volume of the portfolio
l Experience and ability of lending management and staff
l Volume and severity of problem credits
l Quality of the loan review system
l Conclusions of loan reviews, audits and exams
l National, state, regional and local economic trends and business conditions
l General economic conditions
l Unemployment rates
l Inflation / Consumer Price Index
l Value of underlying collateral
l Existence and effect of any credit concentrations
72
l Consumer sentiment
l Other external factors
We analyze our loan portfolio each quarter to determine the appropriateness of our allowance for loan losses.
A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough
review is presented to the Chief Credit Officer and/or the Special Assets Review Committee (“SARC”), as required with respect
to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual
status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally,
loans should be placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot
or will not make scheduled principal or interest payments, when full repayment of principal and interest is not expected, or when
the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual
status, unless Management believes it is likely the accrued interest will be collected. Any payments subsequently received are
applied to principal. To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank
is reasonably sure of future satisfactory payment performance. Usually, this requires a six-month recent history of payments due.
Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.
Loans are considered to be impaired when, based on current information and events, it is probable that we will be unable to
collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors
considered by management in evaluating impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in
relation to the principal and interest owed. We also separately evaluate individual consumer loans for impairment. Loans are
identified individually by monitoring the delinquency status of the Bank’s portfolio. Once identified, the Bank’s ongoing
communications with the borrower allow evaluation of the significance of the payment delays and the circumstances surrounding
the loan and the borrower.
Once the determination has been made that a loan is impaired, the amount of the impairment is measured using one of three
valuation methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s
observable market price; or (iii) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis,
with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific
allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.
We defer loan origination and commitment fees and direct loan origination costs and the net amount is amortized as an adjustment
of the related loan’s yield.
Troubled Debt Restructurings
A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor for economic or legal reasons related to
the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Concessions may include
interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other
actions intended to minimize potential losses. The determination of whether a concession has been granted includes an evaluation
of the debtor’s ability to access funds at a market rate for debt with similar risk characteristics and among other things, the
significance of the modification relative to unpaid principal or collateral value of the debt and/or the significance of a delay in the
timing of payments relative to the frequency of payments, original maturity date or the expected duration of the loan. The most
common concessions granted generally include one or more modifications to the terms of the debt such as a reduction in the
interest rate for the remaining life of the debt, an extension of the maturity date at an interest rate lower than the current market
rate for new debt with similar risk, or reduction of the unpaid principal or interest. All TDRs are considered impaired loans.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated depreciation, while land is carried at cost. Depreciation expense is
computed by the straight-line-method based on the estimated useful lives of assets, which range from seven to 40 years for
buildings, three to 10 years for furniture, fixtures and equipment, three years for software and lesser of useful life or lease term for
leasehold improvements.
73
Software Development
Software that we develop for internal use may be capitalized when costs are incurred after the preliminary project stage has ended
and the application development stage begins. The application development stage includes designing, coding, installing and
testing the software. Once the software has been implemented, costs for training and maintenance are expensed as incurred.
Capitalized internal use software development costs are included in premises and equipment in the accompanying consolidated
balance sheets.
Bank-Owned Life Insurance
Bank-owned life insurance represents life insurance on the lives of certain of our employees who have provided positive consent
allowing us to be the beneficiary of such policies. These policies are recorded at their cash surrender value or the amount that can
be realized upon surrender of the policy. Income from these policies is not subject to income taxes and is recorded as noninterest
income.
Equity Method Investments
Investments in companies in which we have significant influence over the operating and financing decisions are accounted for
using the equity method of accounting. Determining if we have significant influence requires judgement based on the facts and
circumstances of each investment including level of ownership, legal structure and other qualitative factors which impact our
ability to influence the investee's operations, and we review the facts and circumstances each reporting period to determine if we
still have significant influence. Equity method investments are recorded initially at cost including costs to acquire the investment.
These investments are included in the equity method investments line item on the consolidated balance sheets. We recognize our
proportionate share of the investee's profits and losses in the equity method investments income line item. At the time of
investment, we may make a one-time election to record our proportionate share of earnings of the investee on a lag of no more
than three months. This election may be made on an investment by investment basis. We review equity method investments for
impairment if there are events or changes in circumstances which indicate the carrying amount of the investment might not be
recoverable.
Intangible Assets and Goodwill
Goodwill is the purchase premium after adjusting for the fair value of net assets acquired. Goodwill is not amortized but is
reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the
related reporting unit level. The goodwill impairment test involves comparing the fair value of the reporting unit with its carrying
value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is
considered not impaired; however, if the carrying value of the reporting unit exceeds its fair value, an impairment charge must be
recorded. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit. An impairment loss
establishes a new basis in the goodwill and subsequent reversals of goodwill impairment losses are not permitted under applicable
accounting guidance.
For intangible assets subject to amortization, the recoverability test is performed when a triggering event occurs and an
impairment loss is recognized if the carrying value of the intangible asset exceeds fair value and is not recoverable. The carrying
value of the intangible asset is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result
from the use of the asset. Intangible assets deemed to have indefinite useful lives are not subject to amortization. An impairment
loss is recognized if the carrying value of the intangible asset with an indefinite life exceeds its fair value.
Derivative Instruments
Interest Rate Swaps
We entered into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial
banking clients. We mitigate this risk by entering into equal and offsetting interest rate swap agreements with highly rated third-
party financial institutions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value on our
consolidated balance sheet. Fair value changes are recorded in noninterest income in our consolidated net income statement. At
December 31, 2022 and 2021, the fair value of interest rate swap agreements was $8.4 million and $6.7 million, respectively.
Fair Value Hedge
74
We entered into an interest rate swap designated as a fair value hedge to mitigate the effect of changing interest rates on the fair
values of certain designated fixed-rate loans and available for sale securities. This involves the receipt of variable amounts from a
counterparty in exchange for us making fixed payments over the life of the agreements without the exchange of the underlying
notional amount. The gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to
the hedged risk are recognized in earnings. We entered into a pay-fixed/receive-variable interest rate swap in January 2019 with a
notional amount of $10.9 million and $26.4 million at December 31, 2022 and 2021, respectively, which was designated as a fair
value hedge associated with our fixed-rate loan program and certain available for sale securities. At December 31, 2022 and 2021,
the fair value of interest rate swap hedge was $0.6 million and $0.7 million, respectively.
Embedded Derivatives
We enter into various contracts through the normal course of business and occasionally a contract may include terms and
conditions that create an embedded derivative. An embedded derivative may occur even though the purpose of the contract is not
intended to be a derivative contract. Components of a contract should be assessed to determine if they meet the definition of a
derivative. If it does, we must then assess whether the embedded derivative is clearly and closely related to its host instrument. If
the derivative is not clearly and closely related to the host contract, the embedded derivative must be separated from the host
instrument and accounted for as a separate derivative.
Servicing Assets
Servicing assets are recorded when the Bank sells loans and retains the servicing on those loans. On a monthly basis, we track the
amount of loans that are sold with servicing retained. We determine the servicing rights value, which is then recorded as an asset
and amortized over the period of estimated net servicing revenues. The servicing assets are evaluated for impairment quarterly.
Servicing loans for others generally consists of collecting payments from borrowers, maintaining escrow accounts, remitting
payments to third party investors and, when necessary, foreclosure processing. Serviced loans are not included in the consolidated
balance sheets. At December 31, 2022 and 2021, the value of servicing assets was $1.6 million and $2.8 million, respectively, and
is included in accrued interest and other assets in the consolidated balance sheets.
We have the ability to sell the guaranteed portion of loans originated through the SBA's 7(a) program. All SBA loan sales are
executed on a servicing retained basis. We are required to retain a minimum of 10% of the principal balance in accordance with
SBA regulations. Any gain on sale recognized as income is the sum of the premium on the guaranteed portion of the loan and the
fair value of the servicing assets recognized, less the discount recorded on the unguaranteed portion of the loan that is retained.
The remaining unguaranteed portion of the loan is presented net of the discount, which is recognized as interest income over the
underlying loan's remaining term, using the effective interest method.
Foreclosed Assets Held for Resale
Foreclosed assets held for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are recorded at
fair value less estimated selling costs at the time of foreclosure, establishing a new cost basis, with any valuation adjustments
charged to the allowance for loan losses. In subsequent periods, foreclosed assets are recorded at the lower of cost or fair value
less any costs to sell. Costs relating to improvement of the property are capitalized, while holding costs of the property are
charged to other loan origination and maintenance expense in the period incurred. Subsequent declines in fair value and gains or
losses on sale are recorded in other noninterest expense. At December 31, 2022 and 2021, we held other real estate of $1.2 million
and $2.3 million, respectively.
Fair Value Measurements
Accounting standards require that we adopt fair value measurement for financial assets and financial liabilities. This enhanced
guidance for using fair value to measure assets and liabilities applies whenever other standards require or permit assets or
liabilities to be measured at fair value. This guidance does not expand the use of fair value in any new circumstances.
The following summarizes the methods and significant assumptions we use in estimating our fair value disclosures for financial
instruments.
75
Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of
the reported date. The nature of these assets and liabilities include items for which quoted prices are available, but
traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be
directly observed.
Level III: Assets and liabilities 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.
Transfers of assets and liabilities between levels within the fair value hierarchy are recognized when an event or change in
circumstances occurs.
Revenue Recognition
We record revenue from contracts with customers in accordance with ASC 606, Revenue from Contracts with Customers (“ASC
606”). Under ASC 606, we must identify the contract with a customer, identify the performance obligations in the contract,
determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue
when (or as) we satisfy a performance obligation. Significant revenue has not been recognized in the current reporting period that
results from performance obligations satisfied in previous periods.
Our primary sources of revenue are derived from interest and fees earned on loans, investment securities and other financial
instruments that are not within the scope of ASC 606. We have evaluated the nature of our contracts with customers and
determined that our revenue from contracts with customers is appropriately disaggregated in our consolidated statement of income
is not currently necessary. We generally fully satisfy our performance obligations on our contracts with customers as services are
rendered and the transaction prices are typically fixed within each contract, charged either on a periodic basis or based on activity.
Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment
involved in applying ASC 606 that significantly affects the determination of the amount and timing of revenue from contracts
with customers.
Payment Card and Service Charge Income
Payment card and service charge income are comprised of service charges on accounts and interchange and debit card transaction
fees. Service charges on accounts consist of account analysis fees, monthly service fees, check orders and other account related
fees. Our performance obligation for account analysis fees and monthly service fees is generally satisfied and the related revenue
recognized, over the period in which the service is provided. Check orders and other account related fees are largely transactional
based and therefore, our performance obligation is satisfied and related revenue recognized, at a point in time. Payment for
service charges on accounts is primarily received immediately or in the following month through a direct charge to customers’
accounts.
Interchange and debit card transaction fees are primarily comprised of interchange fees earned whenever the Bank’s debit and
credit cards are processed through card payment networks, such as Visa. The Bank’s performance obligation for debit card and
interchange income is generally satisfied, and the related revenue recognized, on a transactional basis. Payment is typically
received immediately or in the following month. We also enter into interchange arrangements with minimum commitment fees.
Minimum commitment fees are recognized ratably, until such time that minimum commitment fees are exceeded or expected to
be exceeded.
Compliance and Consulting Income
Compliance and consulting income is comprised revenue generated by Chartwell, Paladin Fraud and Trabian. Chartwell provides
integrated regulatory compliance, state licensing, financial crimes prevention and enterprise risk management services that
include consulting, outsourcing, testing and training solutions. Paladin Fraud provides an extensive and customizable suite of
fraud prevention services for merchants, credit agencies, Fintech companies and other vendors to help clients and partners defend
against threats. Trabian provides consulting for the development of online and mobile banking platforms and digital products for
Fintech companies. Chartwell, Paladin Fraud and Trabian account for a contract after it has been approved by all parties to the
arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and
collectability of consideration is probable. The services promised are then evaluated in each contract at inception to determine
76
whether the contract should be accounted for as having one or more performance obligations. Chartwell, Paladin Fraud and
Trabian's services included in our contracts are distinct from one another. The transaction price for each contract is determined
based upon the consideration expected to be received for the distinct services being provided under the contract. Revenue is
recognized as performance obligations are satisfied and the customer obtains control of the goods or services provided. In
determining when performance obligations are satisfied, factors considered include contract terms, payment terms and whether
there is an alternative future use of the product or service. Consulting engagements may vary in length and scope, but will
generally include the review and/or preparation of regulatory filings, business plans, financial models and other risk management
services to customers within financial industries. Revenue from consulting services is recognized on a pro rata basis based upon
actual labor hours completed as compared to budgeted labor hours for the deliverable.
Other Operating Income
Other operating income is primarily comprised of ATM fees, wire transfer fees, travelers check fees, revenue streams such as safe
deposit box rental fees and other miscellaneous service charges. ATM fees, wire transfer fees and travelers check fees are
primarily generated when a Bank’s cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Safe deposit
box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Bank determined that
since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the
performance obligation. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks
and other services. The Bank’s performance obligations for fees and other service charges are largely satisfied, and related
revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the
following month. The Bank’s performance obligation for the gains and losses on sales of other real estate owned is satisfied, and
the related revenue recognized, after each sale of other real estate owned is closed.
Stock-Based Compensation
Compensation cost is recognized for stock options and restricted stock units (“RSUs”) issued to employees, based on the fair
value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options.
Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded
vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and minimum pension
liability, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net
income, are components of comprehensive income.
Income Taxes
The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain items of
income and expense, primarily the provision for possible loan losses, allowance for losses on foreclosed assets held for resale,
depreciation and accretion of discounts on investment securities are reported in different accounting periods for income tax
purposes. We and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on
the difference between the financial statement basis and income tax bases of assets and liabilities using the enacted marginal tax
rates. Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to
period. Deferred tax assets and liabilities are the result of timing differences in recognition of revenue and expense for income tax
and financial statement purposes. No deferred income tax valuation allowance is provided since it is more likely than not that
realization of the deferred income tax asset will occur in future years.
77
We prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial
statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. A tax position that meets the more likely than not
recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. Tax positions that previously failed to meet the more likely than not recognition threshold should be
recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions
that no longer meet the more likely than not recognition threshold should be reversed in the first subsequent financial reporting
period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known
unrecognized tax benefits. With limited exception, our federal and state income tax returns for taxable years through 2018 have
been closed for purposes of examination by the federal and state taxing jurisdictions.
Operating Segments
An operating segment is defined as a component of an enterprise that engages in business activities that generates revenue and
incurs expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of
resource allocation and performance. While our chief decision makers monitor the revenue streams of our various products and
services, operations are managed and financial performance is evaluated on a company-wide basis. We have identified five
reportable segments: CoRe banking; mortgage banking; professional services; Edge Ventures and the financial holding company.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when: (i) the assets have been isolated from us, (ii) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (iii) we do not
maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Recent Accounting Pronouncements and Developments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments and subsequent amendments to the initial guidance in November 2018, ASU 2018-19, Codification
Improvements to Topic 326, Financial Instruments – Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to
Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, in
May 2019, ASU 2019-05, Financial Instruments – Credit Losses, Topic 326 and in November 2019, ASU 2019-10, Financial
Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and
ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, all of which clarifies codification
and corrects unintended application of the guidance. The new guidance replaces the incurred loss impairment methodology in
current U.S. GAAP with an expected credit loss methodology and requires consideration of a broader range of information to
determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be
collected by using an allowance for credit losses. Purchased credit impaired ("PCI") loans will receive an allowance account at the
acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt
securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value
is below amortized cost. The guidance was initially effective for fiscal years beginning after December 15, 2019 and interim
periods within those fiscal years. On November 15, 2019, the FASB issued ASU 2019-10, Financial Investments – Credit Issues
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which finalizes a delay in the
effective date of the standard for smaller reporting companies (“SRCs”). Effective as of the first quarter of 2022, we no longer
qualified as an SRC. However, because we met the criteria to be an SRC as of the issuance date of this guidance, we are eligible
for the delay in effective date and plan to adopt this standard for fiscal years ending after December 15, 2022. We currently expect
to recognize a one-time cumulative effect adjustment to the ALL as of January 1, 2023. We have formed a cross-functional
implementation team. This cross-functional team has completed testing the model and is finalizing the implementation plan,
which will include assessment and documentation of processes, internal controls and data sources; model testing and
documentation; and system configuration, among other things. We have completed the process of implementing a third-party
vendor solution to assist us in the application of this standard. The adoption of this standard will result in an increase in the ALL
as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses
within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life
of the portfolio. Upon adoption of ASU 2016-13, we currently expect to record a charge to retained earnings of $6.5 million to
$7.0 million.
78
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. The amendments provide optional expedients and exceptions for certain contracts, hedging
relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate
reform. In December 2022, the FASB issued ASC 2022-06, Deferral of the Sunset date of Topic 848, which extends the sunset
date of Topic 848 from December 31, 2022, to December 31, 2024. The guidance permits entities to not apply modification
accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the
reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging
relationship and the assessment of hedge effectiveness during the transition period. In January 2021, ASU 2021-01 was issued by
the FASB and clarifies that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting
transition. We will continue to assess the impact as the reference rate transition occurs over the next year. As of December 31,
2022, we had loans totaling $317.1 million that reference LIBOR which will be transitioned to the secured overnight financing
rate ("SOFR") effective June 30, 2023.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings
and Vintage Disclosures. The amendments eliminate the accounting guidance for troubled debt restructurings ("TDRs") in
subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain
loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Rather than applying the
recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in
paragraphs 310-20-35-9 through 35-11 of the codification to determine whether a modification results in a new loan or a
continuation of an existing loan. The amendments also include provisions for disclosure of current-period gross writeoffs by year
of origination for financing receivables and net investment in leases within the scope of subtopic 326-20, Financial Instruments -
Credit Losses - Measured at Amortized Cost. Gross writeoff information must be included in the vintage disclosures required for
public business entities which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality
indicator and class of financing receivables by year of origination. This amendment is effective concurrently with the amendments
in ASU 2016-13 which is currently effective for fiscal years beginning after December 15, 2022. These amendments primarily
impact disclosure requirements and we do not believe they will have a material impact on our consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity
Securities Subject to Contractual Sale Restrictions. The amendments clarify that a contractual restriction on the sale of an equity
security is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair
value. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction as a separate unit of
account and require additional disclosures related to equity securities with contractual sale restrictions. The amendment is
effective for fiscal years beginning after December 15, 2023. We do not currently expect these amendments to have a material
impact our consolidated financial statements.
Note 2 – Investment Securities
Amortized cost and fair values of investment securities available-for-sale at December 31, 2022 are summarized as follows:
(Dollars in thousands)
United States government agency securities
United States sponsored mortgage-backed securities
United States treasury securities
Municipal securities
Corporate debt securities
Other debt securities
Total debt securities
Other securities
Total investment securities available-for-sale
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair Value
$
$
51,436 $
68,267
130,689
157,842
10,570
7,500
426,304
824
427,128 $
15 $
—
48
2,412
10
—
2,485
—
2,485 $
(6,637) $
(11,696)
(9,828)
(21,618)
(20)
—
(49,799)
—
(49,799) $
44,814
56,571
120,909
138,636
10,560
7,500
378,990
824
379,814
Amortized cost and fair values of investment securities available-for-sale at December 31, 2021 are summarized as follows:
79
(Dollars in thousands)
United States government agency securities
United States sponsored mortgage-backed securities
United States treasury securities
Municipal securities
Corporate debt securities
Other debt securities
Total debt securities
Other securities
Total investment securities available-for-sale
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair Value
$
$
41,105 $
77,519
112,133
171,044
11,093
7,500
420,394
878
421,272 $
228 $
222
—
4,334
49
—
4,833
—
4,833 $
(896) $
(1,633)
(1,744)
(366)
—
—
(4,639)
—
(4,639) $
40,437
76,108
110,389
175,012
11,142
7,500
420,588
878
421,466
The following table summarizes amortized cost and fair values of debt securities by maturity:
(Dollars in thousands)
Within one year
After one year, but within five years
After five years, but within ten years
After ten years
Total
December 31, 2022
Available for sale
Amortized Cost
Fair Value
$
$
5,034 $
140,570
41,366
239,334
426,304 $
5,033
130,614
37,368
205,975
378,990
The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities
may repay sooner than scheduled.
Investment securities with a carrying value of $91.3 million and $244.6 million at December 31, 2022 and 2021, respectively,
were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve discount window.
Our investment portfolio includes securities that are in an unrealized loss position as of December 31, 2022, the details of which
are included in the following table. Although these securities, if sold at December 31, 2022 would result in a pretax loss of
$49.8 million, we have no intent to sell the applicable securities at such fair values, and maintain that we have the ability to hold
these securities until all principal has been recovered. It is more likely than not that we will not, for liquidity purposes, sell any
securities at a loss. Declines in the fair values of these securities can be traced to general market conditions, which reflect the
prospect for the economy as a whole. When determining other-than-temporary impairment on securities, we consider such factors
as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time
frame securities have been in an unrealized loss position, our ability to hold the security for a period of time sufficient to allow for
anticipated recovery in value, whether or not the security has been downgraded by a rating agency and whether or not the
financial condition of the security issuer has severely deteriorated. As of December 31, 2022, we consider all securities with
unrealized loss positions to be temporarily impaired. As a result, we do not believe we will sustain any material realized losses as
a result of the current temporary decline in fair value.
The following table discloses the length of time that investments have remained in an unrealized loss position at December 31,
2022:
(Dollars in thousands)
Description and number of positions
United States government agency securities (32)
United States sponsored mortgage-backed securities (51)
United States treasury securities (29)
Municipal securities (173)
Corporate debt securities (3)
Less than 12 months
12 months or more
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
$
$
21,287 $
6,953
11,936
65,930
2,380
108,486 $
(1,937) $
(852)
(130)
(7,507)
(20)
(10,446) $
19,423 $
49,618
102,092
41,184
—
212,317 $
(4,700)
(10,844)
(9,698)
(14,111)
—
(39,353)
80
The following table discloses the length of time that investments have remained in an unrealized loss position at December 31,
2021:
(Dollars in thousands)
Description and number of positions
United States government agency securities (21)
United States sponsored mortgage-backed securities (30)
United States treasury securities (24)
Municipal securities (53)
Corporate debt securities (9)
Less than 12 months
12 months or more
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
$
5,101 $
55,354
110,389
32,221
—
203,065 $
$
(77) $
(1,346)
(1,744)
(270)
—
(3,437) $
21,770 $
7,845
—
7,001
—
36,616 $
(819)
(287)
—
(96)
—
(1,202)
The following table summarizes the investment sales and related gains and losses in 2022, 2021 and 2020:
(Dollars in thousands)
2022
2021
2020
Proceeds from sales of available-for-sale securities
$
Gains, gross
Losses, gross
Proceeds from sales of equity securities
$
Gains, gross
Losses, gross
60,635 $
717
(67)
1,356 $
158
(214)
146,011 $
3,944
(69)
543 $
5
—
Unrealized holding gains (losses) on equity securities
$
(1,543) $
3,776 $
54,023
948
(34)
4,622
3,501
—
374
Note 3 – Loans and Allowance for Loan Losses
81
The components of loans in the Consolidated Balance Sheet at December 31, were as follows:
(Dollars in thousands)
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential real estate
Home equity lines of credit
Consumer
Total loans, excluding PCI
Purchased credit impaired loans:
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential real estate
Consumer
Total purchased credit impaired loans
Total loans
Deferred loan origination costs and (fees), net
Loans receivable
2022
2021
$
$
$
$
851,072 $
632,839
126,999
1,610,910 $
606,970
18,734
131,566
2,368,180
—
—
—
—
2,482
—
2,482 $
2,370,662
1,983
2,372,645 $
818,986
561,718
99,823
1,480,527
306,140
22,186
43,919
1,852,772
2,629
11,018
257
13,904
4,358
413
18,675
1,871,447
(1,609)
1,869,838
Loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of
loans serviced for others requiring recognition of a servicing asset were $164.1 million and $347.5 million at December 31, 2022
and 2021, respectively.
The following table summarizes the primary segments of the loan portfolio as of December 31, 2022 and 2021:
Commercial
(Dollars in thousands)
Business
Real Estate
December 31, 2022
Acquisition,
development
and
construction
Total
Commercial
Residential
Home
Equity
Lines of
Credit
Consumer
Total
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total loans
December 31, 2021
Individually
evaluated for
impairment
Collectively
evaluated for
impairment
Total loans
$
10,451 $
1,365 $
— $
11,816 $
2,603 $
90 $
1,351 $
15,860
840,621
631,474
126,999
1,599,094
606,849
18,644
130,215
2,354,802
$ 851,072 $ 632,839 $ 126,999 $ 1,610,910 $ 609,452 $
18,734 $ 131,566 $
2,370,662
$
12,954 $
2,206 $
1,392 $
16,552 $
8,765 $
217 $
432 $
25,966
808,661
570,530
98,688
1,477,879
301,733
21,969
43,900
1,845,481
$ 821,615 $ 572,736 $ 100,080 $ 1,494,431 $ 310,498 $
22,186 $
44,332 $
1,871,447
We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific
portfolio segments which are levels at which we develop and document our systematic methodology to determine the allowance
for credit losses attributable to each respective portfolio segment. These segments are as follows:
82
Commercial business loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as
to finance owner occupied real estate, and to finance future cash flows of Federal Government lease contracts. Repayment of
these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines
of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and
inventory. This segment includes both company originated and purchased participation loans. Credit risk arises from the
successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse
conditions in the local and regional economy.
Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment
properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both company
originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s
deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.
Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are
intended to finance the construction of commercial and residential properties, including the construction of single-family
dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of
risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and
adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame
or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to
periodically advance loan funds to pay interest charges on the outstanding balance of the loan.
Commercial Small Business Administration loans – Loans originated through the various SBA programs have become an area
of lending focus for the Bank. As of December 31, 2022, these loans have not yet been designated as a unique portfolio segment
due to the relative insignificance from a loan volume perspective. These loans are currently included within the loan types noted
above, based on the purpose of each loan originated. When appropriate, the portfolio segments will be adjusted to segregate the
SBA loan portfolio segment from the other commercial loan portfolio segments.
Commercial SBA Paycheck Protection Program loans –This segment includes the loan originated through the recently created
SBA PPP loans. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors
of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with
the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply
with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds.
Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans
principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of
repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral
values. Credit risk arises from the borrower’s, and where applicable the builder's, continuing financial stability, which can be
adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Also impacting credit risk would be
a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or
subsequent liquidation of the real estate collateral.
Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is
similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value
of the collateral securing the loan.
Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans
include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to
residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the
collateral securing the loan. This segment primarily includes loans purchased from a third-party originator that originates loans in
order to finance the purchase of personal automotive vehicles for sub-prime borrowers. Credit risk is unique in comparison to the
remainder of the Consumer segment as these loans are being provided to consumers that cannot typically obtain financing through
traditional lenders. As such, these loans are subject to a higher risk of default than the typical Consumer loan.
83
The following table presents impaired loans by class segregated by those for which a specific allowance was required and those
for which a specific allowance was not necessary as of December 31, 2022 and 2021:
(Dollars in thousands)
December 31, 2022
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total impaired loans
December 31, 2021
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total impaired loans
Impaired Loans with
Specific Allowance
Impaired
Loans with
No Specific
Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
$
$
$
$
3,436 $
1,240
—
4,676
—
—
1,347
6,023 $
2,401 $
668
—
3,069
—
—
—
3,069 $
1,253 $
222
—
1,475
—
—
268
1,743 $
7,015 $
125
—
7,140
2,603
90
4
9,837 $
10,451 $
1,365
—
11,816
2,603
90
1,351
15,860 $
232 $
243
—
475
—
—
—
475 $
8,796 $
543
1,392
10,731
8,179
217
259
19,386 $
11,197 $
1,211
1,392
13,800
8,179
217
259
22,455 $
15,324
1,470
1,415
18,209
2,671
94
1,351
22,325
13,010
1,329
2,807
17,146
8,219
221
259
25,845
The following table presents the average recorded investment in impaired loans and related interest income recognized for the
years ended:
December 31, 2022
December 31, 2021
December 31, 2020
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
(Dollars in
thousands)
Commercial:
Business
$
12,781 $
8 $
6 $
7,701 $
— $
— $
6,066 $
— $
—
Real estate
Acquisition,
development and
construction
Total commercial
Residential
Home equity lines
of credit
Consumer
Total
1,479
273
14,533
6,952
149
915
57
—
65
15
—
—
59
—
65
15
—
—
2,051
344
10,096
5,992
81
41
60
—
60
15
—
—
43
—
43
14
—
—
3,057
1,207
10,330
2,541
87
7
97
67
164
19
—
—
$
22,549 $
80 $
80 $
16,210 $
75 $
57 $
12,965 $
183 $
104
73
177
19
—
—
196
As of December 31, 2022, there are ten loans collateralized by residential real estate property in the process of foreclosure. The
total recorded investment in these loans was $2.1 million as of December 31, 2022. These loans are included in the table above
and have no specific allowance allocated to them.
As of December 31, 2022, the Bank's other real estate owned balance totaled $1.2 million. The Bank held five foreclosed
residential real estate properties representing $0.2 million, or 16.7%, of the total balance of other real estate owned. The Bank
84
held three commercial real estate properties representing $1.0 million or 83.3% of the total balance of other real estate owned.
As of December 31, 2021, there are six loans collateralized by residential real estate property in the process of foreclosure. The
total recorded investment in these loans was $0.4 million as of December 31, 2021. These loans are included in the table above
and have no specific allowance allocated to them.
As of December 31, 2021, the Bank's other real estate owned balance totaled $2.4 million. The Bank held four foreclosed
residential real estate properties, representing $0.2 million, or 7.3%, of the total balance of other real estate owned. The Bank held
ten commercial real estate properties representing $2.2 million or 92.7% of the total of other real estate owned.
We use a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories
are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally
follow bank regulatory definitions.
Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general
conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified
during the underwriting and approval process have been adequately mitigated by other factors.
Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left
uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s
credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to
sufficient risk to warrant adverse classification.
Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the
borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize
the liquidation of the debt and are characterized by the distinct possibility that bank will sustain some loss if the deficiencies are
not corrected.
Loans categorized as “Doubtful” rated have all the weakness inherent in those classified substandard with the added characteristic
that the weakness make collections or liquidation in full, on the basis of currently known facts, conditions and values, highly
questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would
salvage the debt.
The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and
unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have
well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained
if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the Loss
category.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the
Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and
residential mortgage loans are included in the Pass categories unless a specific action, such as past due status, bankruptcy,
repossession or death occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the
timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department ensures
that a review of all commercial relationships of $1.0 million or greater is performed annually.
Review of the appropriate risk grade is included in both the internal and external loan review process, and on an ongoing basis.
The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank
engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant
reviews larger commercial relationships or criticized relationships. The Credit Department compiles detailed reviews, including
plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard
categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.
85
The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of
Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2022 and 2021:
(Dollars in thousands)
December 31, 2022
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total loans
December 31, 2021
Commercial:
Business
Real estate
Acquisition, development and construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total loans
Pass
Special
Mention
Substandard
Doubtful
Total
$
830,319 $
592,997
120,788
1,544,104
605,513
18,269
131,562
$ 2,299,448 $
5,963 $
18,883
5,277
30,123
760
375
—
31,258 $
12,103 $
20,600
934
33,637
1,556
90
4
35,287 $
2,687 $
359
851,072
632,839
126,999
1,610,910
609,452
18,734
131,566
4,669 $ 2,370,662
3,046
1,623
—
—
$
789,101 $
526,851
89,893
1,405,845
299,291
21,582
43,519
$ 1,770,237 $
12,246 $
12,598
4,960
29,804
899
387
24
31,114 $
18,143 $
31,293
4,163
53,599
9,815
191
259
63,864 $
2,125 $
1,994
1,064
5,183
493
26
530
821,615
572,736
100,080
1,494,431
310,498
22,186
44,332
6,232 $ 1,871,447
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as
determined by the length of time a recorded payment is past due.
A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough
review is presented to the Chief Credit Officer and/or the SARC, as required with respect to any loan which is in a collection
process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on
non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual
status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make scheduled principal
or interest payments, when full repayment of principal and interest is not expected or when the loan displays potential loss
characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless we believe it is
likely the accrued interest will be collected. Any payments subsequently received are applied to principal. To remove a loan from
non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of future satisfactory
payment performance. Usually, this requires the receipt of six consecutive months of regular, on-time payments. Removal of a
loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.
86
The following table presents the classes of the loan portfolio summarized by aging categories of performing loans and nonaccrual
loans as of December 31, 2022 and 2021:
(Dollars in thousands)
December 31, 2022
Commercial:
Business
Real estate
Acquisition, development and
construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total loans
December 31, 2021
Commercial:
Business
Real estate
Acquisition, development and
construction
Total commercial
Residential
Home equity lines of credit
Consumer
Total loans
Current
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
Total Past
Due
Total
Loans
Non-
Accrual
90+ Days
Still
Accruing
$ 850,112 $
— $
960 $
— $
960 $ 851,072 $
7,528 $
632,839
126,999
1,609,950
606,554
18,131
120,504
—
—
—
1,820
603
6,848
—
—
960
1,078
—
2,867
—
—
—
—
—
—
—
632,839
126,999
960
1,610,910
2,898
603
609,452
18,734
1,347
11,062
131,566
—
—
7,528
2,196
90
1,351
$ 2,355,139 $
9,271 $
4,905 $
1,347 $
15,523 $ 2,370,662 $
11,165 $
$ 816,638 $
1,718 $
11 $
3,248 $
4,977 $ 821,615 $
8,261 $
569,792
396
98,781
1,485,211
303,940
21,974
42,231
67
2,181
3,620
—
1,211
461
412
884
285
119
461
2,087
2,944
572,736
192
820
6,155
2,653
93
429
1,299
100,080
9,220
1,494,431
6,558
212
2,101
310,498
22,186
44,332
1,392
9,845
7,636
217
259
$ 1,853,356 $
7,012 $
1,749 $
9,330 $
18,091 $ 1,871,447 $
17,957 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The ALL is maintained to absorb losses from the loan portfolio and is based on management’s continuing evaluation of the risk
characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the
portfolio, adequacy of collateral, past and anticipated loss experience and the amount of non-performing loans.
Interest income on loans would have increased by approximately $0.5 million, $0.4 million and $0.6 million for 2022, 2021 and
2020, respectively, if loans had performed in accordance with their terms.
The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310 for loans individually
evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as
the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of
the two components represents the Bank’s ALL. The Bank analyzes certain impaired loans in homogeneous pools, rather than on
an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically,
residential mortgage loans, home equity lines of credit and consumer loans, when considered impaired, are evaluated collectively
for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans and the reserve
totaled $0.1 million and $0.1 million and $0.1 million as of December 31, 2022, 2021 and 2020, respectively.
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general
allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are
modified by qualified factors.
The segments described above, which are based on the Federal call code assigned to each loan, provide the starting point for the
ALL analysis. Company and Bank management track the historical net charge-off activity at the call code level. A historical
charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12
quarters.
“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools,
which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management
and subject to additional qualitative factors.
87
Management has identified a number of additional qualitative factors which we use to supplement the historical charge-off factor
as these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss
experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory
and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of
lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of
underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in
economic and business conditions, consumer sentiment and other external factors. The combination of historical charge-off and
qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of
loss as a loan risk grading deteriorates.
To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-
revolving lines of credit and revolving lines of credit and based its calculation on the expectation of future advances of each loan
category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure
various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition,
many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to
be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit
advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line
utilization of the revolving line of credit portfolio as a whole.
Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and
qualitative environmental factors, was applied in the similar manner as those used for the allowance for loan loss calculation. The
resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which
Management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of
funding. The liability for unfunded commitments was $0.5 million as of December 31, 2022 and 2021.
Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make
appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these
amounts are promptly charged off against the ALL.
88
The following tables summarize the activity of primary segments of the ALL segregated into the amount required for loans
individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the years
ending December 31, 2022, 2021 and 2020:
Commercial
(Dollars in thousands)
ALL balance at December 31, 2021
Charge-offs
Recoveries
Provision (release)
ALL balance at December 31, 2022
Individually evaluated for impairment
Collectively evaluated for impairment
(Dollars in thousands)
ALL balance at December 31, 2020
Charge-offs
Recoveries
Provision (release)
ALL balance at December 31, 2021
Individually evaluated for impairment
Collectively evaluated for impairment
(Dollars in thousands)
ALL balance at December 31, 2019
Charge-offs
Recoveries
Provision (release)
Allowance contributed with
mortgage combination transaction
ALL balance at December 31, 2020
Individually evaluated for impairment
Collectively evaluated for impairment
Real
Estate
Business
$ 8,027 $ 5,091 $
(2,858) —
127
486
56
3,546
$ 8,771 $ 5,704 $
$ 1,253 $ 222 $
$ 7,518 $ 5,482 $
Acquisition,
development
and
construction
Total
Commercial Residential
Home
Equity
Lines of
Credit
Consumer
Total
982 $
—
—
82
1,064 $
— $
1,064 $
14,100 $
(2,858)
183
4,114
15,539 $
1,475 $
14,064 $
1,492 $
(84)
—
1,472
2,880 $
— $
2,880 $
(12,241)
6,370
8,612
128 $ 2,546 $ 18,266
(15,183)
—
6,560
7
14,194
(4)
131 $ 5,287 $ 23,837
— $
1,743
131 $ 5,019 $ 22,094
268 $
Commercial
Real
Estate
Business
$ 12,193 $ 9,079 $
(83)
—
(1,284)
231
(3,113) (3,905)
$ 8,027 $ 5,091 $
$
243 $
$ 7,795 $ 4,848 $
232 $
Acquisition,
development
and
construction
Total
Commercial Residential
Home
Equity
Lines of
Credit
Consumer
Total
2,761 $
—
—
(1,779)
982 $
— $
982 $
24,033 $
(1,367)
231
(8,797)
14,100 $
475 $
13,625 $
1,462 $
(5)
—
35
1,492 $
298 $
—
24
(194)
128 $
— $ — $
128 $
1,492 $
51 $ 25,844
(1,619)
(247)
316
61
2,681
(6,275)
2,546 $ 18,266
475
2,546 $ 17,791
— $
Commercial
Real
Estate
Business
$ 6,197 $ 2,988 $
(23)
(1,909)
7
6,107
15
7,890
—
—
$ 12,193 $ 9,079 $
$ 1,034 $ 262 $
$ 11,159 $ 8,817 $
Acquisition,
development
and
construction
Total
Commercial
Residential
Home
Equity
Lines of
Credit
Consumer
Total
913 $
—
—
1,848
—
2,761 $
— $
2,761 $
10,098 $
(1,932)
22
15,845
1,272 $
(235)
—
779
327 $
(23)
9
(15)
78 $ 11,775
(2,190)
—
3
34
16,579
(30)
—
24,033 $
1,296 $
22,737 $
—
(354)
1,462 $
298 $
— $ — $
298 $
1,462 $
—
(354)
51 $ 25,844
— $ 1,296
51 $ 24,548
The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that
the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the
consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the
portfolio at any given date.
Troubled Debt Restructurings
At December 31, 2022 and 2021, the Bank had specific reserve allocations for TDRs of $0.4 million and $0.5 million,
respectively. Loans considered to be troubled debt restructured loans totaled $10.4 million and $12.6 million as of December 31,
2022 and December 31, 2021, respectively. Of these totals, $4.7 million and $4.5 million, respectively, represent accruing
troubled debt restructured loans and represent 45% and 21%, respectively, of total impaired loans. Meanwhile, as of
December 31, 2022, $5.7 million represents nine loans to seven borrowers that have defaulted under the restructured terms. The
largest of these loans is a $1.9 million restructured commercial loan to a company previously dependent on the coal industry,
which is now structured as an unsecured loan. Three of these loans to an unrelated borrower, totaling $3.1 million, are
restructured equipment loans to a borrower in the coal industry, which was provided extended interest-only terms to allow time
89
for the collateral equipment to be sold. There is a commercial loan totaling $0.5 million secured by government lease payments
that previously defaulted and is now making restructured payments. The four remaining unrelated borrowers have a single loan
each, totaling $0.2 million. These borrowers have experienced continued financial difficulty and are considered non-performing
loans as of December 31, 2022. All of the nine loans were also considered non-performing loans as of December 31, 2021.
During the year ended December 31, 2022, no restructured loans defaulted under their modified terms that were not already
classified as non-performing for having previously defaulted under their modified terms.
There were no commitments to advance funds to any TDRs as of December 31, 2022.
There were no new loans identified as TDRs during the year ended December 31, 2022. The following table presents details
related to loans identified as TDRs during the year ended December 31, 2021:
December 31, 2021
Number of Contracts
Pre-Modification
Outstanding Recorded
Investment
Post-Modification Outstanding
Recorded Investment
(Dollars in thousands)
Commercial:
Business
Real estate
4,836
—
4,836
Total commercial
—
Residential
4,836
Total
1 The pre-modification and post-modification balances represent the balances outstanding immediately before and after
modification of the loan.
5,200 $
—
5,200
—
5,200 $
2 $
—
2
—
2 $
PPP Loans and CARES Act Deferrals
We actively participated in the PPP as a lender, evaluating other programs available to assist our clients and providing deferrals
consistent with GSE guidelines. As of December 31, 2022, the outstanding balance of PPP loans totaled $7.9 million on loans
originated through our internal commercial team and $5.6 million on loans originated through our partnership with a Fintech
company. A single loan totaling $2.0 million was labeled Special Mention as of December 31, 2022. The borrower did not
complete all of the steps required for forgiveness under the PPP program and converted to principal and interest payments in
December 2022. We are currently following the administrative steps needed to submit the loan to the SBA for the execution of
their full guarantee.
As of December 31, 2022, all commercial and mortgage loans previously approved for COVID-19 related modifications, such as
interest-only payment and payment deferrals, had returned to their previous payment structures. As of December 31, 2021,
mortgage loans totaling $10.8 million and no commercial loans were outstanding for COVID related modifications. These
modifications were not considered to be TDRs in reliance on guidance issued by banking regulators titled the “Interagency
Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”
Note 4 – Premises and Equipment
The following table presents the components of premises and equipment at December 31,:
90
(Dollars in thousands)
Land
Buildings and improvements
Furniture, fixtures and equipment
Software
Construction in progress
Leasehold improvements
Accumulated depreciation
Premises and equipment, net
2022
2021
$
$
3,465 $
13,393
17,642
6,019
508
2,836
43,863
(20,210)
23,653 $
3,465
13,393
16,841
4,176
531
2,895
41,301
(16,249)
25,052
Depreciation expense totaled $4.4 million, $3.3 million and $3.0 million for 2022, 2021 and 2020, respectively.
We lease certain premises and equipment under operating and finance leases. At December 31, 2022, we had lease liabilities
totaling $15.0 million and right-of-use assets totaling $13.9 million, substantially all of which was related to operating leases. At
December 31, 2022, the weighted-average remaining lease term for operating leases was 11.6 years and the weighted-average
discount rate used in the measurement of operating lease liabilities was 3.0%.
At December 31, 2021, we had lease liabilities totaling $18.6 million, of which $18.5 million was related to operating leases and
$0.1 million was related to finance leases, and right-of-use assets totaling $17.5 million, all of which was related to operating
leases. At December 31, 2021, the weighted-average remaining lease term for operating leases was 12.0 years, and the weighted-
average discount rate used in the measurement of operating lease liabilities was 2.8%. At December 31, 2021, the weighted-
average remaining lease term for finance leases was 1.8 years, and the weighted-average discount rates used in the measurement
of finance lease liabilities was 2.0%.
Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively.
The following shows lease costs for the years ended:
(Dollars in thousands)
Amortization of right-of-use assets, finance leases
Interest on lease liabilities, finance leases
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
$
$
December 31, 2022
December 31, 2021
57 $
—
1,781
32
38
1,908 $
59
2
1,966
5
38
2,070
There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the year ended
December 31, 2022.
For operating leases with initial or remaining terms of one year or more as of December 31, 2022, the following table presents
future minimum payments for the twelve month periods ended December 31:
(Dollars in thousands)
2023
2024
2025
2026
2027
2028 and thereafter
Total future minimum lease payments
Less: Amounts representing interest
Present value of net future minimum lease payments
$
$
$
Operating Leases
1,655
1,579
1,576
1,584
1,625
10,111
18,130
(3,120)
15,010
There are no material future minimum payments on finance leases as of December 31, 2022.
Note 5 – Equity Method Investments
91
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, we must assess whether our equity method investments are
significant. In evaluating the significance of these investments, we performed the income, investment and asset tests described in
S-X 1-02(w) for each equity method investment. Rule 3-09 of Regulation S-X requires separate audited financial statements of an
equity method investee in an annual report if either the income or investment test exceeds 20%. Rule 4-08(g) of Regulation S-X
requires summarized financial information for all equity method investees in an annual report if any of the equity method
investees, individually or in the aggregate, result in any of the tests exceeding 10%.
Under the income test, our proportionate share of the revenue from equity method investments in the aggregate exceeded the
applicable threshold under Rule 4-08(g) of 10% for the year ended December 31, 2022, accordingly, we are required to provide
summarized income statement information for all investees for all periods presented. There were no equity method investments
which met any of the applicable thresholds for reporting Rule 3-09 for reporting separate financial statements as of the year ended
December 31, 2022.
Our equity method investments are initially recorded at cost, including transaction costs to obtain the equity method investment,
and are subsequently adjusted for changes due to our share of the entities' earnings.
ICM
The following table provides summarized income statement information for ICM for the years ended December 31, 2022 and
2021:
(Dollars in thousands)
Total revenues
Net income
Gain on sale of loans
Volume of loans sold
$
December 31,
2022
2021
67,207 $
343
44,921
2,325,709
153,549
41,381
150,896
5,326,757
Our ownership percentage of 40% of ICM allows us to have significant influence over the operations and decision making at
ICM. Accordingly, the investment is accounted for as an equity method investment. Our share of net income from our investment
in ICM was not material and $16.4 million for the years ended December 31, 2022 and 2021, respectively. As of December 31,
2022 and 2021, the locked mortgage pipeline was $0.7 billion and $1.0 billion, respectively.
Warp Speed
In October 2022, we acquired a 37.5% interest in Warp Speed and accounted for our ownership as an equity method investment,
initially recorded at cost including costs incurred to obtain the equity method investment. Please refer to Note 25 – Acquisitions
and Divestitures. Our ownership of Warp Speed allows us to have significant influence over its operations and decision making.
Accordingly, the investment is accounted for as an equity method investment. At the time of acquisition, we made a policy
election to record our proportionate share of net income of the investee on a three month lag. For the year ended December 31,
2022, we recorded no impact on our income from the equity method investment in Warp Speed.
Ayers Socure II
Our ownership percentage of 10% of Ayers Socure II allows us to have significant influence over the company. Accordingly, the
investment is accounted for as an equity method investment. Our share of net income from Ayers Socure II for the twelve months
ended December 31, 2022 was not significant. The equity method investment in Ayers Socure II is not considered a significant
investment based on the criteria of Rule 10-01(b)(1) of Regulation S-X.
Ayers Socure II's sole business is ownership of equity securities in Socure Inc. ("Socure"). In addition to our equity method
investment in Ayers Socure II, we also have direct equity security ownership interest in Socure. With the combination of our
investments in both Ayers Socure II and Socure directly, we own less than 1% of Socure in total.
Interchecks
92
Prior to December 2022, our ownership percentage of Interchecks, as well as certain other qualitative factors, allowed us to have
significant influence over the operations and decision making at Interchecks. Accordingly, the investment had been accounted for
as an equity method investment. As a result of a December 2022 sale of Interchecks shares, our remaining ownership percentage
decreased to 9%, which was no longer significant to warrant equity method investment classification, and this investment was
reclassified to equity securities as of December 31, 2022. Our share of net loss from Interchecks totaled $0.7 million for the year
ended December 31, 2022 and was not significant for the year ended December 31, 2021.
Note 6 – Deposits
Deposits at December 31, were as follows:
(Dollars in thousands)
Demand deposits of individuals, partnerships and corporations
Noninterest-bearing demand
Interest-bearing demand
Savings and money markets
Time deposits, including CDs and IRAs
Total deposits
Time deposits that meet or exceed the FDIC insurance limit
Maturities of time deposits at December 31, 2022 were as follows (dollars in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
2022
2021
1,231,544 $
720,074
284,447
334,417
2,570,482 $
1,120,433
651,016
510,068
96,088
2,377,605
4,386 $
9,573
263,254
64,010
3,819
687
2,394
253
334,417
$
$
$
$
$
As of December 31, 2022, overdrawn deposit accounts totaling $1.1 million were reclassified as loan balances.
Note 7 – Borrowed Funds
The Bank is a member of the FHLB of Pittsburgh, Pennsylvania. As of December 31, 2022, the Bank's maximum borrowing
capacity with the FHLB was $751.4 million and the remaining borrowing capacity was $539.3 million, with the difference being
short-term borrowings and letters of credit with the FHLB.
Short-term borrowings
As of December 31, 2022, the Bank had $102.3 million short-term borrowings with the FHLB and no borrowings under Fed
Funds purchased outstanding. As of December 31, 2021, the Bank had no short-term borrowings with the FHLB and no
borrowings under Fed Funds purchased outstanding.
Information related to short-term borrowings is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
Long-term borrowings
$
2022
2021
$
102,333
15,494
102,333
2.82 %
4.45 %
—
25,275
130,047
0.05 %
— %
As of December 31, 2022 and December 31, 2021, the Bank had no long-term borrowings with the FHLB.
93
Repurchase agreements
Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”)
with clients representing funds deposited by clients, on an overnight basis, that are collateralized by investment securities owned
by us. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between us and the client
and are accounted for as secured borrowings. Our repurchase agreements reflected in liabilities consist of client accounts and
securities which are pledged on an individual security basis.
We monitor the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected in the amount of
cash received in connection with the transaction. The primary risk with our repurchase agreements is the market risk associated
with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes
of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping
agents.
All of our repurchase agreements were overnight agreements at December 31, 2022 and December 31, 2021. These borrowings
were collateralized with investment securities with a carrying value of $10.4 million and $15.8 million at December 31, 2022 and
December 31, 2021, respectively, and were comprised of United States Government Agencies and Mortgage-backed securities.
Declines in the value of the collateral would require us to increase the amounts of securities pledged.
Information related to repurchase agreements is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
Subordinated Debt
Information related to subordinated debt is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
$
$
2022
2021
$
10,037
10,987
12,680
0.05 %
0.06 %
2022
2021
$
73,286
73,159
73,286
4.20 %
3.97 %
11,385
10,821
11,398
0.12 %
0.05 %
73,030
51,149
73,030
4.28 %
3.71 %
In September 2021, we completed the private placement of $30 million fixed-to-floating rate subordinated notes to certain
qualified institutional investors. These notes are unsecured and have a 10-year term, maturing October 1, 2031, and will bear
interest at a fixed rate of 3.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate
will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR,
plus 254 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory
capital purposes.
In November 2020, we completed the private placement of $40 million fixed-to-floating rate subordinated notes to certain
qualified institutional investors. These notes are unsecured and have a ten-year term, maturing December 1, 2030, and will bear
interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate
will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR,
plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory
capital purposes.
In March 2007, we completed the private placement of $4 million Floating Rate, Trust Preferred Securities through our MVB
Financial Statutory Trust I subsidiary (the “Trust”). We established the Trust for the sole purpose of issuing the Trust Preferred
Securities pursuant to an Amended and Restated Declaration of Trust. The Trust Preferred Securities and the Debentures mature
in 2037 and have been redeemable by us since 2012. Interest payments are due in March, June, September and December and are
94
adjusted at the interest due dates at a rate of 1.62% over the three-month LIBOR Rate. The obligations we provide with respect to
the issuance of the trust preferred securities constitute a full and unconditional guarantee by us of the Trust’s obligations with
respect to the trust preferred securities to the extent set forth in the related guarantees. The securities issued by the Trust are
includable for regulatory purposes as a component of our Tier 1 capital.
We recognized interest expense on our subordinated debt of $3.1 million, $2.2 million and $0.3 million for the years ended
December 31, 2022, 2021 and 2020, respectively.
Senior term loan
Information related to senior term loan is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Rate at December 31
2022
2021
$
9,765
2,328
9,886
7.00 %
7.44 %
—
—
—
—
—
In October 2022, we entered into a credit agreement with Raymond James Bank ("Raymond James"). Pursuant to the credit
agreement, Raymond James has extended to us a senior term loan in the aggregate principal amount of up to $10 million. In
connection with the closing of the Warp Speed transaction, we borrowed $10 million and paid Raymond James an upfront fee of
1% of the loan amount. The loan will bear interest per annum at a rate equal to 2.75%, plus term secured overnight financing rate,
which will reset monthly. Accrued interest is payable on the last business day of each month, beginning with October 31, 2022,
with the then outstanding principal balance of the loan payable on the last business day of each quarter in the amount of $125,000
during the first year and $250,000 thereafter. The loan will mature in April 2025, unless accelerated earlier upon an event of
default.
We recognized interest expense on our senior term loan of $0.2 million for the year ended December 31, 2022 and none for the
years ended December 31, 2021 and 2020, respectively.
Note 8 – Commitments and Contingent Liabilities
Commitments
We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of
our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of
financial condition.
Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to
extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit
policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. We evaluate each customer’s credit worthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by us upon extension of credit, varies and is based on management’s
credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third-party.
Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The
credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Our policy
for obtaining collateral, and the nature of such collateral, is substantially the same as that involved in making commitments to
extend credit.
95
Specifically, the Bank has entered into agreements to extend credit or provide conditional payments pursuant to standby and
commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds
deposits.
Total contractual amounts of the commitments as of December 31, were as follows:
(Dollars in thousands)
Available on lines of credit
Stand-by letters of credit
Other loan commitments
Concentration of Credit Risk
2022
2021
495,618 $
17,153
14,901
527,672 $
384,923
23,600
15,792
424,315
$
$
We grant a majority of our commercial, financial, agricultural, real estate and installment loans to customers throughout the North
Central West Virginia and Northern Virginia markets. Collateral for loans is primarily residential and commercial real estate,
personal property and business equipment. We evaluate the credit worthiness of each of our customers on a case-by-case basis
and the amount of collateral we obtain is based upon management’s credit evaluation.
Regulatory
We are required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. In
accordance with these requirements, we implemented a deposit reclassification program that allowed us to maintain no such
reserve balances as of December 31, 2022 and 2021.
Contingent Liabilities
The Bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management and
counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
Note 9 – Income Taxes
The provisions for income taxes for the years ended December 31, were as follows:
(Dollars in thousands)
Current:
Federal
State
Deferred:
Federal
State
Income tax expense
2022
2021
2020
$
$
$
$
6,607 $
1,152
7,759 $
(3,056) $
(575)
(3,631)
4,128 $
3,332 $
421
3,753 $
5,159 $
970
6,129
9,882 $
10,899
2,019
12,918
(3,183)
(203)
(3,386)
9,532
Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31:
(Dollars in thousands)
Amount
%
Amount
%
Amount
%
Income tax at federal statutory rate
$
3,889
21.0 % $
10,201
21.0 % $
9,858
21.0 %
2022
2021
2020
Tax effect of:
State income taxes, net of federal income taxes
456
2.5 %
1,099
2.2 %
1,435
Tax exempt earnings
Other
(1,596)
(8.6) %
(1,460)
(3.0) %
(1,381)
1,379
4,128
$
7.4 %
42
0.1 %
(380)
22.3 % $
9,882
20.3 % $
9,532
3.1 %
(3.0) %
(0.8) %
20.3 %
96
Deferred income tax assets and liabilities were comprised of the following at December 31:
(Dollars in thousands)
Gross deferred tax assets:
Allowance for loan losses
Minimum pension liability
Stock-based compensation
SERP
Unrealized loss on securities available-for-sale
Lease liabilities
Other
Total gross deferred tax assets
Gross deferred tax liabilities:
Depreciation
Pension
Unrealized gain on securities available-for-sale
Holding gain on equity securities
Equity method investment
Goodwill
Right-of-use assets
Other
Total gross deferred tax liabilities
$
2022
2021
5,849 $
991
1,097
317
11,024
3,611
364
23,253
(1,726)
(1,062)
(80)
(3,969)
(2,220)
(110)
(3,383)
(264)
(12,814)
4,393
1,245
1,140
298
—
4,370
249
11,695
(1,556)
(1,077)
(45)
(4,358)
(4,086)
(70)
(4,141)
(288)
(15,621)
Net deferred tax assets (liabilities)
$
10,439 $
(3,926)
Net deferred income tax assets and net deferred income tax liabilities were included in other assets and other liabilities,
respectively, based on the ending balance.
Note 10 – Related Party Transactions
We have granted loans to our officers and directors and to their immediate family members, as well as loans to related companies.
These related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated parties and do not involve more than normal risk of collectability. Set forth
below is a summary of the related loan activity.
(Dollars in thousands)
December 31, 2022
December 31, 2021
Balance at
Beginning of
Year
Borrowings,
net of
participations
Executive
Officer and
Director
Retirements
Repayments
Balance at
End of Year
$
$
27,606 $
221,825 $
(998) $
(215,000) $
33,433
27,423 $
4,373 $
(996) $
(3,194) $
27,606
We held related party deposits of $112.5 million and $63.6 million at December 31, 2022 and December 31, 2021, respectively.
On January 17, 2022, the MVB Bank Inc. Board of Directors approved a $35.0 million line of credit to BillGO, Inc. a related
party of the Bank. Revenue generated during the year from contracts with BillGO, Inc. totaled $0.3 million at December 31, 2022
and December 31, 2021, respectively.
In October 2022, we acquired an interest in Warp Speed and account for our ownership as an equity method investment, initially
recorded at cost including costs incurred to obtain the equity method investment. As part of the purchase, we are able to designate
two out of seven directors to the board of directors of Warp Speed. We purchase loan participations from CalCon Mutual
Mortgage LLC, a subsidiary of Warp Speed. As of December 31, 2022, loans purchased from CalCon had an outstanding balance
of $39.1 million. Interest income recognized on these participations was $0.9 million for the year ended December 31, 2022.
We account for our ownership interest in ICM as an equity method investment and purchase loan participations from ICM. As of
December 31, 2022, loans purchased from ICM had an outstanding balance of $572.7 million.
97
Note 11 – Pension Plan
We participate in a trusteed pension plan known as the Allegheny Group Retirement Plan. Benefits are based on years of service
and the employee’s compensation. Accruals under the plan were frozen as of May 31, 2014. Freezing the plan resulted in a
remeasurement of the pension obligations and plan assets as of the freeze date. The pension obligation was remeasured using the
discount rate based on the Citigroup Above Median Pension Discount Curve in effect on May 31, 2014 of 4.5%.
In June 2017, we approved a Supplemental Executive Retirement Plan (the “SERP”), pursuant to which the Chief Executive
Officer of Potomac Mortgage Group ("PMG") is entitled to receive certain supplemental nonqualified retirement benefits. The
SERP took effect on December 31, 2017. As the executive completed three years of continuous employment with PMG prior to
retirement date (which shall be no earlier than the date he attains age 55) he will, upon retirement, be entitled to receive $1.8
million payable in 180 equal consecutive monthly installments of $10 thousand. The liability is calculated by discounting the
anticipated future cash flows at 4.0%. The liability accrued for this obligation was $1.3 million at December 31, 2022 and 2021,
respectively. Service costs were not material for any periods covered by this report.
Pension expense was $0.3 million, $0.3 million and $0.3 million in 2022, 2021 and 2020, respectively.
Information pertaining to the activity in our defined benefit plan, using the latest available actuarial valuations with a
measurement date of December 31, 2022 and 2021 is as follows:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Interest cost
Actuarial loss
Assumption changes
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Prepaid pension cost recognized
Accumulated benefit obligation
2022
2021
12,230 $
341
160
(3,584)
(318)
8,829 $
11,591 $
(1,990)
—
(318)
9,283 $
454 $
4,120
4,574 $
12,715
313
143
(649)
(292)
12,230
7,096
952
3,835
(292)
11,591
(639)
5,314
4,675
8,829 $
12,230
$
$
$
$
$
$
$
At December 31, 2022, 2021 and 2020, the weighted-average assumptions used to determine the benefit obligation are as follows:
Discount rate
Rate of compensation increase
The components of net periodic pension cost are as follows:
(Dollars in thousands)
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net periodic pension cost
2022
2021
2020
5.23 %
n/a
2.83 %
n/a
2.50 %
n/a
2022
2021
2020
$
$
341 $
(669)
429
101 $
313 $
(689)
507
131 $
365
(438)
420
347
98
For the years December 31, 2022, 2021 and 2020, the weighted-average assumptions used to determine net periodic pension cost
are as follows:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
2022
2021
2020
5.23 %
6.00 %
n/a
2.83 %
6.75 %
n/a
2.50 %
6.75 %
n/a
Our pension plan asset allocations at December 31, 2022 and 2021 are as follows:
Plan Assets
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Real estate investment trusts
Total
2022
2021
7 %
28 %
13 %
26 %
22 %
4 %
100 %
3 %
25 %
29 %
25 %
18 %
— %
100 %
The following table sets forth by level within the fair value hierarchy, as defined in Note 19 – Fair Value Measurements, the
Pension Plan’s assets at fair value as of December 31, 2022:
(Dollars in thousands)
Assets:
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Level I
Level II
Level III
Total
$
650 $
2,599
—
2,414
2,042
— $
—
—
—
—
— $
—
1,207
—
—
Total
$
7,705 $
— $
1,207 $
Investments reported at Net Asset Value1
Total assets at fair value
1 Investments reported at Net Asset Value include Real Estate investment trusts.
$
650
2,599
1,207
2,414
2,042
8,912
371
9,283
The following table sets forth by level, within the fair value hierarchy, as defined in Note 19 – Fair Value Measurements, the
Pension Plan’s assets at fair value as of December 31, 2021:
(Dollars in thousands)
Assets:
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Level I
Level II
Level III
Total
$
348 $
2,898
—
2,898
2,086
— $
—
—
—
—
— $
—
3,361
—
—
348
2,898
3,361
2,898
2,086
Total assets at fair value
$
8,230 $
— $
3,361 $
11,591
Investment in government securities, short-term investments, domestic equities and foreign equities are valued at the closing price
reported on the active market on which the individual securities are traded. Alternative investments are valued at quoted prices,
which are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of
which can be directly observed. Real estate investment trusts are valued at the net asset value of the trust at the reporting date. The
methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of
future fair values. Furthermore, while this plan believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could
result in a different fair value measurement at the reporting date.
99
The following table includes our best estimate of the plan contribution for next fiscal year and the benefits expected to be paid in
each of the next five fiscal years and in the aggregate for the five fiscal years thereafter:
(Dollars in thousands)
Contributions for the period of January 1, 2023 through December 31, 2023
Estimated future benefit payments reflecting expected future service
2023
2024
2025
2026
2027
2028 through 2032
Cash Flow
—
409
433
462
536
542
2,801
$
$
$
$
$
$
$
Note 12 – Goodwill and Other Intangible Assets
The table below summarizes the changes in carrying amounts of goodwill and other intangibles, including core deposit
intangibles, for the periods presented:
(Dollars in thousands)
Balance at January 1, 2022
Amortization expense
Balance at December 31, 2022
Balance at January 1, 2021
Goodwill and intangibles resulting from Trabian acquisition
Reduction of intangibles from sale of branches to Summit
Amortization expense
Balance at December 31, 2021
Balance at January 1, 2020
Reduction of goodwill and intangibles from sale of branches to Summit
Intangibles resulting from First State acquisition
Reduction of goodwill from ICM transaction
Goodwill resulting from Paladin acquisition
Amortization expense
Balance at December 31, 2020
Intangibles
Accumulated
Amortization
Net
Gross
3,820 $
—
3,820 $
(1,504) $
(685)
(2,189) $
2,316
(685)
1,631
3,941 $
600
(721)
—
3,820 $
4,226 $
(845)
560
—
—
—
3,941 $
(1,541) $
—
721
(684)
(1,504) $
(753) $
441
—
—
—
(1,229)
(1,541) $
2,400
600
—
(684)
2,316
3,473
(404)
560
—
—
(1,229)
2,400
Goodwill
$
3,988 $
—
3,988 $
$
$
$
2,350 $
1,638
—
—
3,988 $
$ 19,630 $
(1,598)
—
(16,882)
1,200
—
2,350 $
$
Goodwill represents the excess of the purchase price over the fair value of acquired net assets under the acquisition method of
accounting. The intangibles resulting from the Trabian acquisition are related to their customer relationships and trade name.
These items are amortized over four years and 10 years, respectively. The intangibles resulting from the Chartwell acquisition are
related to their customer relationships, backlog, a trademark and a non-competition agreement. These items are amortized over
five years, 5.3 years, 15 years and four years, respectively.
The table below presents estimated amortization expense for our other intangible assets (dollars in thousands):
2023
2024
2025
2026
2027
Thereafter
$
$
592
321
100
87
87
444
1,631
100
Our assessment of qualitative factors determined that it is not more likely than not that the fair value of each reporting unit is less
than its carrying amount and therefore, goodwill is not impaired as of December 31, 2022 and 2021. We have not identified any
triggering events since the impairment evaluation that would indicate potential impairment.
Intangibles, including core deposit intangibles are evaluated for impairment if events and circumstances indicate a potential for
impairment. Such an evaluation of other intangible assets is based on undiscounted cash flow projections. No impairment charges
were recorded for other intangible assets in any of the periods presented.
Note 13 – Stock Offerings
In December 2020, we repurchased 536,490 shares of our common stock at a price of $20.25 per share via a modified “Dutch
auction” tender offer. Additionally, our Board of Directors authorized the repurchase from time to time, on or before December
31, 2021, of up to $31.9 million of shares of our common stock as part of our stock repurchase program, which repurchases may
occur from time to time, on the open market or otherwise, at such prices and upon such terms as we may determine and otherwise
in accordance with applicable law.
In December 2020, we issued a notice of redemption to redeem all of our outstanding shares of Convertible Noncumulative
Perpetual Preferred Stock, Series B, par value $1.00 per share, with a liquidation preference of $1,000 per share (the “Series B
Preferred Stock”) and all of our outstanding shares of Convertible Noncumulative Perpetual Preferred Stock, Series C, par value
$1.00 per share, with a liquidation preference of $1,000 per share (the “Series C Preferred Stock,” together with the Series B
Preferred Stock, referred to herein as the “Preferred Stock”), at a redemption price per share equal to $10,000, plus declared and
unpaid dividends of $46.03 per share of Series B Preferred Stock, and $49.86 per share of Series C Preferred Stock, for the period
from and including December 31, 2020, to but excluding January 28, 2021, the date of redemption (the “Preferred Stock
Redemption”). The Preferred Stock Redemption is in accordance with the terms of our Articles of Incorporation, as amended. All
outstanding shares of our preferred stock were redeemed in January 2021.
In April 2021, the Bank entered into a Stock Purchase Agreement with Trabian, a leading software development firm servicing
financial institutions. Pursuant to the agreement, a portion of the Bank's purchase consideration for Trabian included 17,597
unregistered shares of our common stock.
In August 2021, the Bank entered into a Stock Purchase Agreement with Interchecks, a leading payment disbursement platform.
Pursuant to the agreement, a portion of the Bank's purchase consideration for Interchecks included 107,928 unregistered shares of
our common stock.
In September 2021, the Bank issued 24,408 shares of unregistered common stock valued at $40.97 per share, totaling
$1.0 million, pursuant to the Stock Purchase Agreement dated September 13, 2019 between the Bank and Chartwell.
In December 2021, the Bank issued 23,558 shares of unregistered common stock valued at $42.45 per share, totaling $1.0 million,
pursuant to the Stock Purchase Agreement dated September 13, 2019 between the Bank and Chartwell.
In October 2022, we issued 313,030 shares of unregistered common stock valued at $30.60 per share, totaling $9.58 million,
pursuant to the Equity Purchase Agreement dated March 13, 2022 between the Bank and Warp Speed. For more information
regarding the Warp Speed Purchase Agreement, see Note 25 - Acquisitions and Divestitures.
Note 14 – Stock-Based Compensation
The MVB Financial Corp. Incentive Stock Plan (the “Plan”) provides for the issuance of stock options, restricted stock awards
and RSUs to selected employees and directors. On April 4, 2022, the Board of Directors adopted the MVB Financial Corp 2022
Incentive Plan (the “2022 Plan”), which was approved by the shareholders at the annual meeting dated, May 17, 2022. The 2022
Plan replaces the MVB Financial Corp. 2013 Stock Incentive Plan (the “2013 Plan”) and provides for 975,000 shares authorized
for grant which includes the number of shares reserved for issuance under the 2013 Plan that remained available for grant
thereunder as of the date of Board approval of the 2022 Plan. As of December 31, 2022, 951,868 shares remain available for
issuance.
Stock-Based Compensation Expense
101
Stock-based compensation expense is recognized as salary and employee benefit cost based upon the fair value of the instruments
on the date of the grant. The amount that we recognized in stock-based compensation expense related to the issuance of stock
options and RSUs is presented in the following table:
(Dollars in thousands)
Stock Options
RSUs
Total stock-based compensation expense
$
$
2022
2021
2020
501 $
2,299
2,800 $
832 $
1,802
2,634 $
950
1,403
2,353
Proceeds from stock options exercised were $2.1 million, $4.9 million and $4.5 million during 2022, 2021 and 2020, respectively.
During 2022, 2021 and 2020, certain options were exercised in broker-assisted cashless transactions. Shares were forfeited related
to exercise price and related tax obligations and we paid tax authorities amounts due resulting in a net cash outflow.
Stock Options
Under the provisions of the Plan, the option price per share shall not be less than the fair market value of the common stock on the
grant date. Generally, options granted vest in five years and expire 10 years from the grant date.
The following summarizes stock options as of and for the year ended December 31, 2022:
2022
Number of Shares
Weighted-Average Exercise
Price
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
Weighted-average fair value of options granted during 2022
Weighted-average fair value of options granted during 2021
Weighted-average fair value of options granted during 2020
1,114,200 $
14,350
160,527
24,930
550
942,543 $
782,116 $
$
$
$
15.86
39.15
12.99
22.55
14.71
16.53
15.36
14.94
10.61
4.48
The intrinsic value of options exercised during 2022, 2021 and 2020 was $3.5 million, $8.0 million and $1.9 million, respectively.
The fair value for the options was estimated at the grant date using a Black-Scholes option-pricing model with the following
inputs:
Average risk-free interest rates
Weighted-average life (years)
Expected volatility
Expected dividend yield
2022
2021
2020
2.23 %
7
41.2 %
1.58 %
1.27 %
7
41.2 %
1.08 %
0.66 %
7
30.9 %
2.20 %
The following summarizes information related to the total outstanding and exercisable stock options at December 31, 2022:
Options Outstanding
Options Exercisable
Total Options
Weighted-
Average
Exercise Price
Intrinsic Value
(in millions)
Weighted-
Average
Remaining Life
Total Options
Weighted-
Average
Exercise Price
Intrinsic Value
(in millions)
Weighted-
Average
Remaining Life
942,543
$16.53
$5.7
4.38
782,116
$15.36
$5.3
3.87
At December 31, 2022, total unrecognized pre-tax compensation expense related to unvested stock options outstanding was $0.7
million. This cost is expected to be recognized over a weighted-average period of 2.9 years. For the year ended December 31,
102
2022, the fair value of stock options vested was $0.6 million.
Restricted Stock Units
Under the provisions of the Plan, RSUs are similar to restricted stock awards, except the recipient does not receive the stock
immediately, but instead receives the stock according to a vesting plan and distribution schedule, after achieving required
performance milestones or upon remaining with us for a particular length of time. Each RSU that vests entitles the recipient to
receive one share of our common stock on a specified issuance date. The recipient does not have any stockholder rights, including
voting, dividend or liquidation rights, with respect to the shares underlying awarded RSUs until the recipient becomes the record
holder of those shares.
We granted 95,723 RSUs in 2022, 53,070 of which were time-based awards and 42,653 of which were performance-based
awards. Time-based RSUs granted in 2022 generally vest in five equal installments over a five-year period, with the exception of
time-based grants to members of the Board of Directors, which vest over a one-year period. Performance-based RSUs vest in one
installment at the end of three years, based on set criteria.
A summary of the activity for our RSUs for the period indicated is presented in the following table:
Balance at beginning of year
Granted
Vested
Forfeited
Balance at end of year
Weighted-average fair value of RSUs granted during 2022
Weighted-average fair value of RSUs granted during 2021
Weighted-average fair value of RSUs granted during 2020
2022
Shares
Weighted-Average Grant
Date Fair Value
241,906 $
95,723
(75,354)
(14,718)
247,557 $
$
$
$
21.46
38.04
21.62
26.16
26.39
38.04
40.95
13.08
At December 31, 2022, based on RSU awards outstanding at that time, the total unrecognized pre-tax compensation expense
related to unvested RSU awards was $3.7 million. This cost is expected to be recognized over a weighted-average period of 2.2
years. At December 31, 2022, the fair value of RSU awards vested during the year was $2.9 million.
Subsidiary Equity Plan
In December 2021, Victor's Board of Directors approved the Victor Technologies, Inc. 2021 Incentive Plan (the “2021 Victor LTI
Plan”) which is an incentive plan denominated in Victor’s common shares. The 2021 Victor LTI Plan provides for the issuance of
stock options, stock appreciation rights, restricted stock awards and restricted stock units to selected employees and directors. The
maximum number of shares that may be issued under the 2021 Victor LTI Plan is 5.0 million shares.
During 2022, Victor issued a total of 1.1 million options to employees and non-employees at an average exercise price of $0.29
per share. The options have a ten-year term and will vest over a three-year period, so long as the optionees remain employed by
Victor.
During 2022, 299,961 shares vested at an average exercise price of $0.29.
For the year ended December 31, 2022, the compensation related to Victor stock-based awards was not material. At December 31,
2022, the unrecognized compensation expense related to 817,029 nonvested stock options was not material.
Note 15 – Earnings Per Share
We determine basic earnings per share (“EPS”) by dividing net income available to common shareholders by the weighted-
average number of common shares outstanding during the period. Diluted EPS is determined by dividing net income available to
common shareholders by the weighted-average number of shares outstanding, increased by both the number of shares that would
be issued assuming the exercise of instruments under our incentive stock plan.
103
(Dollars in thousands except shares and per share data)
Numerator for earnings per share:
Net Income
Net loss attributable to noncontrolling interest
Dividends on preferred stock
Net income available to common shareholders
Denominator:
Weighted-average shares outstanding - basic
Effect of dilutive stock options and restricted stock units
Weighted-average shares outstanding - diluted
Earnings per common share - basic
Earnings per common share - diluted
For the years ended
December 31,
2022
2021
2020
$
$
14,387 $
660
—
15,047 $
38,696 $
425
(35)
39,086 $
37,411
—
(461)
36,950
12,279,462
591,272
12,870,734
11,778,557
835,063
12,613,620
11,821,574
266,532
12,088,106
$
$
1.23 $
1.17 $
3.32 $
3.10 $
3.13
3.06
Securities not included in the computation of diluted EPS because the effect would be
antidilutive
113,427
93,895
646,168
Note 16 – Regulatory Capital Requirements
We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,
could have a direct material effect on our consolidated financial statements. The Bank is required to comply with applicable
capital adequacy standards established by the federal banking agencies. West Virginia state chartered banks, such as the Bank, are
subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and
ratios of capital. The optional community bank leverage ratio ("CBLR") framework, which is issued through interagency
guidance, intends to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions as
directed under the EGRRCPA. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions
will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds a
9% threshold, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the
then applicable threshold, and will not be required to calculate and report risk-based capital ratios. As of December 31, 2022 and
2021, we and the Bank met all capital adequacy requirements to which they are subject.
The most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain the minimum CBLR as set forth in the table
below. Our actual capital amounts and ratio is presented in the table below.
In April 2020, under the CARES Act, the 9% leverage ratio threshold was temporarily reduced to 8% in response to the
COVID-19 pandemic. The threshold increased to 8.5% in 2021 and has returned to 9% in 2022. 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:
●
●
●
●
●
Total assets of less than $10 billion;
Total trading assets plus liabilities of 5% or less of consolidated assets;
Total off-balance sheet exposures of 25% or less of consolidated assets;
Cannot be an advanced approaches banking organization; and
Leverage ratio greater than 9% or temporarily prescribed threshold established in response to COVID-19.
104
(Dollars in thousands)
As of December 31, 2022
Community Bank leverage ratio
Subsidiary bank
As of December 31, 2021
Community Bank leverage ratio
Subsidiary bank
Actual
Minimum Capital
Requirement
Minimum to be Well
Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
307,936
9.8%
$
250,675
8.0%
$
282,010
9.0%
$
321,282
11.6%
$
208,344
7.5%
$
236,123
8.5%
Note 17 – Regulatory Restriction on Dividends
The approval of the regulatory agencies is required if the total of all dividends declared by the Bank in any calendar year exceeds
the Bank’s net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years.
105
Note 18 – Fair Value of Financial Instruments
The carrying values and estimated fair values of financial instruments are summarized as follows:
Fair Value Measurements at:
(Dollars in thousands)
December 31, 2022
Financial Assets:
Cash and cash equivalents
Securities available-for-sale
Equity securities
Loans held-for-sale
Loans receivable, net
Servicing assets
Interest rate swap
Accrued interest receivable
Bank-owned life insurance
Embedded derivative
Financial Liabilities:
Deposits
Repurchase Agreements
Fair value hedge
Interest rate swap
Accrued interest payable
FHLB and other borrowings
Senior term loan
Subordinated Debt
December 31, 2021
Financial assets:
Cash and cash equivalents
Certificates of deposits with banks
Securities available-for-sale
Equity securities
Loans
Servicing rights
Interest rate swap
Fair value hedge
Accrued interest receivable
Bank-owned life insurance
Financial liabilities:
Deposits
Repurchase agreements
Fair value hedge
Interest rate swap
Accrued interest payable
Subordinated debt
Carrying Value
Estimated Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets (Level I)
Significant Other
Observable
Inputs (Level II)
Significant
Unobservable
Inputs (Level III)
$
0
$
$
$
40,280 $
379,814
38,744
23,126
2,348,808
1,616
8,427
12,617
43,239
787
2,570,482 $
10,037
572
8,427
2,558
102,333
9,765
73,286
307,437 $
2,719
421,466
32,402
1,851,572
2,812
6,702
1,552
7,860
42,257
40,280 $
379,814
38,744
24,898
2,285,427
1,634
8,427
12,617
43,239
787
2,226,037 $
10,037
572
8,427
2,558
102,006
9,765
64,330
307,437 $
2,738
421,466
32,402
1,865,013
2,831
6,702
1,552
7,860
42,257
40,280 $
—
5,382
—
—
—
—
—
—
—
— $
344,471
—
24,898
—
—
8,427
2,778
43,239
—
—
35,343
33,362
—
2,285,427
1,634
—
9,839
—
787
— $
—
—
—
—
—
—
—
2,226,037 $
10,037
572
8,427
2,558
102,006
9,765
64,330
—
—
—
—
—
—
—
—
307,437 $
—
—
247
—
—
—
—
—
—
— $
2,738
379,703
—
—
—
6,702
1,552
2,402
42,257
—
—
41,763
32,155
1,865,013
2,831
—
—
5,458
—
2,377,605 $
11,385
807
6,702
690
73,030
2,338,868 $
11,385
807
6,702
690
74,774
— $
—
—
—
—
—
2,338,868 $
11,385
807
6,702
690
74,774
—
—
—
—
—
Note 19 – Fair Value Measurements
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument.
106
These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a
particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates
are 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. Changes in assumptions could significantly affect the
estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Assets Measured on a Recurring Basis
As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of
input that is significant to the fair value measurement. The following measurements are made on a recurring basis.
Available-for-sale investment securities — Available-for-sale investment securities are recorded at fair value on a recurring
basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are
measured using independent pricing models or other model-based valuation techniques such as the present value of future cash
flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I
securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II
securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds,
United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt
securities. There have been no changes in valuation techniques for the year ended December 31, 2022. Valuation techniques are
consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are
independently valued and classified as Level III instruments. We classified investments in government securities as Level II
instruments and valued them using the market approach.
Equity securities — Certain equity securities are recorded at fair value on a recurring basis. Fair value measurement is based upon
quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other
model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating,
prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include
significant unobservable inputs. There have been no changes in valuation techniques for the year ended December 31, 2022.
Valuation techniques are consistent with techniques used in prior periods.
Interest rate swap — Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various
sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market
data.
Fair value hedge — Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors
who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models
that consider observable market data.
Bank-owned life insurance — Life insurance where the bank is both the policy beneficiary and owner. Bank-owned life
insurance ("BOLI") is recorded at fair value on a recurring basis, and increases in cash surrender, contract value and net insurance
proceeds at maturity are recorded as other income.
Embedded derivatives — Accounted for and recorded separately from the underlying contract as a derivative at fair value on a
recurring basis. Fair values are determined using the Monte Carlo model valuation technique. The valuation methodology utilized
includes significant unobservable inputs.
107
The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a
recurring basis as of December 31, 2022 and 2021 by level within the fair value hierarchy:
(Dollars in thousands)
Assets:
United States government agency securities
United States sponsored mortgage-backed securities
United States treasury securities
Municipal securities
Corporate debt securities
Other securities
Equity securities
Loans held-for-sale
Interest rate swap
Bank-owned life insurance
Embedded derivative
Liabilities:
Interest rate swap
Fair value hedge
(Dollars in thousands)
Assets:
United States government agency securities
United States sponsored mortgage-backed securities
United States treasury securities
Municipal securities
Corporate debt securities
Other securities
Equity securities
Interest rate swap
Fair value hedge
Bank-owned life insurance
Liabilities:
Interest rate swap
Fair value hedge
$
$
December 31, 2022
Level I
Level II
Level III
Total
— $
—
—
—
—
—
5,382
—
—
—
—
44,814 $
56,571
120,909
103,293
10,560
824
—
24,898
8,427
43,239
—
— $
—
—
35,343
—
—
—
—
—
—
787
—
—
8,427
572
—
—
December 31, 2021
44,814
56,571
120,909
138,636
10,560
824
5,382
24,898
8,427
43,239
787
8,427
572
Level I
Level II
Level III
Total
— $
—
—
—
—
—
247
—
—
—
40,437 $
76,108
110,389
133,249
11,142
878
—
6,702
1,552
42,257
— $
—
—
41,763
—
—
—
—
—
—
—
—
6,702
807
—
—
40,437
76,108
110,389
175,012
11,142
878
247
6,702
1,552
42,257
6,702
807
The following table represents recurring Level III assets as of the periods shown:
(Dollars in thousands)
Balance at December 31, 2021
Realized gains included in earnings
Purchase of securities
Maturities/calls
Unrealized loss included in other comprehensive loss
Host contract executed
Balance at December 31, 2022
Balance at December 31, 2020
Purchase of securities
Maturities/calls
Unrealized loss included in other comprehensive income
Balance at December 31, 2021
$
$
$
$
$
Municipal Securities
Embedded Derivatives
Total
41,763
9
1,048
(3,207)
(4,270)
—
35,343
43,679
3,862
(5,214)
(564)
41,763
$
$
$
$
$
—
—
—
—
—
787
787
—
—
—
—
—
$
$
$
$
$
41,763
9
1,048
(3,207)
(4,270)
787
36,130
43,679
3,862
(5,214)
(564)
41,763
108
Assets Measured on a Nonrecurring Basis
We may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-
financial liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at
the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial
assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent
impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment
test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-
financial assets measured at fair value on a nonrecurring basis during 2022 and 2021 include certain foreclosed assets which, upon
initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and
certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down
included in other noninterest expense.
Impaired loans — Loans for which it is probable that payment of interest and principal will not be made in accordance with the
contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management
measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those
impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed
the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or
Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, we obtain a current
external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and
contractual sales information.
Loans held-for-sale — The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices
or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar
asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value
at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.
Other real estate owned — Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing
the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III
inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.
Other debt securities — Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities are
securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes
resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.
Equity securities — Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily
determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price
changes in orderly transactions, as defined, for identical or similar investments of the same issuer.
Assets measured at fair value on a nonrecurring basis as of December 31, 2022 and 2021 are included in the table below:
(Dollars in thousands)
Impaired loans
Other real estate owned
Other debt securities
Equity securities
(Dollars in thousands)
Impaired loans
Other real estate owned
Other debt securities
Equity securities
$
$
December 31, 2022
Level I
Level II
Level III
Total
— $
—
—
—
— $
—
—
—
14,117 $
1,194
7,500
33,362
14,117
1,194
7,500
33,362
December 31, 2021
Level I
Level II
Level III
Total
— $
—
—
—
— $
—
—
—
21,980 $
2,330
7,500
32,155
21,980
2,330
7,500
32,155
109
The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities
measured at fair value at December 31, 2022 and 2021:
Quantitative Information about Level III Fair Value Measurements
Fair Value
Valuation Technique
Unobservable Input
Range
(Dollars in thousands)
December 31, 2022
Nonrecurring measurements:
Impaired loans
Other real estate owned
Other debt securities
Equity securities
Recurring measurements:
Municipal securities 5
Embedded Derivatives
(Dollars in thousands)
December 31, 2021
Nonrecurring measurements:
Impaired loans
$
$
$
$
$
$
14,117
Appraisal of collateral 1
1,194
Appraisal of collateral 1
Appraisal adjustments 2
Liquidation expense 2
Appraisal adjustments 2
Liquidation expense 2
7,500
Net asset value
Cost minus impairment
33,362
Net asset value
Cost minus impairment
0% - 20%
6%
0% - 20%
6%
0%
0%
35,343
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%
787 Monte Carlo pricing model
Deferred payment
$0 - $51.9 million
Volatility
Term
Risk free rate
58%
5 years
3.95%
Quantitative Information about Level III Fair Value Measurements
Fair Value
Valuation Technique
Unobservable Input
Range
Other real estate owned
Other debt securities
Equity securities
$
$
$
$
21,980
Appraisal of collateral 1
2,330
Appraisal of collateral 1
Appraisal adjustments 2
Liquidation expense 2
Appraisal adjustments 2
Liquidation expense 2
7,500
Net asset value
Cost minus impairment
32,155
Net asset value
Cost minus impairment
10% - 20%
5% - 10%
10% - 20%
5% - 10%
0%
0%
$
41,763
Appraisal of bond 3
Recurring measurements:
Municipal securities 5
1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various
Level III inputs which are not identifiable.
2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation
expenses. The range and weighted-average of liquidation expenses and other appraisal adjustments are presented as a percent of
the appraisal.
3 Fair value determined through independent analysis of liquidity, rating, yield and duration.
4 Appraisals may be adjusted for qualitative factors, such as local economic conditions, liquidity, marketability and legal structure.
5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.
Bond appraisal adjustment 4
1% - 20%
110
Note 20 – Comprehensive Income
The following tables present the components of accumulated other comprehensive income (“AOCI”) for the years ended
December 31:
(Dollars in thousands)
2022
2021
2020
Details about AOCI Components
Available-for-sale securities
Unrealized holding gain
$
Defined benefit pension plan items
Amortization of net actuarial loss
Investment hedge
Carrying value adjustment
Amount
Reclassified
from AOCI
Amount
Reclassified
from AOCI
Amount
Reclassified
from AOCI
Consolidated Statement of Income
Line Item
650 $
650
(152)
498
3,875 $
3,875
(908)
2,967
(429)
(429)
103
(326)
83
83
(21)
62
(507)
(507)
119
(388)
(862)
(862)
233
(629)
914
914
(214)
700
(420)
(420)
98
(322)
473
473
(128)
345
Gain on sale of available-for-sale
securities
Total before tax
Income tax expense
Net of tax
Salaries and employee benefits
Total before tax
Income tax benefit
Net of tax
Interest on investment securities
Total before tax
Income tax benefit (expense)
Net of tax
Total reclassifications
$
234 $
1,950 $
723
(Dollars in thousands)
Balance at January 1, 2022
Other comprehensive income (loss) before reclassification
Amounts reclassified from AOCI
Net current period OCI
Balance at December 31, 2022
Balance at January 1, 2021
Other comprehensive income (loss) before reclassification
Amounts reclassified from AOCI
Net current period OCI
Balance at December 31, 2021
Unrealized gains
(losses) on
available for-sale
securities
Defined benefit
pension plan
items
Investment Hedge
Total
$
$
$
$
147 $
(34,478)
(498)
(34,976)
(34,829) $
7,586 $
(4,472)
(2,967)
(7,439)
147 $
(4,069) $
614
326
940
(3,129) $
(5,047) $
590
388
978
(4,069) $
316 $
—
(62)
(62)
254 $
(313) $
—
629
629
316 $
(3,606)
(33,864)
(234)
(34,098)
(37,704)
2,226
(3,882)
(1,950)
(5,832)
(3,606)
111
Note 21 – Condensed Financial Statements of Parent Company
Information relative to the parent company’s condensed balance sheets at December 31, 2022 and 2021 and the related condensed
statements of income and cash flows for the years ended December 31, 2022, 2021 and 2020 are presented below:
Condensed Balance Sheets
(Dollars in thousands)
Assets
Cash
Investment in subsidiaries
Debt and equity securities
Equity method investments
Other assets
Total assets
Liabilities and stockholders’ equity
Other liabilities
Senior term loan
Subordinated debt
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(Dollars in thousands)
Income, dividends from the Bank
Operating expenses
Income (loss), before income taxes
Income tax benefit
Net income (loss)
Equity in undistributed income earnings of subsidiaries
Net income
Preferred dividends
Net income available to common shareholders
December 31,
2022
2021
31,085 $
277,173
4,904
50,976
11,033
375,171 $
31,036 $
9,765
73,286
114,087
27,463
322,002
—
—
13,715
363,180
15,822
—
73,030
88,852
261,084
375,171 $
274,328
363,180
$
$
$
$
Year ended December 31,
2022
2021
2020
50,985 $
27,774
23,211
(3,450)
26,661
(11,614)
15,047 $
19,165 $
22,458
(3,293)
(2,090)
(1,203)
40,324
39,121 $
6,688
16,804
(10,116)
(2,082)
(8,034)
45,445
37,411
— $
15,047 $
35 $
39,086 $
461
36,950
$
$
$
$
112
Condensed Statements of Cash Flows
(Dollars in thousands)
OPERATING ACTIVITIES
Net income
Equity in undistributed earnings of subsidiaries
Stock-based compensation
Depreciation and amortization
Other assets
Other liabilities
Net cash from operating activities
INVESTING ACTIVITIES
Investment in subsidiaries
Net cash from investing activities
FINANCING ACTIVITIES
Proceeds from stock issuance
Issuance of senior term loan, net of issuance costs
Issuance of subordinated debt, net of issuance costs
Common stock repurchased
Preferred stock redemption
Common stock options exercised
Withholding cash issued in lieu of restricted stock
Issuance of subsidiary membership units
Principal payments on senior term loan
Stock purchase from noncontrolling interest
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash from financing activities
Net change in cash
Cash at beginning of period
Cash at end of period
Note 22 – Segment Reporting
2022
2021
2020
$
15,047 $
11,614
3,217
269
(45,406)
16,358
1,099
39,121 $
(40,324)
3,208
175
(6,849)
11,215
6,546
37,411
(45,445)
2,278
12
(2,101)
1,755
(6,090)
(240)
(240)
(15,871)
(15,871)
(3,713)
(3,713)
—
9,877
—
—
—
1,399
—
—
(125)
(33)
(8,355)
—
2,763
3,622
—
—
29,448
—
(7,334)
4,930
(249)
500
—
—
(6,038)
(35)
21,222
11,897
240
—
40,000
(15,657)
—
4,464
—
—
—
—
(4,275)
(461)
24,311
14,508
27,463
31,085 $
15,566
27,463 $
1,058
15,566
$
We have identified five reportable segments: CoRe banking; mortgage banking; professional services; Edge Ventures; and
financial holding company. Revenue from CoRe banking activities consists primarily of interest earned on loans and investment
securities and service charges on deposit accounts. Our Fintech division is included in the CoRe banking segment. Revenue from
our mortgage banking segment is primarily comprised of our share of net income or loss from mortgage banking activities of our
equity method investments in ICM and Warp Speed. As we have elected to record our proportionate share of earnings of Warp
Speed on three month lag, results of Warp Speed are not included in the tables below. Professional services is the aggregate of
Chartwell, Trabian and Paladin Fraud. Revenue from these operating segments is made up of primarily of professional consulting
income to banks and Fintech companies. Edge Ventures is the aggregate of Victor, MVB Technology, Flexia and the Edge
Ventures holding company.
Information about the reportable segments and reconciliation to the consolidated financial statements for the years ended
December 31, 2022, 2021 and 2020 are as follows:
113
(Dollars in thousands)
Interest income
Interest expense
Net interest income
(expense)
Provision for loan losses
Net interest income (expense)
after provision for loan losses
Noninterest income
Noninterest Expenses:
Salaries and employee
benefits
Other expenses
Total noninterest expenses
Income (loss) before income
taxes
Income taxes
Net income (loss)
Net loss attributable to
noncontrolling interest
Net income (loss) available to
common shareholders
Capital expenditures for the
year ended December 31,
2022
Total assets as of December
31, 2022
2022
CoRe
Banking
Mortgage
Banking
Professional
Services
Edge
Ventures
Financial
Holding
Company
Intercompany
Eliminations
Consolidated
125,426 $
10,920 $
429 $
— $
— $
39 $
— $
5 $
146 $
3,234 $
(44) $
125,957
(44) $
14,154
114,506 $
429 $
(39) $
(5) $
(3,088) $
— $
111,803
14,194 $
— $
— $
— $
— $
— $
14,194
100,312 $
429 $
(39) $
(5) $
(3,088) $
— $
97,609
22,673 $
37 $
22,812 $
459 $
10,576 $
(18,263) $
38,294
36,960 $
44,873 $
81,833 $
8 $
15,276 $
3,336 $
16,582 $
— $
142 $
5,233 $
5,192 $
8,049 $
(18,263) $
72,162
45,226
150 $
20,509 $
8,528 $
24,631 $
(18,263) $
117,388
41,152 $
316 $
2,264 $
(8,074) $
(17,143) $
8,882 $
77 $
567 $
(1,926) $
(3,472) $
32,270 $
239 $
1,697 $
(6,148) $
(13,671) $
— $
— $
— $
18,515
4,128
14,387
— $
— $
207 $
453 $
— $
— $
660
32,270 $
239 $
1,904 $
(5,695) $
(13,671) $
— $
15,047
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
400 $
— $
26 $
2,202 $
413 $
— $
3,041
$ 3,014,475 $
34,248
14,817
12,258 $
375,171 $
(382,119) $ 3,068,850
Goodwill as of December 31,
2022
$
— $
—
3,988 $
— $
— $
— $
3,988
114
(Dollars in thousands)
Interest income
Interest expense
Net interest income (expense)
Provision for loan losses
Net interest income (expense) after provision
for loan losses
Noninterest income
Noninterest Expenses:
Salaries and employee benefits
Other expenses
Total noninterest expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Net loss attributable to noncontrolling
interest
Net income (loss) attributable to parent
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital expenditures for the year ended
December 31, 2021
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2021
CoRe
Banking
Mortgage
Banking
Professional
Services
Edge
Ventures
Financial
Holding
Company
Intercompany
Eliminations
Consolidated
83,023 $
4,078 $
78,945 $
411 $
— $
411 $
(8) $
16 $
(24) $
— $
— $
— $
15 $
2,188 $
(2,173) $
(12) $
(12) $
83,429
6,270
— $
77,159
(6,274) $
(1) $
— $
— $
— $
— $
(6,275)
85,219 $
412 $
(24) $
— $
(2,173) $
— $
83,434
33,179 $
16,342 $
14,931 $
71 $
11,103 $
(13,030) $
62,596
33,595 $
37,033 $
70,628 $
— $
16 $
16 $
10,949 $
1,962 $
13,704 $
— $
4,095 $
2,555 $
6,573 $
(13,030) $
15,044 $
4,517 $
20,277 $
(13,030) $
47,770 $
16,738 $
(137) $
(4,446) $
(11,347) $
9,154 $
4,068 $
(105) $
(1,144) $
(2,091) $
38,616 $
12,670 $
(32) $
(3,302) $
(9,256) $
— $
— $
— $
60,210
37,242
97,452
48,578
9,882
38,696
— $
— $
210 $
215 $
— $
— $
425
38,616 $
12,670 $
178 $
(3,087) $
(9,256) $
— $
39,121
— $
— $
— $
— $
35 $
— $
35
38,616 $
12,670 $
178 $
(3,087) $
(9,291) $
— $
39,086
2,590 $
— $
2,731 $
— $
43 $
— $
5,364
Total assets as of December 31, 2021
$ 2,804,840 $
50,202 $
13,210 $
9,914 $
363,971 $
(449,688) $ 2,792,449
Goodwill as of December 31, 2021
$
— $
— $
3,988 $
— $
— $
— $
3,988
115
(Dollars in thousands)
Interest income
Interest expense
Net interest income (expense)
Provision for loan losses
Net interest income (expense) after provision
for loan losses
Noninterest income
Noninterest Expenses:
Salaries and employee benefits
Other expenses
Total noninterest expenses
Income (loss) before income taxes
Income taxes
Net income (loss) attributable to parent
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital expenditures for the year ended
December 31, 2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2020
CoRe
Banking
Mortgage
Banking
Professional
Services
Edge
Ventures
Financial
Holding
Company
Intercompany
Eliminations
Consolidated
75,812 $
10,400 $
65,412 $
16,649 $
6,269 $
3,139 $
3,130 $
(70) $
— $
— $
— $
— $
— $
— $
— $
— $
3 $
(1,631) $
261 $
(2,173) $
(258) $
— $
542 $
— $
80,453
11,627
68,826
16,579
48,763 $
3,200 $
— $
— $
(258) $
542 $
52,247
24,420 $
63,490 $
5,909 $
— $
6,685 $
(8,667) $
91,837
25,808 $
21,550 $
31,389 $
5,074 $
57,197 $
26,624 $
2,993 $
1,909 $
4,902 $
— $
— $
— $
11,278 $
— $
5,265 $
(8,125) $
16,543 $
(8,125) $
61,629
35,512
97,141
15,986 $
40,066 $
1,007 $
— $
(10,116) $
— $
46,943
1,479 $
9,862 $
273 $
— $
(2,082) $
— $
9,532
14,507 $
30,204 $
734 $
— $
(8,034) $
— $
37,411
— $
— $
— $
— $
461 $
— $
461
14,507 $
30,204 $
734 $
— $
(8,495) $
— $
36,950
6,439 $
99 $
— $
— $
77 $
— $
6,615
Note 23 – Quarterly Financial Data (Unaudited)
116
(Dollars in thousands)
2022
First quarter
Second quarter
Third quarter
Fourth quarter
(Dollars in thousands)
2021
First quarter
Second quarter
Third quarter
Fourth quarter
Interest
Income
Net Interest
Income
Income
Before Taxes
Net Income
Basic
Diluted
Earnings Per Share
$
23,262 $
21,848 $
3,576 $
2,864 $
0.24 $
28,090
33,903
40,702
26,660
29,846
33,449
3,650
2,952
8,337
2,956
2,718
6,509
0.24
0.22
0.52
0.22
0.23
0.21
0.50
Interest
Income
Net Interest
Income
Income
Before Taxes
Net Income
Basic
Diluted
Earnings Per Share
$
19,063 $
17,505 $
10,227 $
8,085 $
0.70 $
20,833
20,484
23,049
19,055
19,096
21,503
10,836
14,838
12,675
9,247
11,828
9,959
0.79
1.00
0.83
0.66
0.73
0.92
0.77
Note 25 – Acquisitions and Divestitures
Warp Speed Holdings, LLC
In March 2022, the Bank entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Warp Speed, pursuant to
which the Bank agreed to purchase certain common units of Warp Speed in an amount equal to 37.5% of the outstanding equity
interests of Warp Speed, on a fully-diluted basis. In April 2022, we assumed the Bank's obligations under the Purchase
Agreement. Effective October 1, 2022, we completed the purchase with $38.4 million in cash, plus 313,030 shares of newly-
issued common stock of MVB, with an aggregate value of $9.6 million, based on the volume-weighted average closing price for
shares of MVB common stock for the 20 trading days ending the day prior to closing.
We account for our ownership in Warp Speed as an equity method investment, the balance of which was $49.4 million as of
December 31, 2022. In accordance with ASC Topic 323 Investments - Equity Method and Joint Ventures, we have made an
election to record our share of the results of operations of Warp Speed on a three-month lag. Accordingly, the transaction will not
impact our consolidated statements of income until the first quarter of 2023.
Integrated Financial Holdings, LLC
In August 2022, we entered into the Merger Agreement with IFH. Pursuant to the Merger Agreement, IFH will merge with and
into MVB, with MVB continuing as the surviving corporation. Under the terms of the merger agreement, IFH shareholders will
receive 1.21 shares of MVB common stock for each share of IFH common stock. The value of the merger consideration to be paid
by MVB in shares of MVB common stock upon the completion of the merger will be determined based on the closing price of
MVB common stock on the closing date and the number of issued and outstanding shares of IFH common stock immediately
prior to the closing. Following the merger, West Town Bank & Trust, a state bank chartered under the laws of Illinois and wholly-
owned subsidiary of IFH, may, upon the direction of MVB, merge with and into the Bank, with the Bank as the surviving bank. In
January 2023, the Merger Agreement was approved by the board of directors and shareholders of MVB and IFH. We are awaiting
required regulatory approvals in order to execute the Merger.
Flexia Payments, LLC
In February 2021, the Bank entered into an agreement to acquire an 80.0% interest in Flexia. The Bank invested approximately
$2.5 million for the 80.0% interest. At the time of acquisition, Flexia had no assets or liabilities. Soon after the Bank's investment,
Flexia purchased a license for technology that allows users to access a reloadable account that combines a debit card account and
117
casino gaming accounts into one card and to utilize them for non-cash transactions at participating casinos, for approximately
$1.0 million for exclusive use in the United States and Canada. On the acquisition date, $0.5 million was recorded on the
consolidated balance sheet for the 20.0% noncontrolling interest.
Trabian Technology, Inc.
In April 2021, the Bank entered into a Stock Purchase Agreement with Trabian, a leading software development firm servicing
financial institutions. Pursuant to the agreement, the Bank invested approximately $1.6 million, including unregistered shares of
MVB common stock, for the 80.0% interest. At the time of acquisition, Trabian had assets totaling $0.8 million and liabilities
totaling $0.7 million. As a result of the transaction, the Bank recorded goodwill of $1.6 million and intangible assets related to
Trabian's customer relationships and trade name totaling $0.6 million. On the acquisition date, $0.4 million was recorded on the
consolidated balance sheet for the 20.0% noncontrolling interest.
Sale of Southern Market, WV Banking Centers
In July 2021, the Bank completed the sale of certain assets and liabilities of four banking centers in West Virginia. Pursuant to the
terms of the Purchase and Assumption Agreement between the Bank and Summit, Summit assumed approximately $163.3 million
in deposit liabilities, including accrued interest, and acquired approximately $57.8 million in loans, as well as accrued interest on
those loans, cash, real property, personal property and other fixed assets associated with the banking centers, as of the July 10,
2021 closing date. The Bank recognized a pre-tax gain of $10.8 million on the sale during the year ending December 31, 2021.
Note 26 – Subsequent Events
In January 2023, we held a Special Meeting of Shareholders (the “Special Meeting”). At the Special Meeting, our shareholders
approved an amendment to our articles of incorporation to effect an increase in the number of authorized shares of common stock
from 20,000,000 to 40,000,000. Our articles of incorporation were amended to reflect the approval.
On February 28, 2023, we completed the sale of the Bank's wholly-owned subsidiary, Chartwell, for a purchase price of
$14.4 million.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2022, we carried out an evaluation under the supervision and with the participation of management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the results of this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2022.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated
financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard
No. 5), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or
employees in the normal course of performing their assigned functions.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. Management’s
assessment did not identify any material weaknesses in our internal control over financial reporting.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework in 2013. Because there were no material weaknesses discovered,
management believes that, as of December 31, 2022, our internal control over financial reporting was effective.
FORVIS LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this
Annual Report and has issued a report on the effectiveness of our internal control over financial reporting, which report is
included in Item 7 – Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Date: March 16, 2023
Date: March 16, 2023
/s/ Larry F. Mazza
Larry F. Mazza
CEO and Director
(Principal Executive Officer)
/s/ Donald T. Robinson
Donald T. Robinson
President and CFO
(Principal Financial and Accounting Officer)
119
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This information is omitted from this report pursuant to General Instruction G(3) of Form 10-K as we will file with the SEC our
definitive Proxy Statement pursuant to Regulation 14A of the Exchange Act for the 2023 Annual Meeting of Shareholders (the
“Proxy Statement”) not later than 120 days after December 31, 2022. The applicable information appearing in the Proxy
Statement is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information is omitted from this report pursuant to General Instruction G(3) of Form 10-K as we will file with the SEC our
definitive Proxy Statement not later than 120 days after December 31, 2022. The applicable information appearing in the Proxy
Statement is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
This information is omitted from this report (with the exception of the equity compensation plan information, which is disclosed
below) pursuant to General Instruction G(3) of Form 10-K as we will file with the SEC our definitive Proxy Statement not later
than 120 days after December 31, 2022. The applicable information appearing in the Proxy Statement is incorporated by
reference.
Equity Compensation Plan Information as of December 31, 2022:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options
(a)
Weighted-average
exercise price of
outstanding options
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) (c)
782,116 $
n/a
782,116 $
15.36
n/a
15.36
951,868
n/a
952
During 2022, 160,527 stock options under our equity compensation plan were exercised.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
This information is omitted from this report pursuant to General Instruction G(3) of Form 10-K as we will file with the SEC our
definitive Proxy Statement not later than 120 days after December 31, 2022. The applicable information appearing in the Proxy
Statement is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This information is omitted from this report pursuant to General Instruction G(3) of Form 10-K as we will file with the SEC our
120
definitive Proxy Statement not later than 120 days after December 31, 2022. The applicable information appearing in the Proxy
Statement is incorporated by reference.
The Independent Registered Public Accounting Firm is FORVIS, LLP ("FORVIS") (PCAOB Firm ID No. 686) located in Tampa,
Florida.
121
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
The following consolidated financial statements of the registrant and its subsidiaries are filed as part of this report under Item 8 -
Financial Statements and Supplementary Data and Item 9A - Controls and Procedures.
(a)(1) Financial Statements
Report of Independent Registered Public Accounting Firm Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm Opinion on Internal Control over Financial Reporting
Consolidated Balance Sheets at December 31, 2022 and 2021
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Management’s Annual Report on Internal Control over Financial Reporting
(b)
Exhibits
Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, please refer to the
“Exhibit Index” below. The Exhibit Index specifically identifies each management contract or compensatory plan
required to be filed as an exhibit to this Annual Report on Form 10-K.
122
EXHIBIT INDEX
Exhibit
Number
Description
Exhibit Location
2.1
3.1
3.2
3.3
4.1
4.2
Agreement and Plan of Merger and Reorganization,
dated August 12, 2022 by and between MVB Financial
Corp. and Integrated Financial Holdings, Inc.
Articles of Incorporation, as amended
Articles of Amendment to Articles of Incorporation of
MVB Financial Corp.
Second Amended and Restated Bylaws, as amended
Specimen of Stock Certificate representing MVB
Financial Corp. Common Stock
Form 8-K, File No. 001-38314, filed August 15, 2022,
and incorporated by reference herein
Annual Report Form 10-K, File No. 000-50567, filed
March 16, 2015, and incorporated by reference herein
Form 8-K, File No. 001-38314, filed January 31, 2023,
and incorporated by reference herein
Form 8-K, File No. 001-38314, filed June 22, 2018, and
incorporated by reference herein
Form S-3 Registration Statement, File No. 001-38314,
filed December 8, 2021, and incorporated by reference
herein
Description of Securities
Filed herewith
10.1†
MVB Financial Corp. 2003 Stock Incentive Plan
10.2†
10.3†
10.4†
10.5
MVB Financial Corp. 2013 Stock Incentive Plan, as
amended
MVB Financial Corp. 2018 Annual Senior Executive
Performance Incentive Plan
MVB Financial Corp. 2022 Stock Incentive Plan
Lease Agreement with Essex Properties, LLC for land
occupied by Bridgeport Branch
10.6†
Employment Agreement of Larry F. Mazza
10.7†
Employment Agreement of Donald T. Robinson
10.8†
Offer Letter for Donald T. Robinson
10.9†
10.10†
10.11
10.12
10.13
10.14
10.15
Investment Agreement between MVB Financial Corp.
and Larry F. Mazza
MVB Financial Corp. Form of Restricted Stock Unit
Grant Notice and Restricted Stock Unit Agreement
Purchase and Assumption Agreement, dated April 22,
2021, by and between MVB Bank, Inc. and Summit
Community Bank, Inc.
Subordinated Note Purchase Agreement, dated
November 30, 2020, by and among MVB Financial
Corp. and certain qualified institutional buyers
Subordinated Note Purchase Agreement, dated
September 28, 2021, by and among MVB Financial
Corp. and certain qualified institutional buyers
Agreement, dated March 2, 2020, by and between the
Bank, PMG, Intercoastal, H. Edward Dean, III, Tom
Pyne and Peter Cameron
Equity Purchase Agreement, dated March 13, 2022,
between Warp Speed Holdings LLC and MVB Bank,
Inc.
Form SB-2 Registration Statement, File
No. 333-120931, filed December 2, 2004, and
incorporated by reference herein
Form 10-K, File No. 001-38314, filed March 8, 2018,
and incorporated by reference herein
Form 8-K, File No. 001-38314, filed February 23, 2018,
and incorporated by reference herein
Appendix A to Proxy Statement, File No. 001-38314,
filed April 7, 2022, and incorporated by reference herein
Form SB-2 Registration Statement, File
No. 333-120931, filed December 2, 2004, and
incorporated by reference herein
Form 8-K, File No. 000-50567, filed March 5, 2021,
and incorporated by reference herein
Form 8-K, File No. 000-50567, filed March 5, 2021,
and incorporated by reference herein
Form 8-K, File No. 000-50567, filed December 3, 2015,
and incorporated by reference herein
Form 8-K, File No. 000-50567, filed March 13, 2017,
and incorporated by reference herein
Form 8-K, File No. 001-38314, filed March 27, 2018,
and incorporated by reference herein
Form 8-K, File No. 001-38314, filed April 23, 2021,
and incorporated by reference herein
Form 8-K, File No. 0000-50567, filed November 30,
2020, and incorporated by reference herein
Form 8-K, File No. 0000-50567, filed September 28,
2021, and incorporated by reference herein
Form 8-K, File No. 000-50567, filed March 3, 2020,
and incorporated by reference herein
Form 8-K, File No. 001-38314, filed March 14, 2022,
and incorporated by reference herein
123
10.16
10.17
10.18
21
23.1
24
31.1
31.2
32.1*
Credit Agreement, dated as of October 7, 2022, between
MVB Financial Corp., as Borrower, and Raymond
James Bank, as Lender
Limited Consent, Waiver and Omnibus Amendment to
Credit Agreement, dated as of December 27, 2022,
between MVB Financial Corp., as Borrower, and
Raymond James Bank, as Lender
Second Amendment to Credit Agreement, dated as of
February 24, 2023, between MVB Financial Corp., as
Borrower, and Raymond James Bank, as Lender
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting
Firm
Power of Attorney
Certificate of Principal Executive Officer pursuant to
Section 302 of Sarbanes Oxley Act of 2002
Certificate of Principal Financial Officer pursuant to
Section 302 of Sarbanes Oxley Act of 2002
Certificate of Principal Executive Officer & Principal
Financial Officer pursuant to Section 906 of Sarbanes
Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Form 8-K, File No. 001-38314, filed October 11, 2022,
and incorporated by reference herein
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Contained in signature page to this Annual Report on
Form 10-K
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
(*) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule:
Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic
Reports, the certifications furnished in Exhibits 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed
“filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference
into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by
reference.
(†) Management contract or compensatory plan or arrangement
ITEM 16. FORM 10-K SUMMARY
None.
124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 16, 2023
MVB Financial Corp.
By:
/s/ Larry F. Mazza
Larry F. Mazza
CEO and Director
(Principal Executive Officer)
POWER OF ATTORNEY AND SIGNATURES
Know all persons by the presents, that each person whose signature appears below constitutes and appoints Larry F. Mazza and/
or Donald T. Robinson, and either of them, as attorney-in-fact, with each having the power of substitution, for him or her in any
and all capacities, to sign in his or her name and on his or her behalf, any amendment to this Form 10-K and to file the same,
with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Larry F. Mazza
Larry F. Mazza, CEO and Director
(Principal Executive Officer)
/s/ Donald T. Robinson
Donald T. Robinson, President and CFO
(Principal Financial and Accounting Officer)
/s/ W. Marston Becker
W. Marston Becker, Chairman
/s/ John W. Ebert
John W. Ebert, Director
/s/ Daniel W. Holt
Daniel W. Holt, Director
/s/ Gary A. LeDonne
Gary A. LeDonne, Director
/s/ Kelly R. Nelson
Kelly R. Nelson, Director
/s/ Jan L. Owen
Jan L. Owen, Director
/s/ Lindsay Slader
Lindsay Slader, Director
/s/ Cheryl D. Spielman
Cheryl D. Spielman, Director
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
Date: March 16, 2023
125
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