# MVB Financial Corp: Form 10-K for the period ended Dec 31, 2024 - Company: [MVB Financial Corp](/companies/mvbf.md) (CIK 1277902) - Form: 10-K - Filed: 2025-03-13 - Accepted by EDGAR: Mar 12, 2025, 17:58 ET - Period: 2024-12-31 - Accession: 0001277902-25-000043 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1277902/000127790225000043/mvbf-20241231.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1277902/000127790225000043/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-12-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Income tax | 12 months, 2024-01-01 to 2024-12-31 | $6.1m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-10-01 to 2024-12-31 | $9.4m | us-gaap:NetIncomeLoss | | Net income | 12 months, 2024-01-01 to 2024-12-31 | $20.2m | us-gaap:ProfitLoss | | Diluted EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.72 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 12 months, 2024-01-01 to 2024-12-31 | $1.53 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.73 | us-gaap:EarningsPerShareBasic | | Basic EPS | 12 months, 2024-01-01 to 2024-12-31 | $1.56 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2024-01-01 to 2024-12-31 | 13,136,758 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2024-01-01 to 2024-12-31 | −$285.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2024-01-01 to 2024-12-31 | $1.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 12 months, 2024-01-01 to 2024-12-31 | $8.8m | us-gaap:PaymentsOfDividendsCommonStock | | Cash and equivalents | at 2024-12-31 | $317.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Total assets | at 2024-12-31 | $3.13bn | us-gaap:Assets | | Total liabilities | at 2024-12-31 | $2.82bn | us-gaap:Liabilities | | Shareholders' equity | at 2024-12-31 | $305.7m | us-gaap:StockholdersEquity | ## Business As filed, 83,105 characters. ### Corporate Overview 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 Edge Ventures, LLC (“Edge Ventures”), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Insurance, LLC, (“MVB Insurance”). The Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”). Edge Ventures wholly-owns Victor Technologies, Inc. (“Victor”) and MVB Technology, LLC ("MVB Technology"). The Bank also owns an equity method investment in Intercoastal Mortgage Company, LLC (“ICM”) and MVB Financial owns equity method investments in Warp Speed Holdings, LLC (“Warp Speed”) and Ayers Socure II, LLC (“Ayers Socure II”). MVB Financial's consolidated subsidiaries also includes SPE PR, LLC. Through our professional services entities, which include Paladin Fraud and Trabian, we provide consulting solutions to assist Fintech and corporate clients in building digital products and meeting their fraud defense needs. ### 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 team specializes in providing banking services to corporate Fintech clients, primarily focusing on operational risk management and compliance. Managing banking relationships with clients in the payments, banking-as-a-service and gaming industries is complex, from both an operational and regulatory perspective. Due to this complexity, there are a limited number of banking institutions serving these industries, which can result in a lack of quality focus on these entities, providing us with an expanded pool of potential customers. When served safely and efficiently, we believe these industries provide a source of stable, lower-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, acts as a holding company for Victor and MVB Technology. #### Victor Victor, a wholly-owned subsidiary of Edge Ventures, was formed to develop technology to make it faster, easier and cost effective to launch and scale a broad spectrum of solutions for the gaming, payments and banking-as-a-service sectors. Victor integrates directly with legacy bank core systems allowing developers to build solutions for clients to store, manage and move money securely with application programming interfaces. Victor’s payment solution provides a real-time sub-ledger that communicates with the client’s core banking system. ### Professional Services #### Paladin Fraud Paladin Fraud, a wholly-owned subsidiary of the Bank, 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 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. As of December 31, 2024, the Bank owned an 80.8% interest in Trabian and consolidated 100% of Trabian within the consolidated financial statements. In December 2024, the Board of Directors and Finance Committee approved a plan to sell the Bank's controlling interest in Trabian, and as such, Trabian's assets and liabilities were classified as held-for-sale on the consolidated balance sheet as December 31, 2024. In January 2025, we entered into a stock repurchase agreement with Trabian in which Trabian repurchased all the shares held by MVB. As a result of the transaction, we will no longer consolidate Trabian in our financial statements. Refer to *Note 24 – Acquisitions and Divestitures* accompanying the consolidated financial statements included elsewhere in this report. ### Primary Market Areas and Customers Our primary market area for CoRe banking services encompasses North Central West Virginia and Northern Virginia, where we currently operate seven full-service branches, comprising of six in West Virginia and one in Virginia. Overall, 22.4% of the Bank's lending activity across all loan types occurs to borrowers outside of this region, mostly in loans to healthcare facilities secured by commercial real estate and for working capital lines of credit, as well as loans through SBA lending programs to borrowers across numerous industries. The Bank also engages in both residential mortgage and mortgage construction lending in regions outside of the primary market, concentrated in the North Carolina and South Carolina markets. 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 3.8%, 3.5% and 3.3% for December 2024, 2023 and 2022, respectively. ### Segment Reporting We have identified three reportable segments: CoRe Banking, Mortgage Banking and Financial Holding Company. All other operating segments are summarized in an Other category. Our CoRe Banking segment, which includes our Fintech division, represents banking products and services offered to customers by the Bank, primarily loans and deposits accounts. Revenue from banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. 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. Revenue from Financial Holding Company activities is mainly comprised of intercompany service income and dividends. For more information about each of our reportable segments, refer to *Note 22 – Segment Reporting* accompanying the consolidated financial statements included elsewhere in this report. ### Commercial Loans At December 31, 2024, the Bank had $1.42 billion outstanding in commercial loans, including commercial and industrial, commercial real estate and construction loans. These loans represented 67.5% of the total aggregate loan portfolio as of that date. Commercial lending entails significant additional risks compared to residential and consumer 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 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 60%, is reviewed each year under a risk-based approach. The Bank also engages a third-party for an external loan review, which targets 35% to 40% of the commercial loan portfolio on an annual basis, also using a risk-based approach for loan selection. If deterioration in creditworthiness has occurred, the Bank takes prompt action designed to ensure 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, 2024, the Bank had $663.6 million of residential real estate loans, home equity lines of credit and construction mortgages outstanding, representing 31.6% of total loans outstanding. The Bank generally requires that a 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. The Bank obtains full appraisals from licensed appraisers for the majority of loans secured by real estate. In addition, the Bank purchases residential real estate loans from ICM and Warp Speed. Lenders generally consider residential construction financing to involve a higher risk of loss than long-term financing on improved, occupied real estate. The risk of loss on a construction loan depends 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 construction cost estimate 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, 2024, residential mortgage construction loans to individuals totaled $79.8 million with an average remaining life of five months. These loans are generally refinanced to a permanent loan upon completion of the construction. ### Consumer Loans At December 31, 2024, the Bank had $18.6 million of consumer loans, including installment loans and personal lines of credit, representing 0.9% of total loans outstanding. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. 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. ### 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 based on interest rates. Management believes that focusing 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, 2024, we employed 453 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 that is 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, enables leaders across the organization to develop diverse teams and fosters collaboration and innovation. ### Total Rewards 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. We designed our total compensation programs to promote the interests of our team members and shareholders, while enabling us to attract and retain top-quality executive talent. We aim to create a culture of wellness by educating, supporting and empowering team members and their dependents to improve and maintain their overall health and well-being through healthy lifestyle choices. 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. Through a well-structured new team member orientation, coupled with our cultural mindset training, we equip employees with the knowledge, confidence and growth mindset needed to seamlessly integrate into our culture. This culture includes remote work, which has created additional opportunities for virtual and online learning. In 2024, we assigned team members position-specific curricula designed to support ongoing compliance requirements and development within their individual positions. This training also included 13 custom training videos, which were assigned a combined total 887 times. Team members experience on-the-job training, as well as other company-organized opportunities. We held 67 internal learning events in 2024 that provided 123 total hours, or an average of 2.4 hours per week, of learning opportunities facilitated by our Learning & Development team. Additionally, we have built an up-to- date archive of On Demand learning content where team members utilized 1,022 hours of learning resources. As a part of our ongoing commitment to developing strong leadership within the organization, we began implementing a comprehensive leadership development program that incorporates regular meetings, intracompany evaluations and targeted coaching calls. Together, we believe these initiatives enhance leadership effectiveness, foster a culture of continuous improvement and contribute to the long-term success of the organization. We also offer team member education assistance and tuition reimbursement programs. The program provides support to team members wanting to acquire training outside of company-provided support of their position and/or annual certification requirements. Tracking these requests allows us to have visibility into the interests of team members. The tuition reimbursement program provides support to team members who wish to further their education with accredited institutions. In 2024, 24 team members participated in education assistance, while four team members were approved for the tuition reimbursement program. ### 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 members, including monthly all-hands town hall meetings. At the meetings, our chief executive officer and executive leadership team members 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 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. It is anticipated that the new Trump Administration may undertake a comprehensive review of a full range of bank regulatory laws and regulations. It is not clear that such a review will take place and, if it occurs, what the results will be. 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 During the past several years, there has been a significant increase in regulation and regulatory oversight for United States financial services firms. The Dodd-Frank Act significantly restructured the financial regulatory regime in the United States and has had a broad impact on the financial services industry as a result of the significant regulatory and compliance changes required under the act. The Dodd-Frank Act imposed 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 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. The EGRRCPA amended provisions of the Dodd-Frank Act and eased regulations on all but the largest banks. These modifications, among other changes, include: (i) exempting banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) eliminating the requirement for appraisals for certain real estate transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act’s expanded data disclosures; (iv) clarifying 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) raising eligibility for the 18-month exam cycle from $1 billion to banks with $3 billion in assets; and (vi) simplifying 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. There have been several significant changes in the leadership at the federal bank regulatory agencies since President Trump took office in January 2025, and more significant changes are expected in the near and medium term. It is unclear how these changes may affect the banking industry in general or how they might affect us or the Bank. 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. From time to time, both state and federal regulators turn their attention to certain specific targeted areas of potential regulatory reform. For example, during the liquidity crisis that occurred in the spring of 2023 with respect to the regional bank sector, there was considerable discussion at the federal level regarding the potential for reform of the level and features of FDIC insurance coverage. Increased attention may occur with respect to capital levels and credit quality due to the potential disruption in the credit markets relating to loans secured by office properties, which are expected to come under increasing stress in the near and mid-term. It is unclear whether the anticipated stress described above will actually occur or the effort that it might have on us or the Bank, if any. The re-election of President Trump may also bring about a shift in the laws of state and federal banking regulatory agencies, depending upon the priorities of the Trump administration and the reactions, if any, of state regulatory agencies to the shifts in focus at the federal bank regulatory agencies. It is unclear how any such shifts might affect the banking industry generally or us or the Bank in particular. ### 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 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. 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 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 state chartered 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 (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 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. The Federal Reserve Board, Office of the Comptroller of the Currency and FDIC have 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 October 2022, the SEC adopted a final rule implementing the incentive-based compensation recovery (“clawback”) provisions of the Dodd-Frank Act. The final rule directs national securities exchanges and associations, including NASDAQ, to require listed companies to develop and implement clawback policies to recover erroneously awarded incentive-based compensation from current or former executive officers in the event of a required accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, and to disclose their clawback policies and any actions taken under these policies. We adopted a clawback policy pursuant to the NASDAQ listing standards in October 2023. 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, 2024, 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 (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, certain 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 by the Bank with an unaffiliated third-party. Covered transactions are defined by the Federal Reserve Act to include a loan or extension of credit to an affiliate, 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 with an affiliate 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, may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate and, in certain instances, may require the approval of the Bank's Board of Directors. ### 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 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 (i.e., 9%) 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. 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 requirements. The Bank's CBLR at December 31, 2024 was 11.2%. ### 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 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 may be 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 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, 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 15 – 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 risk management, legal and regulatory compliance, 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. 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, cease and desist orders and other similar enforcement measures. ### 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. In conjunction with the Amended Restoration Plan, the FDIC Board increased deposit insurance assessment rates for all insured depository institutions, effective the first quarterly assessment period of 2023. The increased assessment rates were effective for 2023 and 2024. 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. It is anticipated that deposit insurance is one of the areas of bank regulation that might become the subject of reform if the Trump Administration moves forward with a review of the bank regulatory regime that is currently in place. ### 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. ### 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, 2024, the Bank held capital stock of FHLB in the amount of $2.0 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 home 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. The CFPB is one of the areas of bank regulation that is likely to become the subject of reform under the Trump administration. It is unclear as to the likely reach of such anticipated reform efforts, if any, will have on us or the Bank. ### 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 indicated 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 indicated 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 and also could be subject to potential litigation from our customers and the Bank's customers and others who are harmed by a cyber attack against us or the Bank. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and 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. New rules promulgated by the SEC in the summer of 2023 require us, as an Exchange Act reporting company, (i) to report to the SEC on an accelerated basis (i.e., within four business days) any "cybersecurity incident" which is deemed material, unless certain exceptions apply, and (ii) to disclose our process for assessing, identifying and maintaining material cybersecurity risks and threats. For further discussion of risks related to cybersecurity, refer to *Item 1C - Cybersecurity* 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, 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, although it is not clear if this recent focus will continue in the coming years. ### 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 and concerning other matters as to which we might be in possession of information which is responsive to such information requests. 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 existing 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 any 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. ### 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. ## Risk factors As filed, 62,574 characters. 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 *Elevated levels of inflation and fluctuations in interest rates could adversely impact our business and results of operations.* The Federal Reserve utilizes benchmark interest rates to manage inflationary pressures within the economy. Elevated 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. While the Federal Reserve reduced benchmark interest rates in 2024, it may decide to raise benchmark interest rates in 2025, as it did multiple times in 2022 and 2023, in an effort to curb the upward inflationary pressure on the cost of goods and services across the U.S. 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. 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 elevated inflationary periods 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.* Throughout 2023, certain 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. Following the 2023 bank failures, the FDIC published new rules regarding uninsured deposits and has increased regulatory scrutiny in the financial industry. Bank failures have led the U.S. Treasury Secretary, the FDIC and the Federal Reserve to invoke the systemic risk exception to the least-cost resolution requirement under the FDIA to guarantee uninsured deposits of the failed banks. The systemic bank exception can only be invoked for financial market risks that pose a threat to financial stability. The FDIC may impose a special assessment on insured depository institutions to recover the loss to the failed bank resulting from the use of the systemic risk exception to protect the uninsured depositors. The potential impact of a special assessment to us could increase noninterest expense for that quarter. These market events could materially adversely affect our business. *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.* 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, 24.2% 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, the imposition of tariffs or other trade policies, changes in crude oil prices, changes in securities markets, acts of terrorism, outbreaks of any epidemics or pandemics, 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, 75.8% 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 the West Virginia, Virginia, North Carolina and South Carolina markets. As a result, declining real estate values in these markets could negatively impact the value of the real estate collateral securing such loans. Emerging and evolving factors such as the shift to work-from-home or hybrid-work arrangements, changing consumer preferences and resulting changes in occupancy rates as a result of these and other trends can also impact commercial real estate valuations over relatively short periods. If we are required to liquidate a significant amount of collateral during a period of reduced real estate values in satisfaction of any nonperforming 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. For example, in March 2024, the SEC adopted new rules for extensive and prescriptive climate-related disclosure in annual reports and registration statements, which would also require the inclusion of certain climate-related financial metrics in a note to companies’ audited financial statements. Following a number of challenges to the rules by federal courts and prior statements that the SEC would vigorously defend the validity of the rule, the SEC, under the new administration, changed course in February 2025, stating that it would no longer defend the rules and the rule would be removed under new leadership. While we may no longer face the stringent reporting requirements under SEC rules, 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 credit losses, which would reduce net income.* At December 31, 2024, $1.44 billion, or 68.4%, 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 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 credit 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 allowance for credit losses could become inadequate and reduce earnings and capital.* The Bank maintains an allowance for credit 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 credit 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 credit losses, but additional provisions for credit 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 credit losses is adequate to absorb future losses in the loan portfolio. Excessive credit losses could have a material adverse effect on our financial condition and results of operations. *The value of, and earnings from, our investments in ICM and Warp Speed may be significantly reduced if ICM and Warp Speed are not able to sell mortgages.* We have made significant investments in ICM and Warp Speed. 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. 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 the value of our investments, financial condition and 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: | | | | --- | --- | | 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. | In recent years, there have been market indicators of a pronounced rise in inflation and the Federal Reserve Board raised certain benchmark interest rates in an effort to combat inflation in both 2022 and 2023. While the Federal Reserve Board reduced benchmark interest rates in 2024, they may decide to rise benchmark interest rates in 2025 in an effort to curb the upward inflationary pressure on the cost of goods and services in the U.S. Resumption of increases in market interest rates could have an adverse effect on our net interest income and profitability. Although by changing interest rates, 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 our deposits and creates concentration risk in our deposit base.* Our gaming initiative has contributed significantly to our deposits and has allowed us to generate attractive returns on lower risk assets through increased investments in securities and loan growth. On-balance sheet gaming deposits totaled $227.6 million as of December 31, 2024, compared to $354.1 million as of December 31, 2023. Off-balance sheet gaming deposits totaled $221.0 million as of December 31, 2024, compared to $277.1 million as of December 31, 2023. Of the gaming deposits, $206.8 million is with our three largest clients at December 31, 2024. 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 gaming 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. *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. Additionally, we increasingly compete for talent in and outside of the financial services industry. While our remote work opportunities allow us to hire outside of our traditional footprint, it also increases competition. These factors may constrain our ability to hire or retain a sufficient number of qualified employees, which could impact our ability to serve our customers and clients. Additionally, we increasingly compete for talent in and outside of the financial services industry. While our remote work opportunities allow us to hire outside of our traditional footprint, it also increases competition. These factors may constrain our ability to hire or retain a sufficient number of qualified employees, which could impact our ability to serve our customers and clients. 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 attract or retain senior management or other key customer-facing personnel; | | 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, 2024, we had $3.1 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, 2024 our equity method investment ICM also had $15.3 million of goodwill. A future write-down of goodwill at ICM could have an adverse effect on our results of operations based on our proportionate share of equity method investment income. *New lines of business or new products and services, including Fintech investments, 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. As Fintech technologies become more widely available, we expect the services and products associated with them to evolve. Our evolving business and product diversification initiatives implemented to effectively compete and stay current with the industry 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, crowdfunding, 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. 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 riskier 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 or dispositions of assets or businesses 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 significant market presence or have potential for improved profitability through financial management, economies of scale or expanded services. Additionally, we may from time to time dispose of certain of our assets or businesses. For example, in January 2025, the Bank sold its interest in Trabian. Acquiring other banks, businesses or branches or disposing of certain assets or businesses involves various risks commonly associated with acquisitions and dispositions, 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 or disposed business; | | l | Difficulty in estimating the value of the target company or disposed business; | | l | Potential difficulty in accurately and fairly reflecting the transactions and dispositions of our assets; 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 or disposition could have a material adverse effect on our business, financial condition and results of operations. *We are subject to liquidity risk, which could disrupt our ability to meet our financial obligations.* Liquidity refers to our ability 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 negatively effect 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 trade-off. Furthermore, the portion of our deposit portfolio that is comprised of large uninsured deposits may be more likely to be withdrawn rapidly under adverse economic conditions. If our clients move money out of bank deposits into investments or to other financial institutions, we could lose a relatively low-cost source of funds. *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, limit the borrowings extended to their member banks and 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 to operate and monitor all major aspects of business and 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 the cost to reimburse customers, reissue debit cards and open new customer accounts. In addition, there have been efforts by 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 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. These new products and services may include applications or financial-related services that implement artificial intelligence, machine learning, robotics, blockchain or new approaches to data mining. 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. Further, some of our workforce works remotely periodically or on a full-time basis and our third-party service providers may utilize personnel who work remotely. Increased levels of remote access create additional cybersecurity risk and opportunities for cybercriminals to exploit vulnerabilities. These fraudulent activities may result in increased fraud losses to us and the financial services industry generally. In addition to enhanced cybersecurity risk, employees and other personnel performing services for us who work remotely may experience disruptions to their home internet or phone connections, decreased efficiency due to delayed network speeds or other interruptions and/or delays in the dissemination and exchange of information, any of which could negatively impact our operations. Our success also depends on our ability to invest in cybersecurity protection systems, implement advanced features and establish controls that will adequately protect our customers as technology continues to evolve. 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 successfully market these products and services to our customers. Additionally, investing in upgraded cybersecurity protection systems, advanced features and adequate controls is expensive and an ongoing, rapidly changing challenge. 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 that have 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, 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 rely 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 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 of having 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 or originating in certain foreign countries where the U.S. faces heightened geopolitical tensions, 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. 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 the 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. Additionally, federal bank regulators are increasingly focused on the risks related to bank and Fintech partnerships, raising concerns regarding risk management, oversight, internal controls, information security and information technology operational resilience. This focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their banking-as-a-service offerings, as well as by a request for information by the federal banking regulators on bank-fintech arrangements. Accordingly, we may face additional regulatory scrutiny with respect to the Fintech portion of our business. Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or implementation of statutes, regulations, policies or supervisory guidance, and including regulatory and policy changes as a result of the new U.S. presidential administration, 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, cause us to exit certain lines of business and/or increase 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, refer to the sections captioned *Supervision and Regulation* included in *Item 1 – Business* and *Note 15 –* *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. Refer to the sections captioned *Supervision and Regulation – Capital Requirements* included in *Item 1 – Business* and *Note 15 – 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. Refer to the sections captioned *Supervision and Regulation – Limit on Dividends* included in *Item 1 – Business* and *Note 15 – 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 are traded on the Nasdaq Capital Market under the symbol “MVBF”. 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. #### 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 | sustainable core earnings; | | l | recommendations by securities analysts; | 28 | | | | --- | --- | | 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, including uncertainty in the financial markets as a result of the new U.S. presidential administration; | | 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, including geopolitical tensions or conflict that may arise of the new U.S. presidential administration. | 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 and uncertainty in market conditions or boarder economic changes because of the change in administration as a result of the 2024 U.S. presidential election; 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, refer to the section captioned *Supervision and Regulation – Limit on Dividends* in *Item 1 – Business* included elsewhere in this report. ### General Risk Factors *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 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 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 credit losses if actual losses are more than the amount reserved. Any increase in its allowance for credit 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. Refer to the section captioned *Allowance for Credit 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 credit 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 report 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 credit losses or unexpected fluctuations in the value of our financial instruments.* The processes we use to estimate our inherent credit 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, depend 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 design or implementation flaws. 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 credit losses are inadequate, the allowance for credit 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. ## Cybersecurity As filed, 3,476 characters. ### Risk Management and Strategy Cybersecurity threats are inherent in the banking and financial services industry. To safeguard our customers' sensitive data, financial transactions, information systems and information assets, we have established a comprehensive cybersecurity risk management program that is part of our enterprise risk management strategy. Our risk management team oversees the program and regularly collaborates with our information security function, led by our Chief Information Security Officer, to gather insights for identifying, assessing and managing cybersecurity threat risks, their severity and potential mitigations. As part of our strategy, we also leverage reputable third-party service providers to implement and maintain processes and controls to manage identified risks. We perform rigorous due diligence before onboarding and engage in ongoing monitoring of all third parties with access to our information assets to ensure such parties maintain adequate security controls. Our security practices also include continuous threat monitoring and detection services as well as vulnerability and patch management process to ensure systems are hardened to further protect our critical information assets. Furthermore, we are consistently broadening our scope of training and awareness practices to alleviate potential risks associated with human error, including mandatory computer-based training, internal communications and frequent phishing awareness campaigns. Apart from the measures implemented to decrease the possibility of a material cyberattack being successful, we have created clear incident response protocols to deal with any cyber events that may arise. Our program provides for the coordination of different corporate functions and serves as a framework for the execution of responsibilities across businesses and operational roles. Our incident response plan includes processes to triage, assess severity for, escalate, contain, investigate and remediate any incidents. Testing, training and exercising of our incident response capabilities are carried out routinely and After Actions Reports are prepared to continuously improve these practices. We also have processes to evaluate potential disclosure, comply with applicable legal obligations, and mitigate reputational damage. Based on the information we have as of the date of this Annual Report on Form 10-K, we do not believe any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition. ### Governance Oversight of cybersecurity matters is the responsibility of the Risk & Compliance Committee, which is a board committee, with oversight from the Board of Directors. The Risk & Compliance Committee receives regular updates on cybersecurity risks and incidents and the cybersecurity risk management program through direct interaction with the Chief Information Security Officer and provides periodic updates regarding cybersecurity risks and the cybersecurity risk management program to the full Board of Directors. Our Chief Information Security Officer has significant experience in various roles involving managing information security, developing cybersecurity strategy, implementing effective information and cybersecurity programs and managing compliance environments. ## Properties As filed, 811 characters. We lease our main office located at 301 Virginia Avenue in Fairmont, WV. Our subsidiaries lease various other offices in the counties and cities in which they operate. As of December 31, 2024, we operated seven full-service banking branches for our CoRe banking reportable segment in the locations further described in *Item 1 – Business* included elsewhere in this report, all of which are leased following the sale-leaseback of certain branch locations in 2024. For more information regarding the sale-leaseback transaction, refer to *Note 4 – Premises and Equipment* accompanying the consolidated financial statements included elsewhere in this report. No one facility is material to us. We believe that the facilities are generally in good condition and suitable for the operations for which they are used. ## Legal proceedings As filed, 632 characters. 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, especially in the case of more complex legal proceedings. 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. ## Management's discussion and analysis As filed, 73,077 characters. 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, 2024 as compared to 2023. 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 2022 to 2023 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, 2023, filed with the SEC on March 13, 2024. Further, we encourage you to revisit the Forward-Looking Statements at the beginning of this report. ### Executive Summary We continue to adapt our business model due to challenging market conditions, primarily brought on by an environment of sustained higher interest rates, a slowing economy and multiple high-profile bank failures that occurred during the first half of 2023. Interest rates have remained at an elevated level through December 31, 2024, although the Federal Reserve did reduce its key interest rate to a range of 4.25% to 4.50% in December 2024. Lower loan balances are the result of slower market demand, the impact of loan amortization and payoffs and slower loan growth based on overall market conditions and portfolio management. We initiated the process of winding down our digital asset program account relationships, while maintaining operating accounts, during the second quarter of 2024. This decision was prompted by changing market conditions and profitability challenges that contributed to an unfavorable risk/reward dynamic. We remain committed to the gaming, payments and banking-as-a-service industries. We continue to expand the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. ### Financial Results Net interest income decreased $14.1 million to $109.2 million, noninterest income increased $23.2 million to $42.9 million and noninterest expense increased $4.6 million to $122.2 million during 2024 compared to 2023. Our tax-equivalent yield on earning assets was 6.22% in 2024, compared to 6.20% in 2023. Total loans decreased by $218.1 million to $2.10 billion as of December 31, 2024 from $2.32 billion as of December 31, 2023. Our overall cost of interest-bearing liabilities was 4.07% in 2024 compared to 3.38% in 2023. The increase in the cost of interest-bearing liabilities outpaced the increase in the earning assets yield, which resulted in our tax-equivalent net interest margin decreasing to 3.67% at December 31, 2024 from 4.04% at December 31, 2023. Net income available to common shareholders in 2024 totaled $20.1 million, compared to $31.2 million in 2023, a decrease of $11.1 million. The 2024 earnings equated to a return on average assets of 0.6% and a return on average equity of 6.9%, compared to 2023 results of 0.9% and 11.4%, respectively. Basic and diluted earnings per share were $1.56 and $1.53, respectively, in 2024 compared to $2.46 and $2.40, respectively, in 2023. ### 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. ### Average Balances and Analysis of Net Interest Income *(Dollars in thousands)* | Assets | 2024 Average Balance | Interest Income/Expense | Yield/Cost | 2023 Average Balance | Interest Income/Expense | Yield/Cost | 2022 Average Balance | Interest Income/Expense | Yield/Cost | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Interest-bearing deposits in banks | $422,165 | $21,814 | 5.17% | $414,466 | $21,043 | 5.08% | $232,935 | $1,613 | 0.69% | | CDs with banks | — | — | — | — | — | — | 1,033 | 24 | 2.32 | | Investment securities: | | | | | | | | | | | Taxable | 261,986 | 7,693 | 2.94 | $221,395 | 5,576 | 2.52 | 236,344 | 3,496 | 1.48 | | Tax-exempt 1 | 104,765 | 3,287 | 3.14 | 116,680 | 4,347 | 3.73 | 139,353 | 5,166 | 3.71 | | Loans and loans held-for-sale: 2 | | | | | | | | | | | Commercial | 1,570,284 | 122,839 | 7.82 | 1,621,299 | 124,078 | 7.65 | 1,594,069 | 87,845 | 5.51 | | Tax-exempt 1 | 3,175 | 139 | 4.38 | 3,732 | 163 | 4.37 | 4,661 | 203 | 4.36 | | Real estate | 564,633 | 25,474 | 4.51 | 591,157 | 24,764 | 4.19 | 487,044 | 15,721 | 3.23 | | Consumer | 70,943 | 5,314 | 7.49 | 108,988 | 10,793 | 9.90 | 103,345 | 13,017 | 12.60 | | Total loans | 2,209,035 | 153,766 | 6.96 | 2,325,176 | 159,798 | 6.87 | 2,189,119 | 116,786 | 5.33 | | Total earning assets | 2,997,951 | 186,560 | 6.22 | 3,077,717 | 190,764 | 6.20 | 2,798,784 | 127,085 | 4.54 | | Allowance for credit losses | (22,108) | | | (29,746) | | | (22,248) | | | | Cash and due from banks | 5,246 | | | 6,659 | | | 5,670 | | | | Other assets | 302,304 | | | 302,036 | | | 244,861 | | | | Total assets | $3,283,393 | | | $3,356,666 | | | $3,027,067 | | | | Liabilities | | | | | | | | | | | Deposits: | | | | | | | | | | | NOW | $521,337 | $17,587 | 3.37% | $697,266 | $19,851 | 2.85% | $707,282 | $4,724 | 0.67% | | Money market checking | 396,881 | 12,770 | 3.22 | 504,730 | 10,352 | 2.05 | 330,208 | 1,449 | 0.44 | | Savings | 115,270 | 3,756 | 3.26 | 76,908 | 1,871 | 2.43 | 56,697 | 418 | 0.74 | | IRAs | 7,990 | 338 | 4.23 | 6,662 | 194 | 2.91 | 6,216 | 71 | 1.14 | | CDs | 760,714 | 38,654 | 5.08 | 576,726 | 29,392 | 5.10 | 170,648 | 3,814 | 2.24 | | Repurchase agreements | 3,477 | 44 | 1.27 | 5,662 | 1 | 0.02 | 10,987 | 6 | 0.05 | | FHLB and other borrowings | 25 | 2 | 6.46 | 17,542 | 889 | 5.07 | 15,494 | 437 | 2.82 | | Senior term loan 3 | 2,355 | 264 | 11.21 | 9,007 | 766 | 8.50 | 2,328 | 163 | 7.00 | | Subordinated debt | 73,667 | 3,229 | 4.38 | 73,415 | 3,219 | 4.38 | 73,159 | 3,072 | 4.20 | | Total interest-bearing liabilities | 1,881,716 | 76,644 | 4.07 | 1,967,918 | 66,535 | 3.38 | 1,373,019 | 14,154 | 1.03 | | Noninterest-bearing demand deposits | 1,071,900 | | | 1,074,292 | | | 1,357,426 | | | | Other liabilities | 37,683 | | | 40,435 | | | 41,098 | | | | Total liabilities | 2,991,299 | | | 3,082,645 | | | 2,771,543 | | | | Stockholders’ equity | | | | | | | | | | | Common stock | 13,738 | | | 13,541 | | | 13,320 | | | | Additional paid-in capital | 162,811 | | | 159,523 | | | 147,728 | | | | Treasury stock | (16,741) | | | (16,741) | | | (16,741) | | | | Retained earnings | 161,181 | | | 154,041 | | | 137,498 | | | | Accumulated other comprehensive loss | (28,821) | | | (36,419) | | | (26,918) | | | | Total stockholders' equity attributable to parent | 292,168 | | | 273,945 | | | 254,887 | | | | Noncontrolling interest | (74) | | | 76 | | | 637 | | | | Total stockholders' equity | 292,094 | | | 274,021 | | | 255,524 | | | | Total liabilities and stockholders’ equity | $3,283,393 | | | $3,356,666 | | | $3,027,067 | | | | Net interest spread (tax-equivalent) | | | 2.15 | | | 2.82 | | | 3.51 | | Net interest income and margin (tax-equivalent) 1 | | $109,916 | 3.67% | | $124,229 | 4.04% | | $112,931 | 4.04% | | Less: Tax-equivalent adjustments | | (718) | | | (946) | | | (1,128) | | | Net interest spread | | | 2.13 | | | 2.79 | | | 3.47 | | Net interest income and margin | | $109,198 | 3.64% | | $123,283 | 4.01% | | $111,803 | 3.99% | 1 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the years ended December 31, 2024, 2023 and 2022, which is a non-U.S. GAAP financial measure. Refer to the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table. 2 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate. 3 The senior term loan was paid off in May 2024 and the unamortized debt issuance costs were recorded as interest expense upon the repayment. *(Dollars in thousands)* | Net interest margin - U.S. GAAP basis | Year Ended December 31, 2024 | 2023 | 2022 | | --- | ---: | ---: | ---: | | Net interest income | $109,198 | $123,283 | $111,803 | | Average interest-earning assets | 2,997,951 | 3,077,717 | 2,798,784 | | Net interest margin | 3.64% | 4.01% | 3.99% | | **Net interest margin - non-U.S. GAAP basis** | | | | | Net interest income | $109,198 | $123,283 | $111,803 | | Plus: Impact of fully tax-equivalent adjustment | 718 | 946 | 1,128 | | Net interest income on a fully-tax equivalent basis | $109,916 | $124,229 | $112,931 | | Average interest-earning assets | $2,997,951 | $3,077,717 | $2,798,784 | | Net interest margin on a fully tax-equivalent basis | 3.67% | 4.04% | 4.04% | ### Rate Volume Calculation The year over year change in rates and change in volume from 2023 to 2024 was as follows: *(Dollars in thousands)* | Earning Assets Loans: | Change in Volume | Change in Rate | Total Change | | --- | ---: | ---: | ---: | | Commercial | $(3,904) | $2,665 | $(1,239) | | Tax-exempt | (24) | — | (24) | | Real estate | (1,111) | 1,821 | 710 | | Consumer | (3,768) | (1,711) | (5,479) | | Investment securities: | | | | | Taxable | 1,022 | 1,095 | 2,117 | | Tax-exempt | (444) | (616) | (1,060) | | Interest-bearing deposits in banks | 391 | 380 | 771 | | CDs with banks | — | — | — | | Total earning assets | $(7,838) | $3,634 | $(4,204) | | Interest-bearing liabilities | | | | | Negotiable order of withdrawal | $(5,009) | $2,745 | $(2,264) | | Money market checking | (2,212) | 4,630 | 2,418 | | Savings | 933 | 952 | 1,885 | | IRAs | 39 | 105 | 144 | | CDs | 9,377 | (115) | 9,262 | | Repurchase agreements | — | 43 | 43 | | FHLB and other borrowings | (888) | 1 | (887) | | Senior term loan | (566) | 64 | (502) | | Subordinated debt | 11 | (1) | 10 | | Total interest-bearing liabilities | 1,685 | 8,424 | 10,109 | | Total | $(9,523) | $(4,790) | $(14,313) | 36 ### Key Metrics *(Dollars in thousands, except per share data)* | | Year ended December 31, 2024 | 2023 | | --- | ---: | ---: | | Book value per common share | $23.61 | $22.68 | | Tangible book value per common share 1 | $23.37 | $22.43 | | Efficiency ratio 1 2 | 80.4% | 82.3% | | Overhead ratio 1 3 | 3.7% | 3.5% | | Net loan charge-offs to total loans receivable 4 | 0.2% | 0.4% | | Allowance for credit losses to total loans receivable | 0.94% | 0.95% | | Nonperforming loans | $24,607 | $8,267 | | Nonperforming loans to total loans receivable | 1.2% | 0.4% | | Equity to assets | 9.8% | 8.7% | | Community Bank Leverage Ratio | 11.2% | 10.5% | 1 Non-U.S. GAAP metric 2 Noninterest expense as a percentage of net interest income and noninterest income 3 Noninterest expense as a percentage of average assets 4 Charge-offs, less recoveries Tangible book value ("TBV") per common share was $23.37 and $22.43 as of December 31, 2024 and 2023, respectively. TBV per common share is a non-U.S. GAAP measure that we believe is helpful to interpreting financial results. A reconciliation of TBV per common share is included below. *(Dollars in thousands, except per share data)* | | December 31, 2024 | December 31, 2023 | | --- | ---: | ---: | | Goodwill | $2,838 | $2,838 | | Intangibles | 262 | 352 | | Total intangibles | $3,100 | $3,190 | | Total equity attributable to parent | $305,679 | $289,384 | | Less: Total intangibles | (3,100) | (3,190) | | Tangible common equity | $302,579 | $286,194 | | Tangible common equity | $302,579 | $286,194 | | Common shares outstanding (000s) | 12,945 | 12,758 | | Tangible book value per common share | $23.37 | $22.43 | ### Net Interest Income 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 interest-bearing balances with 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 on a tax-equivalent basis was 3.67% and 4.04% in 2024 and 2023, respectively. In 2024, the Federal Reserve lowered its key interest rate from a range of 5.25% to 5.50% to a range of 4.25% to 4.50% as of December 31, 2024. We continue to analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin. Management’s estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in *Item 7A – Quantitative and Qualitative Disclosures About Market Risk* included elsewhere in this report. Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest, while maintaining an appropriate level of interest rate risk. Net interest spread on a tax-equivalent basis was 2.15% in 2024 compared to 2.82% in 2023. The difference between the net interest margin on a tax-equivalent basis and net interest spread on a tax-equivalent basis was 152 basis points in 2024 compared to 122 basis points in 2023. This was driven by the 69 basis point increase in the cost of interest-bearing liabilities outpacing the two basis point increase in yield on earning assets. During 2024, net interest income declined $14.1 million, or 11.4%, and total interest income declined $4.0 million, or 2.1%. These declines were primarily driven by a $116.1 million decline in average total loans and a 40 basis point increase in the cost of funds as compared to 2023. The $116.1 million decline in average total loans during 2024 reflects declines of $51.0 million in average commercial loans, $38.0 million in average consumer loans and $26.5 million in average real estate loans. The yield on loans increased nine basis points during 2024. Average investment securities increased $28.7 million, or 8.5%, in 2024 as the result of a $40.6 million increase in taxable investments, partially offset by an $11.9 million decline in tax-exempt investments. The yield increased 42 basis points on taxable securities and declined 59 basis points on tax-exempt securities. Average interest-bearing liabilities declined $86.2 million, or 4.4%, in 2024, primarily as a result of declines of $175.9 million and $107.8 million in average NOW accounts and average money market checking accounts, respectively, partially offset by an increase of $184.0 million in average certificates of deposit. Average interest-bearing deposits declined $60.1 million in 2024. Total interest expense increased $10.1 million, primarily due to an $11.4 million increase in deposit interest. The result was a 69 basis point increase in the cost of interest-bearing liabilities, from 3.38% in 2023 to 4.07% in 2024. This increase is primarily the result of a 75 basis point increase in the cost of deposits, reflecting a shift in the mix of average deposits driven by the highly-competitive deposit environment. There was also a 271 basis point increase in the cost of the senior term loan associated with unamortized debt issuance costs that were recorded as interest expense upon the repayment in May 2024. Further discussion on borrowings is included in *Note 7 – Borrowed Funds* accompanying the consolidated financial statements included elsewhere in this report. ### Provision for Credit Losses Our provision for credit losses for 2024 was $3.5 million compared to a release of allowance for credit losses of $1.9 million for 2023. The provision for credit losses, which is a product of management's analysis, is recorded in response to forecasted losses over the remaining life of the loan and available-for-sale investment security portfolios. Further discussion on the provision for credit losses is included in *Note 1 – Summary of Significant Accounting Policies* accompanying the consolidated financial statements included elsewhere in this report. The change from release of allowance to provision for credit losses is primarily the result of the level of recognized charge-offs within the loan portfolio, which was partially offset by changes to the outstanding balances of the loan portfolios, including decreases in the commercial, residential and consumer loan segments. The 2023 release was primarily the result of the sale of subprime automobile loans. Total loan receivable balances decreased $217.5 million in 2024 versus a decrease of $55.0 million in 2023. The commercial loan portfolio decreased by $184.8 million in 2024, in comparison to a decrease of $9.2 million in 2023, while the consumer loan portfolio decreased by $8.8 million in 2024, in comparison to a decrease of $104.2 million in 2023. Additionally, the residential mortgage loan portfolio decreased by $21.8 million and $63.0 million in 2024 and 2023, respectively. Net charge-offs in 2024 totaled $4.4 million, in comparison to net charge-offs of $9.3 million in 2023. Lastly, the provision for credit losses was impacted by a $0.6 million decrease in the specific credit loss allocations in 2024, relative to a $0.1 million decrease in provision for such loan losses in 2023. ### Noninterest Income Payment card and service charge income, consulting compliance income, equity method investment income or loss and gains or losses on sale of loans account for the majority of our noninterest income. From time to time, we also recognize gains or losses on acquisition and divestiture activity, sales of assets or our investment portfolio. Total noninterest income for 2024, 2023 and 2022 was $42.9 million, $19.7 million and $27.6 million, respectively. The increase in noninterest income for 2024 compared to 2023 was primarily the result of increases of $11.7 million in gain on sale of assets, $2.5 million in payment card and service charge income and $1.0 million in holding gains on equity securities. The gain on sale of assets in 2024 was primarily driven by the sale-leaseback transaction, resulting in a pre-tax gain on sale of assets of $11.8 million. For more information regarding the sale-leaseback transaction, refer to *Note 4 – Premises and Equipment* accompanying the consolidated financial statements included elsewhere in this report. Additionally, there was $1.4 million in equity method investment income from our mortgage segment, compared to equity method investment losses of $2.5 million in 2023. Gain on sale of available-for-sale investment securities was $0.7 million in 2024, compared to a loss of $1.5 million in 2023, and gain on sale of loans was $1.0 million in 2024, driven by government guaranteed loan sales, compared to a loss of $0.7 million on the sale of subprime automobile loans in 2023. ### Noninterest Expense Noninterest expense was $122.2 million and $117.6 million in 2024 and 2023, respectively. The increase of noninterest expense relative to the year ended December 31, 2023 primarily reflects increases of $4.6 million in salaries and employee benefits and $3.0 million in professional fees, incurred to enhance our risk management and compliance related infrastructure. Approximately, 56% and 54% of noninterest expense for 2024 and 2023, respectively, related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to services organizations. ### Discontinued Operations In February 2023, we completed the sale of Chartwell for total consideration of $14.4 million in the form of a loan issued to the buyer, resulting in a gain on sale of $11.8 million. To facilitate a transition of the Chartwell services and support the onboarding and conversion of systems, we entered into a 60-day Employee Lease and Service Agreement, whereby we provided the purchaser with finance and accounting, human capital, information technology, marketing and record/data retention services. In addition, we entered into a contract with the purchaser for Chartwell to continue to provide services and support for three years following the sale. We paid $3.9 million and $2.5 million in fees related to this contract during the years ended December 31, 2024 and December 31, 2023, respectively. ### Income Taxes We incurred income tax expense of $6.1 million and $8.1 million in 2024 and 2023, respectively. Our effective tax rate was 23% and 21% in 2024 and 2023, respectively. Our effective tax rate is affected by certain permanent tax differences caused by statutory requirements in the tax code. The largest permanent difference relates to tax-exempt interest income related to municipal investments and loans held by us. Other, smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses. For 2024, we expect to file tax returns in 28 states. ### Return on Assets and Equity ### Assets Our return on average assets was 0.6% in 2024, compared to 0.9% in 2023. The decline in 2024 is a result of an $11.1 million, or 35.6%, decline in earnings, which is partially offset by a $73.3 million, or 2.2%, decline in average total assets as compared to 2023. The decline in average total assets was primarily the result of a $116.1 million, or 5.0%, decline in average total loans, partially offset by increases of $28.7 million, or 8.5%, and $7.7 million, or 1.9%, in average investment securities and average interest-bearing deposits with banks, respectively. ### Equity Our return on average stockholders’ equity was 6.9% in 2024, compared to 11.4% in 2023. The decline in 2024 is a result of an $11.1 million, or 35.6%, decline in earnings and an $18.2 million, or 6.7%, increase in average equity to $292.2 million. ### Statement of Financial Condition ### Cash and Cash Equivalents Cash and cash equivalents totaled $317.9 million at December 31, 2024, compared to $398.2 million at December 31, 2023. We believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity demands. ### Investment Securities Investment securities totaled $454.2 million at December 31, 2024, compared to $386.4 million at December 31, 2023. 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: | 2024 | 2023 | | --- | ---: | ---: | | United States government agency securities | $39,846 | $38,408 | | United States sponsored mortgage-backed securities | 147,580 | 82,382 | | United States treasury securities | 103,975 | 100,356 | | Municipal securities | 102,140 | 106,907 | | Corporate debt securities | 9,918 | 8,942 | | Other debt securities | 7,500 | 7,500 | | Other securities | 681 | 780 | | Total investment securities available-for-sale | $411,640 | $345,275 | | Equity securities | $42,583 | $41,086 | At December 31, 2024, all investment securities are available-for-sale or equity securities. Management believes the available-for-sale classification provides flexibility in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities. The increase in investment securities balances during 2024 was driven by purchases of available-for-sale mortgage-backed securities. At December 31, 2024, the amortized cost of available-for-sale investment securities totaled $445.5 million, resulting in a net unrealized loss in the investment portfolio of $33.9 million. Management has the intent and ability to hold the investments to maturity and they are all high quality investments. Declines in the fair values of these securities can be attributed to general market conditions, rather than credit-related conditions. The municipal securities continue to give us the ability to pledge and to decrease the effective tax rate. At December 31, 2024, equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in nine companies with a carrying value of $36.5 million. Investments in our top four equity securities represented $34.1 million, or 93.4%, of our total Fintech investment portfolio at December 31, 2024. The Fintech equity securities do not have readily determinable fair values and are recorded at cost and adjusted for observable price changes for underlying transactions for identical or similar investments. The following table shows the maturities for the available-for-sale investment securities portfolio at December 31, 2024: *(Dollars in thousands)* | | Within one year Amortized Cost | Weighted-Avg. Yield | After one year, but within five Amortized Cost | Weighted-Avg. Yield | After five years, but within ten Amortized Cost | Weighted-Avg. Yield | After ten years Amortized Cost | Weighted-Avg. Yield | Total investment securities Amortized Cost | Fair Value | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | United States government agency securities | $— | —% | $4,223 | 1.36% | $22,899 | 2.54% | $18,327 | 3.70% | $45,449 | $39,846 | | United States sponsored mortgage-backed securities | — | — | — | — | 5,241 | 2.82 | 155,791 | 4.24 | 161,032 | 147,580 | | United States treasury securities | 96,137 | 0.62 | 9,958 | 0.78 | — | — | — | — | 106,095 | 103,975 | | Municipal securities | 300 | 4.30 | 912 | 4.67 | 7,410 | 2.01 | 106,223 | 2.63 | 114,845 | 102,140 | | Corporate debt securities | 2,850 | 8.14 | 3,305 | 9.57 | 3,788 | 7.33 | — | — | 9,943 | 9,918 | | Other debt securities | — | — | — | — | 7,500 | — | — | — | 7,500 | 7,500 | | Total | $99,287 | 0.84% | $18,398 | 2.68% | $46,838 | 2.47% | $280,341 | 3.60% | $444,864 | $410,959 | 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. Management continually evaluates hedging strategies that are available to manage interest rate risk. We enter into interest rate swap contracts designated as hedging instruments to manage the interest rate risk associated with certain fixed rate available for sale securities. In 2023 we entered into a portfolio layer method interest rate swap designated as a hedging instrument over a closed portfolio of municipal securities. The notional amount was $50.0 million as of December 31, 2024 and December 31, 2023 and the swap was in a liability position with a fair value of $0.6 million and $1.6 million as of December 31, 2024 and December 31, 2023, respectively. The amortized cost basis of the closed portfolio of municipal securities was $58.3 million and $59.3 million as of December 31, 2024 and December 31, 2023, respectively, which includes basis adjustments of $0.6 million and $1.6 million. This interest rate swap was voluntarily discontinued in January 2025. For additional details on our hedging activity, refer to *Note 19 – Derivatives* accompanying the consolidated financial statements included elsewhere in this report. ### Loans Our primary market areas are North Central West Virginia, Northern Virginia, North Carolina and South Carolina. Our loan portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, home equity lines of credit and consumer lending. Loans receivable totaled $2.10 billion as of December 31, 2024, a decrease of $217.5 million from $2.32 billion as of December 31, 2023. Major classification of loans held for investment at December 31, are as follows: *(Dollars in thousands)* | | 2024 | 2023 | | --- | ---: | ---: | | Business | $668,458 | $797,100 | | Real estate | 632,898 | 670,584 | | Acquisition, development and construction | 115,500 | 134,004 | | Commercial | $1,416,856 | $1,601,688 | | Residential | 650,708 | 672,547 | | Home equity lines of credit | 12,933 | 14,531 | | Consumer | 18,620 | 27,408 | | Total loans | $2,099,117 | $2,316,174 | | Deferred loan origination fees and costs, net | 1,014 | 1,420 | | Loans receivable | $2,100,131 | $2,317,594 | At December 31, 2024, commercial and non-residential real estate loans represented the largest portion of the portfolio at 67.5%. Commercial and non-residential real estate loans totaled $1.42 billion at December 31, 2024, compared to $1.60 billion at December 31, 2023. Management expects to continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards and risk/price balance. Residential real estate loans to retail customers account for the second largest portion of the loan portfolio, comprising 31.0%. Residential real estate loans totaled $650.7 million at December 31, 2024, compared to $672.5 million at December 31, 2023. Management believes residential real estate lending continues to represent a primary focus due to the lower risk factors associated with this type of loan and the opportunity to provide service to both those in the primary North Central West Virginia and Northern Virginia markets, as well as those in the surrounding areas as management deems appropriate. Consumer loans totaled $18.6 million at December 31, 2024, compared to $27.4 million at December 31, 2023. This decrease was the result of $7.9 million of scheduled principal curtailments/payoffs and $0.9 million of charge-offs. At December 31, 2024, Special Mention loans amounted to $50.4 million. The balance is comprised of 52 loans, which include four loans totaling $12.1 million to a single borrower for retail commercial real estate projects, an $8.9 million line of credit secured by a borrowing base, a $7.7 million commercial real estate loan to a senior care facility and a $2.5 million commercial term loan to finance a business acquisition. In addition, there are 45 loans to various unrelated borrowers totaling $19.1 million in commercial, home equity line of credit ("HELOC"), installment and mortgage loans. These are loans for which information about the borrowers’ possible credit problems causes management to have doubts as to the borrowers’ ability to comply with the loan repayment terms in the future. There were 54 additional loans that management identified as Substandard loans, totaling $76.8 million as of December 31, 2024. These loans include a $18.0 million loan to a skilled nursing facility, $17.7 million in three loans to finance hospitality properties to three related borrowers and a $13.5 million loan to finance a multifamily real estate property. In addition, there are 49 loans to various unrelated borrowers totaling $27.6 million in commercial, HELOC, installment and mortgage loans. These are loans where known information about the borrowers’ credit problems causes management to have serious doubts as to the borrowers’ ability to comply with the loan repayment terms in the future. The following table provides loan maturities at December 31, 2024: *(Dollars in thousands)* | | One Year or Less | One Through Five Years | Five Through Fifteen Years | Due After Fifteen Years | Total | | --- | ---: | ---: | ---: | ---: | ---: | | Commercial | $458,074 | $725,822 | $218,259 | $14,701 | $1,416,856 | | Residential | 82,175 | 53,224 | 18,089 | 497,220 | 650,708 | | Home equity lines of credit | 87 | 140 | 1,505 | 11,201 | 12,933 | | Consumer | 60 | 18,560 | — | — | 18,620 | | Total loans | $540,396 | $797,746 | $237,853 | $523,122 | $2,099,117 | The following table reflects the sensitivity of loans to changes in interest rates as of December 31, 2024 that mature after one year: *(Dollars in thousands)* | | Commercial and non-residential real estate | Residential | Home equity lines of credit | Consumer | Total | | --- | ---: | ---: | ---: | ---: | ---: | | Predetermined fixed interest rate | $501,848 | $204,566 | $42 | $18,578 | $725,034 | | Floating or adjustable interest rate | 915,008 | 446,142 | 12,891 | 42 | 1,374,083 | | Total as of December 31, 2024 | $1,416,856 | $650,708 | $12,933 | $18,620 | $2,099,117 | #### Loan Concentration At December 31, 2024, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. Healthcare loans are a significant component of commercial and non-residential real estate loans and comprise 22.7% of total loans receivable at December 31, 2024. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in numerous different industries, primarily located in our market areas. Lending operations of commercial banks may be subject to enhanced scrutiny by federal banking regulators based on a bank’s concentration of commercial real estate (“CRE”) loans. The federal banking regulators have issued guidance to remind financial institutions of the risk posed by CRE lending concentrations. CRE loans generally include land development, construction loans and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for bank examiners to help identify institutions that are potentially exposed to significant CRE loan risk and may warrant greater supervisory scrutiny: | | | | --- | --- | | l | Total reported loans for construction, land development and other land represent 100 percent or more of the institution’s total capital; or | | l | Total CRE loans as defined in the CRE guidance represent 300 percent or more of the institution’s total capital and the outstanding balance of the institution’s CRE loan portfolio has increased by 50 percent or more during the prior 36 months. | As of December 31, 2024, the Bank's concentration of loans for construction, land development and other land as a percentage of capital totaled 31.3% and the Bank's CRE loan concentration, excluding owner-occupied loans, as a percentage of capital totaled 222.0%. All commercial loans, regardless of loan type, with an exposure of $1 million or greater are subject to the Bank’s internal annual review process. This process involves the collection and analysis of updated financial statements from all parties required to provide them under the loan agreements, as well as several other review items, dependent upon the specific loan characteristics, including but not limited to: | | | | --- | --- | | l | Site visit | | l | Field exam | | l | Updated collateral valuation | | l | General discussions with the borrower regarding business conditions and their overall sentiment | The internal annual review process is specialized based on the loan type, with emphasis and additional analysis performed based on each specific loan type’s characteristics. | | | | --- | --- | | l | CRE loans are analyzed on the characteristics of the subject property compared to any other aspect of the borrower. Rent rolls and current occupancy trends are compared to the local market. Recent sales of comparable properties in the area are reviewed for potential impacts on current market values. The property and tenant types are reviewed, as different CRE loan types carry different inherent risks. Property-specific cash flows are stressed through sensitivity analysis and lease burn-off analysis. | | l | Commercial and industrial loans are usually analyzed with the borrower, and any co-borrowers or guarantors together as a global cash flow. For these loan types, while still important, less emphasis is put on loan-to-value ("LTV") or collateral than the CRE loans, and more emphasis is placed on the borrower’s financial operating performance, as well as the character of the individuals involved. The borrower’s financial performance is weighed more heavily, as this aspect of the credit is seen as more important for ongoing business operations than the CRE loan type, which focuses more on the subject property’s characteristics. | | l | Commercial acquisition, development and construction loans are analyzed for the unique risks of development and construction. Less emphasis is given to cash flows, as the expected repayment source is often the sale of the subject property, which typically does not occur until after the construction is finished. The analysis is more reliant upon budgets, plans and as-complete collateral values, as well as management’s comfort and familiarity with the individual borrowers. | | l | Residential Real Estate loans are only subject to the internal annual review process if they are commercial loans secured by 1-4 family homes, which includes both term and construction notes. Term loans require most of the same documentation as multifamily properties within the CRE loan type, such as rent rolls or leases, and collateral analysis of the subject property’s local market. Most of the construction loans to residential builders at the Bank have long relationships with the lending team and a history of successful projects. Analysis of these loans includes reviewing updated market conditions, such as days on market, median sales price, sold versus list price, months of inventory and other factors. These builders are concentrated in the Northern Virginia and Washington D.C. metro areas. | | l | Consumer residential real estate, home equity lines of credit and consumer notes are not subject to the internal annual review process. These notes are underwritten at origination, and then monitored for payment performance. | Management continuously reviews the commercial real estate portfolio on an annual basis, through the internal annual review process, third-party review engagements and other specialized ad hoc portfolio reviews as deemed appropriate by management. During the year ended December 31, 2024, management focused on the review of non-owner-occupied real estate, with an emphasis on office properties. This review was triggered by the macroeconomic trend of increasing vacancy rates, brought on by the continued work from home trend. Management recognizes that the current business environment is inflationary, with elevated interest rates. This has portfolio wide impacts on borrowers’ cash flows and borrowing costs, and is not considered to be market or industry specific. However, management recognizes that some portions of the portfolio, such as loans with variables interest rates, are more susceptible to the current economic environment. Should any deficiencies or problems be identified during these regular reviews, subject loans will be appropriately reviewed for any downgrades and be presented at the monthly Special Assets Review Committee for any further necessary action. Management tracks several commercial real estate concentrations monthly. These concentrations are monitored through bi-annual concentration scorecards, which are presented to the Bank’s Board for review and approval. These scorecards are used to justify the lending limits for each concentration. There are five CRE loan concentrations currently being monitored: | | | | --- | --- | | l | Nursing Homes | | l | Retail | | l | Office | | l | Multifamily | | l | Hospitality | 43 *(Dollars in thousands)* | December 31, 2024 CRE Loans | Real Estate Concentration | Classified Loans | Classified Loans per Concentration | Weighted LTV | | --- | ---: | ---: | ---: | ---: | | Nursing Homes | $382,879 | $17,984 | 4.7% | 62.3% | | Retail | 70,527 | — | —% | 58.6% | | Office | 63,680 | 13,298 | 20.9% | 53.6% | | Multifamily | 55,841 | — | —% | 60.1% | | Hospitality | 35,568 | 16,654 | 46.8% | 47.5% | | Other | 24,403 | — | —% | 57.1% | | Total CRE | $632,898 | $47,936 | 7.6% | | Overall, these concentrations have weighted average LTVs between 47% - 63%. The “Other” segment above contains all CRE loan types outside of the five listed. These Other concentrations are not tracked through scorecards, and are immaterial to the CRE loan portfolio. Nursing Homes are mainly originated through purchased participation from third-party banks. These loans typically are made to skilled nursing facilities ("SNF") and are secured by the subject properties. A majority of these loans are bridge to U.S. Department of Housing and Urban Development loans and have a three to five year term. As of December 31, 2024, these borrowers are in 21 different states. This concentration contains a single classified note, well secured by multiple SNF properties in Michigan. Retail borrowers are mainly located in the Northern Virginia and Washington, D.C. metro area. These borrowers vary in size and scope, but generally include multi-unit retail strip centers. Office borrowers are more dispersed, with material loan balances in Northern Virginia, Southwest Pennsylvania and North Central West Virginia. Since the COVID-19 pandemic, the office CRE loan concentration has been subject to increased scrutiny by management, due to the lowered demand for office space. This concentration includes three Classified notes to unrelated borrowers, secured by properties in North Central West Virginia and Southwestern Pennsylvania. Multifamily borrowers are mainly located in the Northern Virginia and North Central West Virginia areas and are heavily concentrated in three loans to two unrelated borrowers. These three loans make up more than 60% of the total concentration. The Hospitality concentration consists of eight loans to two unrelated ownership groups. One group with five loans are in the Washington, D.C. metro area, with all loans performing. The second group includes three loans in North West Virginia/Southeast Ohio, and are all classified. However, these notes are paying as agreed under forbearance agreements. #### Allowance for Credit Losses Management continually monitors the risk in the loan portfolio through the review of the monthly delinquency reports and the Loan Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the ACL. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquent status, related deposit account activity, where applicable and changes in the local and national economy. When appropriate, we also consider public knowledge and verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole. The result of the evaluation of the adequacy at each period presented herein indicated that the ACL was considered by management to be adequate to absorb forecasted losses over the remaining life of the loan portfolio. At December 31, 2024 and 2023, individually analyzed loans totaled $43.2 million and $11.8 million, respectively. The increase in individually analyzed loans is primarily due to the addition of two commercial real estate loans totaling $31.5 million. A portion of the ACL of $1.3 million and $1.9 million was allocated to cover any loss in individually analyzed loans at December 31, 2024 and 2023, respectively. Loans past due more than 30 days were $45.5 million and $14.0 million, respectively, at December 31, 2024 and 2023. | | December 31, 2024 | 2023 | | --- | ---: | ---: | | Loans past due more than 30 days to gross loans | 2.2% | 0.6% | | Loans past due more than 90 days to gross loans | 1.8% | 0.2% | For tables reflecting the allocation of the ACL, refer to *Note 3 – Loans and Allowance for Credit Losses* accompanying the consolidated financial statements included elsewhere in this report. The following table summarizes the primary segments of the ACL as of December 31, 2024 and 2023: *(Dollars in thousands)* | December 31, | 2024 Amount | % of loans in each category to total loans | 2023 Amount | % of loans in each category to total loans | | --- | ---: | ---: | ---: | ---: | | Commercial and non-residential real estate | $10,838 | 67% | $12,536 | 69% | | Residential | 7,322 | 31 | 6,412 | 29 | | Home equity lines of credit | 95 | 1 | 97 | 1 | | Consumer and other | 1,408 | 1 | 3,079 | 1 | | Total | $19,663 | 100% | $22,124 | 100% | Nonperforming assets consist of loans that are no longer accruing interest and real estate acquired through foreclosure. When interest accruals are suspended, accrued interest income is reversed and charged to earnings. When, in management’s judgment, the borrower’s ability to make periodic interest and principal payments resumes and collectability is no longer in doubt, which is evident by the receipt of six consecutive months of regular, on-time payments, the loan is eligible to be returned to accrual status. Interest income on loans would have increased by $1.6 million, $0.8 million and $0.5 million for 2024, 2023 and 2022, respectively, if loans had performed in accordance with their terms. Nonperforming assets and past due loans as of December 31, are as follows: *(Dollars in thousands)* | Non-accrual loans | 2024 | 2023 | | --- | ---: | ---: | | Commercial | $20,109 | $7,680 | | Real estate and home equity | 4,278 | 243 | | Consumer and other | 220 | 344 | | Total nonperforming loans | 24,607 | 8,267 | | Other real estate, net | 2,827 | 825 | | Total nonperforming assets | $27,434 | $9,092 | | Allowance for credit losses | $19,663 | $22,124 | | Nonperforming loans to gross loans | 1.2% | 0.4% | | Allowance for credit losses to total loans | 0.94% | 0.95% | | Allowance for credit losses to nonperforming loans | 79.9% | 267.6% | | Nonperforming assets to total assets | 0.9% | 0.3% | Individually analyzed loans have increased by $31.4 million, or 266.1%, during 2024. This change is the net effect of multiple factors, primarily the identification of $40.0 million of recently individually analyzed loans, offset by normal loan amortization of $6.4 million, $0.9 million in charge offs, the reclassification of $0.7 million of previously reported individually analyzed loans to performing loans and principal curtailments/payoffs of $0.6 million. The $40.0 million of recently individually analyzed loans were concentrated in an $18.0 million commercial real estate loan to a skilled nursing facility, or 45%, of the recently identified loans and a construction note secured by a multifamily property totaling $13.5 million, or 34%, of the recently identified loans. There are additionally $4.2 million, or 11%, in loans with government guarantees to 17 separate borrowers and are in various stages of either forbearance agreement or liquidation. The nursing facility note is currently paying while going through the process to sell the property via auction and the multifamily property is currently paying while being examined for a possible refinance. The $0.6 million of principal curtailments/payoffs were concentrated in a single government lease commercial relationship, in which a curtailment of $0.5 million was received under a forbearance agreement, or 83% of the total principal curtailments, and a curtailment of $0.1 million received from the sale of heavy equipment collateral, or 17% of the total principal curtailments. The $0.9 million of charged off loans were concentrated in one commercial relationship representing $0.6 million, or 67%, of the charge offs. This note was a government guaranteed note that was secured by business assets. The subprime auto segment also saw a net change of $0.1 million, which has been attributed to charge offs. These charge offs were to various individual loans secured by automobiles and comprised 11% of the total charge offs. Loans classified as Special Mention totaled $50.4 million and $83.8 million as of December 31, 2024 and December 31, 2023, respectively. The decrease of $33.4 million, or 39.9%, was concentrated in the commercial loan portfolio. This decrease is primarily the result of the risk downgrade to either Substandard or Doubtful of 12 loans to 10 relationships, totaling $36.3 million. Of the 20 loans recently downgraded to Special Mention, there were five commercial loans totaling $12.2 million to three relationships for government lending, a commercial business acquisition loan for $2.5 million and a $2.3 million commercial real estate construction loan. Offsetting this increase was the upgrading of a note secured by a senior care facility totaling $4.0 million. There were also two Special Mention notes that were paid off during the year totaling $0.7 million. These included one commercial note and one HELOC. Loans classified as Substandard totaled $76.8 million and $34.0 million as of December 31, 2024 and December 31, 2023, respectively. The increase of $42.8 million, or 125.9%, was concentrated in the commercial loan portfolio. The increase is primarily due the risk grade downgrade of 14 loans to separate commercial loan relationships totaling $50.0 million, the downgrade of 11 residential and HELOC notes totaling $4.7 million, the payoff of six commercial and mortgage loans totaling $3.3 million, the charge off of a $0.6 million commercial note and the continued curtailment of the loans that remained within the portfolio. Loans classified as Doubtful totaled $3.4 million and $4.6 million as of December 31, 2024 and December 31, 2023, respectively. The decrease of $1.2 million, or 26.1%, 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, as well as two charge offs of commercial loans totaling $0.5 million secured by heavy equipment and vehicles. As of December 31, 2024, there is $0.2 million in in calculated credit loss reserve allocation against these 16 Doubtful loans. #### Interest Rate Risk Management continually evaluates hedging strategies that are available to manage interest rate risk. We enter into interest rate swap contracts designated as hedging instruments to manage the interest rate risk associated with certain fixed rate loans. In 2023 we entered into four portfolio layer method interest rate swaps designated as hedging instruments over a closed portfolio of fixed-rate mortgage loans, one of which was voluntarily discontinued during 2024. The notional amount of the interest rate swap portfolio was $126.0 million and $390.3 million as of December 31, 2024 and December 31, 2023, respectively, including amortization adjustments of $24.0 million and $9.7 million related to one of the swaps which is amortizing. The interest rate swap portfolio was in an asset position with a fair value of $0.5 million as of December 31, 2024 and a liability position with a fair value of $4.5 million as of December 31, 2023. The amortized cost basis of the closed portfolio of fixed-rate loans was $443.8 million and $491.0 million as of December 31, 2024 and December 31, 2023, respectively, which include basis adjustments of $1.1 million and $4.1 million. Management also enters into interest rate swap contracts not designated as hedging instruments to help a small number of commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allows them to convert floating-rate loan payments to fixed rate loan payments. When we enter into an interest rate swap contract with a commercial loan borrower, we simultaneously enter into a "mirror" swap contract with a third-party who exchanges the borrower's fixed-rate payments for floating-rate loan payments. At December 31, 2024 the fair value and notional amount of the interest rate swap agreements were $5.9 million and $133.9 million, respectively, as compared to $6.2 million and $126.5 million at December 31, 2023. For additional details on our hedging activity, refer to *Note 19 – Derivatives* accompanying the consolidated financial statements included elsewhere in this report. ### 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 $2.69 billion, or 97.2% of funding sources, at December 31, 2024, versus $2.90 billion, or 97.1% of such funding sources, at December 31, 2023\. Of these amounts, gaming deposits totaled $227.6 million and $354.1 million at December 31, 2024 and 2023, respectively. Borrowings, consisting of subordinated debt, senior term loan and other borrowings represented 2.7% of funding sources at December 31, 2024 and December 31, 2023. Repurchase agreements, which are available to large corporate customers, represented 0.1% and 0.2% of funding sources at December 31, 2024 and 2023, respectively. Management continues to emphasize the development of noninterest-bearing deposits as a core funding source. At December 31, 2024, noninterest-bearing balances totaled $941.0 million, compared to $1.20 billion at December 31, 2023, or 34.9% and 41.3%, respectively, of total deposits. Interest-bearing deposits totaled $1.75 billion at December 31, 2024, compared to $1.70 billion at December 31, 2023, or 65.1% and 58.7%, respectively, of total deposits. The following table sets forth the balance of each of the deposit categories for the years ended December 31, 2024 and 2023: *(Dollars in thousands)* | Demand deposits of individuals, partnerships and corporations | 2024 | 2023 | | --- | ---: | ---: | | Noninterest-bearing demand | $940,994 | $1,197,272 | | NOW | 473,225 | 538,444 | | Savings and money markets | 437,145 | 571,299 | | Time deposits, including CDs and IRAs | 842,251 | 594,461 | | Total deposits | $2,693,615 | $2,901,476 | | Time deposits that meet or exceed the FDIC insurance limit | $2,962 | $3,150 | Average interest-bearing deposits totaled $1.80 billion during 2024 compared to $1.86 billion during 2023. Average noninterest bearing deposits totaled $1.07 billion during 2024 and 2023. We utilize a custodial deposit transference structure for certain deposit programs whereby we, acting as custodian of account holder funds, place a portion of such account holder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a program bank). Accounts opened at program banks are established in our name as custodian, for the benefit of our account holders. We remain the issuer of all accounts under the applicable account holder agreements and have sole custodial control and transaction authority over the accounts opened at program banks. We maintain the records of each account holders' deposits maintained at program banks. Program banks undergo robust due diligence prior to becoming a program bank and are also subject to continuous monitoring. These off-balance sheet deposits totaled $1.42 billion at December 31, 2024 and $1.09 billion at December 31, 2023, and substantially all represent banking-as-a-service clients. Maturities of time deposits that met or exceeded the FDIC insurance limit as of December 31, 2024: *(Dollars in thousands)* | | 2024 | | --- | ---: | | Under three months | $1,604 | | Over three to 12 months | 1,358 | | Total | $2,962 | Total uninsured deposits were $966.0 million, or 35.9% of total deposits, as of December 31, 2024. Of these uninsured deposits, $258.5 million represents collateralized public fund deposits. Further, at December 31, 2024, we had available liquidity of $317.9 million of cash and cash equivalents on hand and $648.6 million remaining borrowing capacity with the FHLB. 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, refer to *Note 7 – Borrowed Funds* accompanying the consolidated financial statements included elsewhere in this report. ### Capital Resources During the year ended December 31, 2024, stockholders’ equity increased $16.4 million to $305.8 million from $289.3 million. This increase primarily consists of net income for the year of $20.1 million, stock-based compensation of $2.9 million, common stock options exercised totaling $1.5 million and other comprehensive income of $0.6 million, partially offset by cash dividends paid of $8.8 million. With stockholders’ equity increasing as noted above and with the decline in assets of $185.2 million, the equity to assets ratio increased from 8.7% at December 31, 2023 to 9.8% at December 31, 2024. We paid dividends to common shareholders of $8.8 million in 2024 and $8.6 million in 2023, compared to earnings of $20.1 million in 2024 versus $31.2 million in 2023, resulting in an increase in the dividend payout ratio to 43.7% in 2024 from 27.7% in 2023. 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 15 – 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. 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%. The Bank's CBLR at December 31, 2024 was 11.2%, 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. Our liquid assets totaled $379.7 million and $504.3 million as of December 31, 2024 and 2023, respectively. We believe that these sources of funds would 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, 2024, cash flows from investing activities totaled $144.5 million, while cash used in operating and financing activities totaled $0.3 million and $224.5 million, respectively. Cash flows from operating, investing and financing activities during the year ended December 31, 2023 totaled $58.2 million, $88.2 million and $211.5 million, respectively. Significant changes in cash flows during the year ended December 31, 2024 include inflows from the net change in loans of $199.6 million, sales of available-for-sale investment securities of $24.3 million and net maturities/paydowns of available-for-sale investment securities of $17.4 million, partially offset by cash outflows of $207.9 million from the net change in deposits and $111.8 million to purchase available-for-sale investment securities. 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. 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 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 estimates 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 Credit Losses Since the implementation of CECL in January 2023, the ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments, primarily to loans and unfunded loan commitments on our balance sheet. Estimating the amount of the ACL requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts and the value of collateral on collateral-dependent loans. Credit losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. We estimate the general component of the ACL based on a forecasting model and consideration of qualitative factors, both internal and external, all of which may be susceptible to significant change. Through a loss driver analysis, a forecasting model that correlates specific economic factors with credit quality of each loan segments was developed. Peer bank data was identified and used in this process, as we did not have adequate quarterly loan data to analyze over the look-back period to 2007. After both historical peer loan data and various economic factors over the same look-back period were analyzed, two economic variables, national GDP and national unemployment rate, were identified as showing the most correlation to the performance of the loans within each of the pooled segments. Within each loan segment forecast, these two economic variables are forecasted based on expected trends over a 12-month period, before reverting to the long-term average quarterly rate of each variable over the next 12-month period, then maintains this quarterly average for the life of the loan segment. We use these variables to produce an estimated probability of default for each quarter period and, through a proprietary model, also calculate a loss given default factor to estimate overall losses. Benchmark studies are also prepared for prepayment and curtailment rate estimates for each loan segment, as well as recovery lag estimates. With all these factors combined, a forecasted allocation rate is produced for each loan segment. 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. Each of these environmental factors has been analyzed by management and each has been assigned a risk modifier on a four-point scale (No Change, Minor, Moderate and Major) as a measure of the risk that factor creates to the Bank’s loan portfolio. Each environmental factor has also been weighted to reflect how it relates to the different portfolio segments (i.e., various Commercial, Residential, Consumer and HELOC). Individual risk grade factors are then calculated by applying the individual weightings to the individual risk modifiers. The total of these factors provides an overall risk grade for each portfolio segment, which is then applied to a basis point scale to calculate an actual loss rate adjustment. This process is applied to each of the Bank’s portfolio segments. As of December 31, 2024, the "economic and business conditions" factor was generally the highest weighted qualitative factor, with a weighting of 10% to 20%, and given a risk rating of “Minor” for fifteen and "Moderate" for five of the 21 portfolio segments. Increasing the risk rating by one for all segments would have resulted in an additional allowance of $1.9 million at December 31, 2024 and decreasing the risk grade by one would have resulted in a reduction to the allowance of $1.8 million. In addition to the above judgments and estimates, the specific reserves on impaired loans is an important input to the ACL 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. ### Fair Value of Level III Financial Instruments Available-for-sale investment securities are recorded at fair value based upon quoted prices, if available. However, certain local municipal securities included in available-for-sale securities, which are related to tax increment financing, represent Level III instruments. These are assets that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The fair value of Level III municipal securities are based upon pricing obtained from third-party pricing services, which perform independent analysis of liquidity, rating, yield and duration. Based upon internal review procedures and the fair values provided by the pricing services, we believe that the fair values provided by the pricing services are consistent with the principles of ASC 820, *Fair Value Measurement.* ASC 820, *Fair Value Measurement,* defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. Assets acquired, liabilities assumed and consideration exchanged are recorded at their respective acquisition date fair values. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment and the use of models are necessary to estimate fair value. Significant assumptions used in models, which include assumptions for interest rates, discount rates, prepayments and credit losses, are independently verified against observable market data when possible. Fair value estimates are also based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. When changes in market conditions reduce the availability of quoted prices or observable data, the estimate of fair value becomes more subjective and requires a higher degree of management judgment. Refer to *Note 18 – Fair Value Measurements* accompanying the consolidated financial statements included elsewhere in this report for a complete discussion of our use of fair value and the related measurement practices. ### 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. ## Market risk As filed, 11,899 characters. Market risk refers to potential losses arising from, among 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 (“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 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. As of December 31, 2024, the Bank is shown in an asset sensitive position in down rate environments 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 be repriced 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 be repriced 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 | +400 bp | +300 bp | +200 bp | +100 bp | -100 bp | -200 bp | -300 bp | -400 bp | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Policy Limit | (25.0)% | (20.0)% | (15.0)% | (10.0)% | (10.0)% | (20.0)% | (27.5)% | (35.0)% | | December 31, 2024 | 31.7% | 23.7% | 15.7% | 7.7% | (6.5)% | (12.8)% | (18.6)% | (24.2)% | | December 31, 2023 | 51.8% | 39.7% | 27.6% | 16.1% | (7.6)% | (20.2)% | (33.4)% | (44.8)% | Net interest income sensitivity is tested by shocking a forward rate curve. The change in income is then examined in scenarios where the rate curve is shocked up or down in a parallel shock. Deposit repricing during the last year lagged the movement of the Fed Funds Rate. As these increases have been realized, interest expense is higher in a flat rate scenario. However, the betas for deposit repricing allow interest expense to increase more in up rates and decrease more in down rates in 2024 than during 2023. At December 31, 2024, the expectation is for rates to begin a steady decline over the next one to two years, through small drops, with another stabilization moving forward. There is impact in a downrate environment as the bank deals heavily in variable rate loans and deposits. Net interest income at risk does not currently exceed policy limits in parallel instantaneous interest rate shock scenarios. In the past, policy violations in these scenarios were driven largely by the general level or market interest rates described in the preceding paragraph 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. Conversely, our floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling rate environment. Additionally, mortgage companies experience a higher volume of loan originations and refinance activity as interest rates fall. The impact of this increase in loan volume is reflected in income from equity method investments and represents a benefit to net income that partially offsets the losses to net interest income experienced in a falling rate environment. The paragraph above discusses 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, but the impact is not as extreme as is suggested in a shock scenario. Essentially, 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. 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 EVE* | Change in interest rates | +400 bp | +300 bp | +200 bp | +100 bp | -100 bp | -200 bp | -300 bp | -400 bp | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Policy Limit | (35.0)% | (25.0)% | (17.0)% | (12.0)% | (12.0)% | (17.0)% | (25.0)% | (35.0)% | | December 31, 2024 | (18.9)% | (16.1)% | (9.2)% | (3.2)% | (0.6)% | (6.7)% | (12.2)% | (15.8)% | | December 31, 2023 | (2.3)% | (1.9)% | (1.3)% | (0.6)% | 0.7% | (0.7)% | (3.5)% | (6.0)% | The Economic Value of Equity ("EVE") was stable across rate changing scenarios for 2023. The Fed Funds Rate increased significantly during 2022. The full effect of this rate movement was not fully realized in the deposit portfolio until 2023. Throughout 2023, in the rising rate environment, interest-bearing deposits were repriced, leading to increased cost of funds. The significant change in rates also drove previously non-interest-bearing deposits into new interest-bearing account types. This migration of noninterest-bearing deposits to interest-bearing impacted the cost of interest-bearing liabilities. This impact drove the cost of interest-bearing liabilities up, allowing the cost to behave similar to the discount rate applied to cash flows. These changes in rates took place in 2023. Any further deposit repricing would also be a major driver in the EVE calculation differences. ### 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, including derivative contracts such as interest rate swaps and fair value hedges. 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. ## Controls and procedures As filed, 4,433 characters. ### Evaluation of Disclosure Controls and Procedures As of December 31, 2024, we carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer (who is our principal executive officer) and Chief Financial Officer (who is our principal 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. The term "disclosure controls and procedures" means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 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, 2024. ### 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, 2024. 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 in *Internal Control-Integrated Framework in 2013*. Because there were no material weaknesses discovered, management believes that, as of December 31, 2024, our internal control over financial reporting was effective. Forvis Mazars LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report and has issued an attestation 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, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. | | | | | --- | --- | --- | | Date: | March 12, 2025 | /s/ Larry F. Mazza | | | | Larry F. Mazza | | | | CEO and Director | | | | (Principal Executive Officer) | | Date: | March 12, 2025 | /s/ Donald T. Robinson | | | | Donald T. Robinson | | | | President and CFO | | | | (Principal Financial and Accounting Officer) | 122 Filed Mar 13, 2025. Source: SEC EDGAR, the filing index for accession 0001277902-25-000043. Last ingested by Listed: Nov 4, 2026, 17:18 ET. No prices; not investment advice.