
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~March 31,~~June 30, 2022
or
☐ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number: 001-38314

MVB Financial Corp.
(Exact name of registrant as specified in its charter)

West Virginia						20-0034461
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

301 Virginia Avenue, Fairmont, WV						26554
(Address of principal executive offices)						(Zip Code)

(304) 363-4800
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value

MVBF

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

As of ~~April 29,~~August 5, 2022, there were ~~12,147,124~~12,229,028 shares of our common stock outstanding with a par value of $1.00 per share.

TABLE OF CONTENTS

Forward-Looking Statements:

Statements in this Quarterly Report on Form 10-Q that are based on other than historical data are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others, statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations and future financial condition, results of operations and performance of MVB Financial Corp. and its subsidiaries and statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook” or the negative of those terms or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing our view as of any subsequent date. Forward-looking statements involve significant risks and uncertainties (both known and unknown) and actual results may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such differences include, but are not limited to:


l			the length, severity, magnitude and duration of the Coronavirus Disease (“COVID-19”) pandemic and the direct and indirect impacts of the COVID-19 pandemic, including its impact on our financial condition and business operations;
l			changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of recovery following the COVID-19 pandemic, risk of recession, rising interest rates and the effects of inflation on our operations and operating expenses;
l			ability to successfully execute business plans, manage risks and achieve objectives, including strategies related to investments in financial technology (“Fintech”);
l			market, economic, operational, liquidity, credit and interest rate risks associated with our business;
l			changes in local, national and international political and economic conditions, including without limitation, changes in the political and economic climate, economic conditions and other major developments, including wars, natural disasters, epidemics and pandemics, military actions and terrorist attacks;
l			changes in financial market conditions, either internationally, nationally or locally in areas in which we conduct operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;
l			unanticipated changes in our liquidity position, including but not limited to changes in access to sources of liquidity and capital to address our liquidity needs;
l			deposits include certain concentrations with large customers and industries;
l			changes in interest rates;
l			the quality and composition of the loan and securities portfolios;
l			ability to successfully conduct acquisitions and integrate acquired businesses and potential difficulties in expanding businesses in existing and new markets;
l			ability to successfully manage credit risk and the sufficiency of allowance for credit losses;
l			increases in the levels of losses, customer bankruptcies, bank failures, claims and assessments;
l			changes in government legislation and accounting policies, including the Dodd-Frank Act and Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”);
l			uncertainty about the discontinued use of the London Inter-bank Offered Rate (“LIBOR”) and the transition to an alternative rate;
l			competition and consolidation in the financial services industry;
l			new legal claims against us, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies or changes in existing legal matters;
l			success in gaining regulatory approvals, when required, including for proposed mergers or acquisitions;
l			changes in consumer spending and savings habits, including demand for loan products and deposit flow;
l			increased competitive challenges and expanding product and pricing pressures among financial institutions and non-bank financial companies;
l			operational risks or risk management failures by us or critical third parties, including without limitation, with respect to data processing, information systems, technological changes, vendor problems, business interruptions and fraud risk;


l			increasing risk of continually evolving, sophisticated cybersecurity activities faced by financial institutions and others that could result in, among other things, theft, loss, misuse or disclosure of confidential client, customer or corporate information or assets and a disruption of computer, software or network systems and the potential impact from such risks, including reputational damage, regulatory penalties, loss of revenues, additional costs (including repair, remediation and other costs), exposure to litigation and other financial losses;
l			failure or circumvention of internal controls;
l			legislation or regulatory changes which adversely affect operations or business, including changes to address the impact of COVID-19 through the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and other legislative and regulatory responses to the COVID-19 pandemic;
l			increased emphasis by regulators on federal and state consumer protection laws that extensively govern customer relationships;
l			changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or regulatory agencies, including the impact of future adoption of the current expected credit losses (“CECL”) standard;
l			concentration risk in our deposit base, including risk of losing large clients and concentration in gaming deposits; and
l			costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation (“FDIC”) insurance coverage levels.

Further, we urge you to carefully review and consider the cautionary statements and disclosures, specifically those made in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), filed with the Securities and Exchange Commission ("SEC") on March 10, 2022, and from time to time, in our other filings with the SEC. Actual results may differ materially from those expressed in or implied by any forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except to the extent required by law, we undertake no obligation to update any forward-looking statements in order to reflect any event or circumstance occurring after the date of this report or currently unknown facts or conditions or the occurrence of unanticipated events. All forward-looking statements are qualified in their entirety by this cautionary statement.

REFERENCES

Unless the context otherwise requires, references in this report to “MVB, ~~Financial,” “MVB,~~” “the Company,” “we,” “us,” ~~“our,”~~“our” and “ours” refer to the registrant, MVB Financial Corp., and its subsidiaries consolidated for the purposes of its financial statements. References to “the Bank” refer to our wholly-owned banking subsidiary, MVB Bank, Inc.

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except per share data)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(Unaudited)		(Audited)			(Unaudited)		(Audited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Cash and due from banks	Cash and due from banks	$	4,965	$	8,878	Cash and due from banks	$	5,973	$	8,878
Interest-bearing balances with banks	Interest-bearing balances with banks	349,007		298,559		Interest-bearing balances with banks	155,788		298,559
Total cash and cash equivalents	Total cash and cash equivalents	353,972		307,437		Total cash and cash equivalents	161,761		307,437
Certificates of deposit with banks	Certificates of deposit with banks	2,229		2,719		Certificates of deposit with banks	496		2,719
Investment securities available-for-sale	Investment securities available-for-sale	395,301		421,466		Investment securities available-for-sale	376,737		421,466
Equity securities	Equity securities	34,447		32,402		Equity securities	34,250		32,402
Loans held-for-sale	Loans held-for-sale	9,161		—		Loans held-for-sale	11,856		—
Loans receivable	Loans receivable	1,897,853		1,869,838		Loans receivable	2,215,114		1,869,838
Allowance for loan losses	Allowance for loan losses	(18,808)		(18,266)		Allowance for loan losses	(22,734)		(18,266)
Loans receivable, net	Loans receivable, net	1,879,045		1,851,572		Loans receivable, net	2,192,380		1,851,572
Premises and equipment, net	Premises and equipment, net	25,357		25,052		Premises and equipment, net	25,272		25,052
Bank-owned life insurance	Bank-owned life insurance	42,500		42,257		Bank-owned life insurance	42,744		42,257
Equity method investments	Equity method investments	43,063		40,013		Equity method investments	39,787		40,013
Accrued interest receivable and other assets	Accrued interest receivable and other assets	104,401		65,543		Accrued interest receivable and other assets	95,157		65,543

Goodwill	Goodwill	3,988		3,988		Goodwill	3,988		3,988
TOTAL ASSETS	TOTAL ASSETS	$	2,893,464	$	2,792,449	TOTAL ASSETS	$	2,984,428	$	2,792,449

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest-bearing	Noninterest-bearing	$	1,308,998	$	1,120,433	Noninterest-bearing	$	1,342,916	$	1,120,433
Interest-bearing	Interest-bearing	1,200,081		1,257,172		Interest-bearing	1,272,054		1,257,172
Total deposits	Total deposits	2,509,079		2,377,605		Total deposits	2,614,970		2,377,605

Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	35,328		55,126		Accrued interest payable and other liabilities	32,238		55,126
Repurchase agreements	Repurchase agreements	12,101		11,385		Repurchase agreements	11,152		11,385

Subordinated debt	Subordinated debt	73,094		73,030		Subordinated debt	73,158		73,030
Total liabilities	Total liabilities	2,629,602		2,517,146		Total liabilities	2,731,518		2,517,146

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY

Common stock - par value $1; 20,000,000 shares authorized; 12,991,140 and 12,143,124 shares issued and outstanding, respectively, as of March 31, 2022 and 12,934,966 and 12,086,950 shares issued and outstanding, respectively, as of December 31, 2021		12,991		12,935
Common stock - par value $1; 20,000,000 shares authorized; 13,077,044 and 12,229,028 shares issued and outstanding, respectively, as of June 30, 2022 and 12,934,966 and 12,086,950 shares issued and outstanding, respectively, as of December 31, 2021						Common stock - par value $1; 20,000,000 shares authorized; 13,077,044 and 12,229,028 shares issued and outstanding, respectively, as of June 30, 2022 and 12,934,966 and 12,086,950 shares issued and outstanding, respectively, as of December 31, 2021	13,077		12,935
Additional paid-in capital	Additional paid-in capital	144,968		143,521		Additional paid-in capital	145,480		143,521
Retained earnings	Retained earnings	139,024		138,219		Retained earnings	139,904		138,219
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(17,162)		(3,606)		Accumulated other comprehensive loss	(29,420)		(3,606)
Treasury stock - 848,016 shares as of March 31, 2022 and December 31, 2021, at cost		(16,741)		(16,741)
Treasury stock - 848,016 shares as of June 30, 2022 and December 31, 2021, at cost						Treasury stock - 848,016 shares as of June 30, 2022 and December 31, 2021, at cost	(16,741)		(16,741)
Total equity attributable to parent	Total equity attributable to parent	263,080		274,328		Total equity attributable to parent	252,300		274,328
Noncontrolling interest	Noncontrolling interest	782		975		Noncontrolling interest	610		975
Total stockholders' equity	Total stockholders' equity	263,862		275,303		Total stockholders' equity	252,910		275,303
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,893,464	$	2,792,449	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,984,428	$	2,792,449

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) (Dollars in thousands, except per share data)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
INTEREST INCOME	INTEREST INCOME						INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	21,448	$	16,892		Interest and fees on loans	$	25,837	$	18,753	$	47,285	$	35,645
Interest on deposits with banks	Interest on deposits with banks	227		122			Interest on deposits with banks	313		98		540		220
Interest on investment securities	Interest on investment securities	648		631			Interest on investment securities	838		625		1,486		1,256
Interest on tax-exempt loans and securities	Interest on tax-exempt loans and securities	939		1,418			Interest on tax-exempt loans and securities	1,102		1,357		2,041		2,775
Total interest income	Total interest income	23,262		19,063			Total interest income	28,090		20,833		51,352		39,896

INTEREST EXPENSE	INTEREST EXPENSE						INTEREST EXPENSE
Interest on deposits	Interest on deposits	656		1,048			Interest on deposits	661		1,236		1,317		2,284
Interest on short-term borrowings	Interest on short-term borrowings	5		44			Interest on short-term borrowings	9		52		14		96
Interest on subordinated debt	Interest on subordinated debt	753		466			Interest on subordinated debt	760		490		1,513		956
Total interest expense	Total interest expense	1,414		1,558			Total interest expense	1,430		1,778		2,844		3,336

NET INTEREST INCOME	NET INTEREST INCOME	21,848		17,505			NET INTEREST INCOME	26,660		19,055		48,508		36,560
Provision for loan losses		1,280		618
Provision (release of allowance) for loan losses							Provision (release of allowance) for loan losses	5,100		(1,540)		6,380		(922)
Net interest income after provision for loan losses	Net interest income after provision for loan losses	20,568		16,887			Net interest income after provision for loan losses	21,560		20,595		42,128		37,482

NONINTEREST INCOME	NONINTEREST INCOME						NONINTEREST INCOME
Payment card and service charge income	Payment card and service charge income	2,642		1,493			Payment card and service charge income	4,015		1,926		6,657		3,419

Insurance and investment services income	Insurance and investment services income	254		224			Insurance and investment services income	218		247		472		471
Gain on sale of available-for-sale securities, net	Gain on sale of available-for-sale securities, net	650		1,143			Gain on sale of available-for-sale securities, net	—		1,708		650		2,851

Gain on sale of equity securities, net							Gain on sale of equity securities, net	100		5		100		5
Gain on sale of loans, net	Gain on sale of loans, net	1,083		—			Gain on sale of loans, net	1,405		1,447		2,488		2,217

Holding gain (loss) on equity securities, net	Holding gain (loss) on equity securities, net	(59)		515			Holding gain (loss) on equity securities, net	(26)		699		(85)		1,214
Compliance and consulting income	Compliance and consulting income	3,869		1,281			Compliance and consulting income	3,750		1,868		7,619		3,149
Equity method investment income	Equity method investment income	1,138		6,469			Equity method investment income	549		4,528		1,687		10,997

Equity method investment gain	Equity method investment gain	1,803		—			Equity method investment gain	71		—		1,874		—
Other operating income	Other operating income	490		1,333			Other operating income	1,827		1,216		2,317		1,779
Total noninterest income	Total noninterest income	11,870		12,458			Total noninterest income	11,909		13,644		23,779		26,102

NONINTEREST EXPENSES	NONINTEREST EXPENSES						NONINTEREST EXPENSES
Salaries and employee benefits	Salaries and employee benefits	17,961		11,911			Salaries and employee benefits	18,983		13,661		36,944		25,572
Occupancy expense	Occupancy expense	972		1,158			Occupancy expense	907		1,115		1,879		2,273
Equipment depreciation and maintenance	Equipment depreciation and maintenance	1,226		1,041			Equipment depreciation and maintenance	1,267		1,206		2,493		2,247
Data processing and communications	Data processing and communications	1,016		909			Data processing and communications	1,055		1,420		2,071		2,329

Marketing, contributions and sponsorships	Marketing, contributions and sponsorships	325		65			Marketing, contributions and sponsorships	195		146		520		211
Professional fees	Professional fees	2,821		1,742			Professional fees	2,529		2,450		5,350		4,192
Insurance, tax and assessment expense	Insurance, tax and assessment expense	536		538			Insurance, tax and assessment expense	614		500		1,150		1,038
Travel, entertainment, dues and subscriptions	Travel, entertainment, dues and subscriptions	1,978		884			Travel, entertainment, dues and subscriptions	2,343		1,204		4,321		2,088
Other operating expenses	Other operating expenses	2,027		870			Other operating expenses	1,926		1,701		3,953		2,571
Total noninterest expense	Total noninterest expense	28,862		19,118			Total noninterest expense	29,819		23,403		58,681		42,521
Income before income taxes	Income before income taxes	3,576		10,227			Income before income taxes	3,650		10,836		7,226		21,063
Income taxes	Income taxes	905		2,169			Income taxes	859		1,673		1,764		3,842
Net income before noncontrolling interest	Net income before noncontrolling interest	2,671		8,058			Net income before noncontrolling interest	2,791		9,163		5,462		17,221

Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	193		27			Net loss attributable to noncontrolling interest	165		84		358		111
Net income attributable to parent	Net income attributable to parent	2,864		8,085			Net income attributable to parent	2,956		9,247		5,820		17,332
Preferred dividends	Preferred dividends	—		35			Preferred dividends	—		—		—		35
Net income available to common shareholders	Net income available to common shareholders	$	2,864	$	8,050		Net income available to common shareholders	$	2,956	$	9,247	$	5,820	$	17,297

Earnings per common shareholder - basic	Earnings per common shareholder - basic	$	0.24	$	0.70		Earnings per common shareholder - basic	$	0.24	$	0.79	$	0.48	$	1.49

Earnings per common shareholder - diluted	Earnings per common shareholder - diluted	$	0.22	$	0.66		Earnings per common shareholder - diluted	$	0.23	$	0.73	$	0.45	$	1.39
Weighted-average shares outstanding - basic	Weighted-average shares outstanding - basic	12,093,179		11,530,279			Weighted-average shares outstanding - basic	12,176,805		11,639,237		12,135,223		11,585,059
Weighted-average shares outstanding - diluted	Weighted-average shares outstanding - diluted	12,927,811		12,286,731			Weighted-average shares outstanding - diluted	12,895,581		12,612,030		12,870,892		12,449,973

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) (Dollars in thousands)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Net income before noncontrolling interest	Net income before noncontrolling interest	$	2,671	$	8,058		Net income before noncontrolling interest	$	2,791	$	9,163	$	5,462	$	17,221

Other comprehensive loss:
Other comprehensive income (loss):							Other comprehensive income (loss):

Unrealized holding loss on securities available-for-sale		(17,519)		(6,331)
Unrealized holding gain (loss) on securities available-for-sale							Unrealized holding gain (loss) on securities available-for-sale	(16,631)		3,371		(34,150)		(2,960)

Reclassification adjustment for gain recognized in income	Reclassification adjustment for gain recognized in income	(650)		(1,143)			Reclassification adjustment for gain recognized in income	—		(1,708)		(650)		(2,851)

Change in defined benefit pension plan	Change in defined benefit pension plan	369		1,705			Change in defined benefit pension plan	320		321		689		2,026

Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	107		127			Reclassification adjustment for amortization of net actuarial loss recognized in income	107		127		214		254

Reclassification adjustment for carrying value adjustment - investment hedge recognized in income		(10)		264
Reclassification adjustment for carrying value adjustment - investment hedge (gain) loss recognized in income							Reclassification adjustment for carrying value adjustment - investment hedge (gain) loss recognized in income	(187)		359		(197)		623

Other comprehensive loss, before tax		(17,703)		(5,378)
Other comprehensive income (loss), before tax							Other comprehensive income (loss), before tax	(16,391)		2,470		(34,094)		(2,908)

Income taxes related to items of other comprehensive loss:
Unrealized holding loss on securities available-for-sale		4,104		1,483
Income taxes related to items of other comprehensive income (loss):							Income taxes related to items of other comprehensive income (loss):
Unrealized holding gain (loss) on securities available-for-sale							Unrealized holding gain (loss) on securities available-for-sale	4,194		(790)		8,298		693
Reclassification adjustment for gain recognized in income	Reclassification adjustment for gain recognized in income	152		268			Reclassification adjustment for gain recognized in income	—		400		152		668
Change in defined benefit pension plan	Change in defined benefit pension plan	(86)		(399)			Change in defined benefit pension plan	(81)		(75)		(167)		(474)
Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	(25)		(30)			Reclassification adjustment for amortization of net actuarial loss recognized in income	(27)		(30)		(52)		(60)
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income		2		(62)
Income taxes related to items of other comprehensive loss		4,147		1,260
Reclassification adjustment for carrying value adjustment - investment hedge (gain) loss recognized in income							Reclassification adjustment for carrying value adjustment - investment hedge (gain) loss recognized in income	47		(84)		49		(146)
Income taxes related to items of other comprehensive income (loss)							Income taxes related to items of other comprehensive income (loss)	4,133		(579)		8,280		681

Total other comprehensive loss, net of tax		(13,556)		(4,118)
Total other comprehensive income (loss), net of tax							Total other comprehensive income (loss), net of tax	(12,258)		1,891		(25,814)		(2,227)

Comprehensive loss attributable to noncontrolling interest	Comprehensive loss attributable to noncontrolling interest	193		27			Comprehensive loss attributable to noncontrolling interest	165		84		358		111

Comprehensive income (loss)	Comprehensive income (loss)	(10,692)		$	3,967		Comprehensive income (loss)	$	(9,302)	$	11,138	$	(19,994)	$	15,105

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited) (Dollars in thousands except per share data)

Preferred stock Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total stockholders' equity attributable to parent Noncontrolling interest Total stockholders' equity
Shares Amount Shares Amount Shares Amount
Balance at December 31, 2021 — $ — 12,934,966 $ 12,935 $ 143,521 $ 138,219 $ (3,606) 848,016 $ (16,741) $ 274,328 $ 975 $ 275,303
Net income (loss) — — — — — 2,864 — — — 2,864 (193) 2,671
Other comprehensive loss — — — — — — (13,556) — — (13,556) — (13,556)
Dividends on common stock ($0.17 per share) — — — — — (2,059) — — — (2,059) — (2,059)
Stock-based compensation — — — — 674 — — — — 674 — 674
Stock-based compensation related to equity method investment — — — — 104 — — — — 104 — 104
Common stock options exercised — — 56,174 56 669 — — — — 725 — 725
Balance at March 31, 2022 — $ — 12,991,140 $ 12,991 $ 144,968 $ 139,024 $ (17,162) 848,016 $ (16,741) $ 263,080 $ 782 $ 263,862
Balance at December 31, 2020 733 $ 7,334 12,374,322 $ 12,374 $ 129,119 $ 105,171 $ 2,226 848,016 $ (16,741) $ 239,483 $ — $ 239,483
Net income (loss) — — — — — 8,085 — — — 8,085 (27) 8,058
Other comprehensive loss — — — — — — (4,118) — — (4,118) — (4,118)
Dividends on common stock (0.10 per share) — — — — — (1,153) — — — (1,153) — (1,153)
Dividends on preferred stock — — — — — (35) — — — (35) — (35)
Stock-based compensation — — — — 592 — — — — 592 — 592
Redemption of preferred stock (733) (7,334) — — — — — — — (7,334) — (7,334)
Common stock options exercised — — 52,584 53 637 — — — — 690 — 690
Restricted stock units issued — — 11,155 11 (11) — — — — — — —
Noncontrolling interests due to acquisition — — — — — — — — — — 500 500
Balance at March 31, 2021 — $ — 12,438,061 $ 12,438 $ 130,337 $ 112,068 $ (1,892) 848,016 $ (16,741) $ 236,210 $ 473 $ 236,683


	Preferred stock			Common stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock			Total stockholders' equity attributable to parent				Noncontrolling interest		Total stockholders' equity
	Shares	Amount		Shares	Amount								Shares	Amount
Balance at December 31, 2021	—	$	—	12,934,966	$	12,935	$	143,521	$	138,219	$	(3,606)	848,016	$	(16,741)	$	274,328			$	975	$	275,303

Net income (loss)	—	—		—	—		—		2,864		—		—	—		2,864				(193)		2,671
Other comprehensive loss	—	—		—	—		—		—		(13,556)		—	—		(13,556)				—		(13,556)
Dividends on common stock ($0.17 per share)	—	—		—	—		—		(2,059)		—		—	—		(2,059)				—		(2,059)

Stock-based compensation	—	—		—	—		674		—		—		—	—		674				—		674

Stock-based compensation related to equity method investment	—	—		—	—		104		—		—		—	—		104				—		104
Common stock options exercised	—	—		56,174	56		669		—		—		—	—		725				—		725




Balance at March 31, 2022	—	$	—	12,991,140	$	12,991	$	144,968	$	139,024	$	(17,162)	848,016	$	(16,741)	$	263,080			$	782	$	263,862















Net income (loss)	—	—		—	—		—		2,956		—		—	—		2,956				(165)		2,791
Other comprehensive loss	—	—		—	—		—		—		(12,258)		—	—		(12,258)				—		(12,258)
Dividends on common stock ($0.17 per share)	—	—		—	—		—		(2,076)		—		—	—		(2,076)				—		(2,076)

Stock-based compensation	—	—		—	—		757		—		—		—	—		757				—		757
Stock-based compensation related to equity method investment	—	—		—	—		173		—		—		—	—		173				—		173

Common stock options exercised	—	—		30,200	30		362		—		—		—	—		392				—		392
Restricted stock units vested	—	—		73,300	73		(73)		—		—		—	—		—				—		—
Minimum tax withholding on restricted stock units issued	—	—		(17,596)	(17)		(674)		—		—		—	—		(691)				—		(691)

Stock purchase from noncontrolling interest	—	—		—	—		(33)		—		—		—	—		(33)						(40)



Balance at June 30, 2022	—	$	—	13,077,044	$	13,077	$	145,480	$	139,904	$	(29,420)	848,016	$	(16,741)	$	252,300	$	—	$	610	$	252,910


	Preferred stock			Common stock			Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock			Total stockholders' equity attributable to parent		Noncontrolling interest		Total stockholders' equity
	Shares	Amount		Shares	Amount								Shares	Amount
Balance at December 31, 2020	733	$	7,334	12,374,322	$	12,374	$	129,119	$	105,171	$	2,226	848,016	$	(16,741)	$	239,483	$	—	$	239,483

Net income (loss)	—	—		—	—		—		8,085		—		—	—		8,085		(27)		8,058
Other comprehensive loss	—	—		—	—		—		—		(4,118)		—	—		(4,118)		—		(4,118)
Dividends on common stock (0.10 per share)	—	—		—	—		—		(1,153)		—		—	—		(1,153)		—		(1,153)
Dividends on preferred stock	—	—		—	—		—		(35)		—		—	—		(35)		—		(35)
Stock-based compensation	—	—		—	—		592		—		—		—	—		592		—		592
Redemption of preferred stock	(733)	(7,334)		—	—		—		—		—		—	—		(7,334)		—		(7,334)
Common stock options exercised	—	—		52,584	53		637		—		—		—	—		690		—		690
Restricted stock units issued	—	—		11,155	11		(11)		—		—		—	—		—		—		—
Noncontrolling interests due to acquisition	—	—		—	—		—		—		—		—	—		—		500		500


Balance at March 31, 2021	—	$	—	12,438,061	$	12,438	$	130,337	$	112,068	$	(1,892)	848,016	$	(16,741)	$	236,210	$	473	$	236,683

Net income (loss)	—	—		—	—		—		9,247		—		—	—		9,247		(84)		9,163
Other comprehensive income	—	—		—	—		—		—		1,891		—	—		1,891		—		1,891
Dividends on common stock (0.12 per share)	—	—		—	—		—		(1,405)		—		—	—		(1,405)		—		(1,405)

Stock-based compensation	—	—		—	—		692		—		—		—	—		692		—		692
Common stock options exercised	—	—		108,511	108		1,499		—		—		—	—		1,607		—		1,607
Restricted stock units issued	—	—		57,906	58		(58)		—		—		—	—		—		—		—
Minimum tax withholding on restricted stock units issued	—	—		—	—		(231)		—		—		—	—		(231)		—		(231)
Noncontrolling interests due to acquisition	—	—		—	—		—		—		—		—	—		—		400		400
Common stock issued related to Trabian acquisition	—	—		17,597	18		582		—		—		—	—		600		—		600


Balance at June 30, 2021	—	$	—	12,622,075	$	12,622	$	132,821	$	119,910	$	(1)	848,016	$	(16,741)	$	248,611	$	789	$	249,400

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


		Three Months Ended March 31,					Six Months Ended June 30,
		2022		2021			2022		2021
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income before noncontrolling interest	Net income before noncontrolling interest	$	2,671	$	8,058	Net income before noncontrolling interest	$	5,462	$	17,221
Adjustments to reconcile net income to net cash from operating activities:	Adjustments to reconcile net income to net cash from operating activities:					Adjustments to reconcile net income to net cash from operating activities:
Net amortization and accretion of investments	Net amortization and accretion of investments	646		898		Net amortization and accretion of investments	1,320		1,909
Net amortization of deferred loan costs	Net amortization of deferred loan costs	604		669		Net amortization of deferred loan costs	1,269		1,322
Provision for loan losses		1,280		618
Provision (release of allowance) for loan losses						Provision (release of allowance) for loan losses	6,380		(922)
Depreciation and amortization	Depreciation and amortization	851		1,003		Depreciation and amortization	1,780		2,018
Stock-based compensation	Stock-based compensation	674		592		Stock-based compensation	1,431		1,284
Stock-based compensation related to equity method investment	Stock-based compensation related to equity method investment	104		—		Stock-based compensation related to equity method investment	277		—
Loans originated for sale	Loans originated for sale	(16,452)		—		Loans originated for sale	(28,308)		(21,867)
Proceeds of loans sold	Proceeds of loans sold	10,804		1,062		Proceeds of loans sold	45,361		13,693
Holding gain (loss) on equity securities		59		(515)
Holding (gain) loss on equity securities						Holding (gain) loss on equity securities	85		(1,214)

Gain on sale of available-for-sale securities, net	Gain on sale of available-for-sale securities, net	(650)		(1,143)		Gain on sale of available-for-sale securities, net	(650)		(2,851)

Gain on sale of equity securities, net						Gain on sale of equity securities, net	(100)		(5)

Gain on sale of loans	Gain on sale of loans	(1,083)		—		Gain on sale of loans	(2,488)		(2,217)

Gain on sale of other real estate owned	Gain on sale of other real estate owned	(21)		—		Gain on sale of other real estate owned	(2)		—
Income on bank-owned life insurance	Income on bank-owned life insurance	(243)		(249)		Income on bank-owned life insurance	(487)		(500)
Deferred income taxes	Deferred income taxes	9		(1,036)		Deferred income taxes	12		(1,718)
Equity method investment income	Equity method investment income	(1,138)		(6,469)		Equity method investment income	(1,687)		(10,997)
Equity method investment gain	Equity method investment gain	(1,803)		—		Equity method investment gain	(1,874)		—
Return on equity method investment	Return on equity method investment	7,286		13,080		Return on equity method investment	3,775		22,720
Other assets	Other assets	(41,605)		10,768		Other assets	(19,913)		5,321
Other liabilities	Other liabilities	(19,332)		(17,120)		Other liabilities	(22,188)		(18,402)
Net cash from operating activities	Net cash from operating activities	(57,339)		10,216		Net cash from operating activities	(10,545)		4,795
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of available-for-sale investment securities	Purchases of available-for-sale investment securities	(62,635)		(74,714)		Purchases of available-for-sale investment securities	(67,867)		(144,633)
Maturities/paydowns of available-for-sale investment securities	Maturities/paydowns of available-for-sale investment securities	9,533		13,674		Maturities/paydowns of available-for-sale investment securities	14,874		24,236
Sales of available-for-sale investment securities	Sales of available-for-sale investment securities	60,635		41,037		Sales of available-for-sale investment securities	60,635		75,316
Purchases of premises and equipment	Purchases of premises and equipment	(1,227)		(1,436)		Purchases of premises and equipment	(2,109)		(2,457)

Net increase in loans	Net increase in loans	(31,787)		(241,558)		Net increase in loans	(374,878)		(288,169)
Purchases of restricted bank stock	Purchases of restricted bank stock	—		(295)		Purchases of restricted bank stock	(2,962)		(1,044)
Redemptions of restricted bank stock	Redemptions of restricted bank stock	68		—		Redemptions of restricted bank stock	2,325		—
Proceeds from maturities of certificates of deposit with banks	Proceeds from maturities of certificates of deposit with banks	490		—		Proceeds from maturities of certificates of deposit with banks	2,223		—

Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	245		—		Proceeds from sale of other real estate owned	1,004		267
Purchase of bank-owned life insurance		—		(1)

Purchase of equity securities	Purchase of equity securities	(2,304)		(100)		Purchase of equity securities	(2,859)		(3,222)
Sales of equity securities						Sales of equity securities	1,100		61

Cash paid for acquisitions, net of cash acquired						Cash paid for acquisitions, net of cash acquired	—		(772)
Net cash from investing activities						Net cash from investing activities	(368,514)		(340,417)
FINANCING ACTIVITIES						FINANCING ACTIVITIES
Net increase in deposits						Net increase in deposits	237,365		412,486
Net change in repurchase agreements						Net change in repurchase agreements	(233)		1,095
Net change in FHLB and other borrowings						Net change in FHLB and other borrowings	—		100

Net cash from investing activities		(26,982)		(263,393)
FINANCING ACTIVITIES
Net increase in deposits		131,474		234,164
Net increase in repurchase agreements		716		347
Net change in FHLB and other borrowings		—		102,185

Payment of subordinated debt issuance costs		—		36

Preferred stock redemption	Preferred stock redemption	—		(7,334)		Preferred stock redemption	—		(7,334)

Common stock options exercised	Common stock options exercised	725		690		Common stock options exercised	1,117		2,297

Withholding cash issued in lieu of restricted stock						Withholding cash issued in lieu of restricted stock	(691)		(231)
Cash dividends paid on common stock	Cash dividends paid on common stock	(2,059)		(1,153)		Cash dividends paid on common stock	(4,135)		(2,558)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	—		(35)		Cash dividends paid on preferred stock	—		(35)

Stock purchase from noncontrolling interest	Stock purchase from noncontrolling interest	—		—		Stock purchase from noncontrolling interest	(40)		—
Net cash from financing activities	Net cash from financing activities	130,856		328,900		Net cash from financing activities	233,383		405,820
Increase in cash and cash equivalents		46,535		75,723
Net change in cash and cash equivalents						Net change in cash and cash equivalents	(145,676)		70,198
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	307,437		263,893		Cash and cash equivalents, beginning of period	307,437		263,893
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	353,972	$	339,616	Cash and cash equivalents, end of period	$	161,761	$	334,091

910


Cash payments for:	Cash payments for:					Cash payments for:
Interest on deposits, repurchase agreements and borrowings	Interest on deposits, repurchase agreements and borrowings	$	865	$	1,261	Interest on deposits, repurchase agreements and borrowings	$	3,450	$	3,389
Income taxes	Income taxes	119		—		Income taxes	316		7,942

Business combination non-cash disclosures:						Business combination non-cash disclosures:
Assets acquired in business combination, net of cash acquired						Assets acquired in business combination, net of cash acquired	$	—	$	739
Liabilities assumed in business combination						Liabilities assumed in business combination	—		605

Supplemental disclosure of cash flow information:						Supplemental disclosure of cash flow information:
Fair value of noncontrolling interests at acquisition date						Fair value of noncontrolling interests at acquisition date	$	—	$	900
Loans transferred to other real estate owned						Loans transferred to other real estate owned	—		116
Change in unrealized holding losses on securities available-for-sale						Change in unrealized holding losses on securities available-for-sale	36,355		5,625
Restricted stock units vested						Restricted stock units vested	73		69
Employee stock-based compensation tax withholding obligations						Employee stock-based compensation tax withholding obligations	(17)		—
Common stock issued related to acquisitions						Common stock issued related to acquisitions	—		600

Supplemental disclosure of cash flow information:
Fair value of noncontrolling interests at acquisition date		$	—	$	500

See accompanying notes to unaudited consolidated financial statements.

1011

Notes to the Consolidated Financial Statements

Note 1 – Nature of Operations and Basis of Presentation

Business and Organization

MVB Financial Corp. is a financial holding company organized as a West Virginia corporation in 2003 that operates principally through its wholly-owned subsidiary, MVB Bank, Inc. The Bank’s subsidiaries include MVB Insurance, LLC, (“MVB Insurance”), MVB Community Development Corporation (“MVB CDC”), ProCo Global, Inc. (“Chartwell”, which began doing business under the registered trade name Chartwell Compliance), Paladin Fraud, LLC (“Paladin Fraud”) and MVB Edge Ventures, Inc. (“Edge Ventures”). The Bank owns a controlling interest in Trabian Technology, Inc. (“Trabian”), and Edge Ventures wholly-owns Victor Technologies Inc. ("Victor"), as well as controlling interests in MVB Technology, LLC ("MVB Technology") and Flexia Payments, LLC (“Flexia”). The Bank also owns equity method investments in Intercoastal Mortgage Company, LLC (“ICM”) and Interchecks Technologies, Inc. ("Interchecks"), and MVB Financial Corp. owns an equity method investment in Ayers Socure II, LLC ("Ayers Socure II").

Edge Ventures serves as a management company providing oversight, alignment and structure for MVB’s Fintech companies and allocates resources to help incubate venture businesses and technologies acquired and developed by MVB. ~~Subsidiaries of Edge Ventures~~

Through our professional services entities, which include ~~MVB Technology, Victor~~Chartwell, Paladin Fraud and ~~Flexia.~~Trabian, we provide compliance and consulting solutions to assist Fintech and corporate clients in building digital products and meeting their regulatory compliance and fraud defense needs.

We conduct a wide range of business activities through the Bank, primarily commercial and retail (“CoRe”) banking services, as well as Fintech banking.

CoRe Banking

We offer our customers a full range of products and services including:


l			Various demand deposit accounts, savings accounts, money market accounts and certificates of deposit;
l			Commercial, consumer and real estate mortgage loans and lines of credit;
l			Debit cards;
l			Cashier’s checks;
l			Safe deposit rental facilities; and
l			Non-deposit investment services offered through an association with a broker-dealer.

Fintech Banking

We provide innovative strategies to independent banking and corporate clients throughout the United States. Our dedicated Fintech sales team specializes in providing banking services to corporate Fintech clients, with a primary focus on operational risk management and compliance. Managing banking relationships with clients in the payments, digital savings, cryptocurrency, crowd funding, lottery and gaming industries is complex, from both an operational and regulatory perspective. We believe that the complexity of serving these industries causes them to be underserved with quality banking services and provides us with a significantly expanded pool of potential customers. When serviced in a safe and efficient manner, we believe these industries offer an excellent source of stable, low cost deposits and noninterest, fee-based income. We analyze each industry thoroughly, both from an operational and regulatory viewpoint.

Principles of Consolidation and Basis of Presentation

The financial statements are consolidated to include the accounts of MVB and its subsidiaries, including the Bank and the Bank’s subsidiaries. In our opinion, the accompanying consolidated financial statements contain all normal recurring adjustments necessary for a fair presentation of our financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with instructions for Form 10-Q and Article 10 of Regulation S-X of the SEC. All significant intercompany accounts and transactions have been eliminated in consolidated financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. The consolidated balance sheet as of December 31, 2021 has been derived from audited financial

statements included in the 2021 Form 10-K. The information presented in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in the 2021 Form 10-K. Operating results for the three and six months ended ~~March 31,~~June 30, 2022 are not necessarily indicative of the results that may be expected for the year

ending December 31, 2022.

Wholly-owned investments or investments in which we have a controlling financial interest, whether majority owned or in certain circumstances a minority interest, are required to be consolidated into our financial statements. We evaluate investments in entities on an ongoing basis to determine the need to consolidate.

The Bank owns a ~~majority~~controlling interests in Flexia, Trabian and MVB Technology. We own an 80.0% interest in ~~each of~~ Flexia, ~~and~~an 80.8% interest in Trabian and a 93.4% interest in MVB Technology. Accordingly, we are required to consolidate 100% of each entity within the consolidated financial statements. The remaining ~~20.0%~~interests of ~~Flexia and Trabian and 6.6% of MVB Technology~~these entities are accounted for separately as noncontrolling interests within our consolidated financial statements. Noncontrolling interest represents the portion of ownership and profit or loss that is attributable to the minority owners of these entities.

Unconsolidated investments where we have the ability to exercise significant influence over the operating and financial policies of the respective investee are accounted for using the equity method of accounting. Those investments that are not consolidated or accounted for using the equity method of accounting are accounted for under cost or fair value accounting. For investments accounted for under the equity method, we record our investment in non-consolidated affiliates and the portion of income or loss in equity in earnings of non-consolidated affiliates. We periodically evaluate these investments for impairment. As of ~~March 31,~~June 30, 2022, we hold 3 equity method investments.

Preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates are based upon the best available information and actual results could differ from those estimates. An estimate that is particularly significant to the consolidated financial statements relates to the determination of the allowance for loan losses (“ALL”).

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.

We have evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.

COVID-19 Pandemic

Since 2020 and continuing ~~into~~in 2022, economies throughout the world have been severely disrupted as a result of the outbreak of COVID-19. The outbreak and any preventative or protective actions that we or our clients may take related to this virus may result in a period of disruption, including our financial reporting capabilities, our operations generally and could potentially impact our clients, providers and third parties. While significant progress has been made to combat the outbreak of COVID-19, the extent to which the COVID-19 pandemic will continue to impact our future operating results will depend on future developments, including resurgences, such as the recent acceleration of the spread of variants and related sub-variants of COVID-19, which are highly uncertain and cannot be predicted.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance in November 2018, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, in May 2019, ASU 2019-05, Financial Instruments – Credit Losses, Topic 326 and in November 2019, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, all of which clarifies codification and corrects unintended application of the guidance. The new guidance replaces the incurred loss impairment methodology in current U.S. GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired ("PCI") loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below

amortized cost. The guidance was initially effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. On November 15, 2019, the FASB issued ASU 2019-10, Financial Investments – Credit Issues (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which finalizes a delay in the effective date of the

standard for smaller reporting companies (“SRCs”). Effective as of the first quarter of 2022, we no longer qualified as an SRC. However, because we met the criteria to be an SRC as of the issuance date of this guidance, we are eligible for the delay in effective date and plan to adopt this standard for fiscal years ending after December 15, 2022. We currently expect to recognize a one-time cumulative effect adjustment to the ALL as of January 1, 2023, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional implementation team. This cross-functional team is currently in the process of testing the model and completing the implementation plan, which will include assessment and documentation of processes, internal controls and data sources; model testing and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of this standard. The adoption of this standard could result in an increase in the ALL as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts as of the adoption date.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for certain contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform. The guidance is effective from the date of issuance until December 31, 2022. The guidance permits entities to not apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. In January 2021, ASU 2021-01 was issued by the FASB and clarifies that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting transition. We will continue to assess the impact as the reference rate transition occurs over the next year.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments eliminate the accounting guidance for troubled debt restructurings ("TDRs") in subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 of the codification to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments also include provisions for disclosure of current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. Gross writeoff information must be included in the vintage disclosures required for public business entities which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing ~~receivable~~receivables by year of origination. This amendment is effective concurrently with the amendments in ASU 2016-13 which is currently effective for fiscal years beginning after December 15, 2022. These amendments primarily impact disclosure requirements and we do not believe itthey will have a material impact on our consolidated financial statements.

In March 2022, the SEC released Staff Accounting Bulletin No. 121 ("SAB 121"), which updates the SEC's position regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users. When a reporting entity holds crypto-assets for platform users and maintains the cryptographic key information necessary to access the crypto-asset, the reporting entity should present a liability on its balance sheet to reflect its obligation to safeguard the crypto-assets held for platform users. The liability represents the loss exposure due to the risks associated with safeguarding crypto-assets. The entity should also record an asset at the same time that recognizes the fair value of the crypto-assets held for its platform users. SAB 121 is effective no later than the first interim or annual period ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year to which the interim or annual period relates. We do not currently expect this update to impact our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account and require additional disclosures related to equity securities with contractual sale restrictions. The amendment is

effective for fiscal years beginning after December 15, 2023. We do not currently expect these amendments to have a material impact our consolidated financial statements.

Note 2 – Investment Securities

The following tables present amortized cost and fair values of investment securities available-for-sale as of the periods ~~indicated:~~shown:


		March 31, 2022									June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
United States government agency securities	United States government agency securities	$	54,992	$	42	$	(2,583)	$	52,451	United States government agency securities	$	53,885	$	58	$	(4,232)	$	49,711
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	74,393		1		(5,913)		68,481		United States sponsored mortgage-backed securities	72,074		—		(9,006)		63,068
United States treasury securities	United States treasury securities	112,049		—		(6,207)		105,842		United States treasury securities	111,963		—		(7,683)		104,280
Municipal securities	Municipal securities	154,673		1,756		(5,086)		151,343		Municipal securities	158,703		5,337		(19,516)		144,524
Corporate debt securities	Corporate debt securities	8,801		16		(1)		8,816		Corporate debt securities	6,794		7		(2)		6,799
Other debt securities	Other debt securities	7,500		—		—		7,500		Other debt securities	7,500		—		—		7,500
Total debt securities	Total debt securities	412,408		1,815		(19,790)		394,433		Total debt securities	410,919		5,402		(40,439)		375,882
Other securities	Other securities	868		—		—		868		Other securities	855		—		—		855
Total investment securities available-for-sale	Total investment securities available-for-sale	$	413,276	$	1,815	$	(19,790)	$	395,301	Total investment securities available-for-sale	$	411,774	$	5,402	$	(40,439)	$	376,737


	December 31, 2021
(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
United States government agency securities	$	41,105	$	228	$	(896)	$	40,437
United States sponsored mortgage-backed securities	77,519		222		(1,633)		76,108
United States treasury securities	112,133		—		(1,744)		110,389
Municipal securities	171,044		4,334		(366)		175,012
Corporate debt securities	11,093		49		—		11,142
Other debt securities	7,500		—		—		7,500
Total debt securities	420,394		4,833		(4,639)		420,588
Other securities	878		—		—		878
Total investment securities available-for-sale	$	421,272	$	4,833	$	(4,639)	$	421,466

The following table presents amortized cost and fair values of available-for-sale debt securities by contractual maturity as of the period ~~indicated:~~shown:


		March 31, 2022					June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value		(Dollars in thousands)	Amortized Cost		Fair Value
Within one year	Within one year	$	1,002	$	1,005	Within one year	$	5	$	5
After one year, but within five years	After one year, but within five years	123,837		117,572		After one year, but within five years	124,228		116,460
After five years, but within ten years	After five years, but within ten years	32,690		31,219		After five years, but within ten years	34,270		31,690
After ten years	After ten years	254,879		244,637		After ten years	252,416		227,727
Total	Total	$	412,408	$	394,433	Total	$	410,919	$	375,882

The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may be repaid sooner than scheduled.

Investment securities with a carrying value of ~~$245.4~~$159.4 million and $244.6 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve Discount Window.

Our investment portfolio includes securities that are in an unrealized loss position as of ~~March 31,~~June 30, 2022, the details of which are included in the following table. Although these securities would result in a pretax loss of~~$19.8~~ $40.4 million if sold at ~~March 31,~~June 30, 2022, we currently have no intention of selling the applicable securities at such fair values, and believe that we have the ability to hold these securities until all principal has been recovered. It is more likely than not that we will not, for liquidity purposes, sell any securities at a loss. Declines in the fair value of these securities can be traced to general market conditions, which reflect the

prospect for the economy as a whole. When determining other-than-temporary impairment on securities, we consider such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time

frame securities have been in an unrealized loss position, our ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency and whether or not the financial condition of the security issuer has severely deteriorated. As of ~~March 31,~~June 30, 2022, we consider all securities with unrealized loss positions to be temporarily impaired. As a result, we do not believe we will sustain any material realized losses as a result of the current decline in fair value.

The following tables disclose the length of time that investments have remained in an unrealized loss position at ~~March 31,~~June 30, 2022 and December 31, 2021:


		March 31, 2022									June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Less than 12 months				12 months or more				(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (33)		$	13,511	$	(648)	$	19,897	$	(1,935)
United States sponsored mortgage-backed securities (50)		29,379		(1,930)		38,704		(3,983)
United States government agency securities (31)										United States government agency securities (31)	$	27,421	$	(1,585)	$	17,376	$	(2,647)
United States sponsored mortgage-backed securities (51)										United States sponsored mortgage-backed securities (51)	21,091		(2,402)		41,978		(6,604)
United States treasury securities (24)	United States treasury securities (24)	105,841		(6,207)		—		—		United States treasury securities (24)	104,280		(7,683)		—		—
Municipal securities (98)		59,393		(4,402)		7,518		(684)
Municipal securities (150)										Municipal securities (150)	90,708		(18,121)		8,120		(1,395)
Corporate debt securities ~~(4)~~(3)	Corporate debt securities ~~(4)~~(3)	—		(1)		—		—		Corporate debt securities ~~(4)~~(3)	1,498		(2)		—		—

		$	208,124	$	(13,188)	$	66,119	$	(6,602)
Total										Total	$	244,998	$	(29,793)	$	67,474	$	(10,646)


		December 31, 2021									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Less than 12 months				12 months or more				(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (21)	United States government agency securities (21)	$	5,101	$	(77)	$	21,770	$	(819)	United States government agency securities (21)	$	5,101	$	(77)	$	21,770	$	(819)
United States sponsored mortgage-backed securities (30)	United States sponsored mortgage-backed securities (30)	55,354		(1,346)		7,845		(287)		United States sponsored mortgage-backed securities (30)	55,354		(1,346)		7,845		(287)
United States treasury securities (24)	United States treasury securities (24)	110,389		(1,744)		—		—		United States treasury securities (24)	110,389		(1,744)		—		—
Municipal securities (53)	Municipal securities (53)	32,221		(270)		7,001		(96)		Municipal securities (53)	32,221		(270)		7,001		(96)

		$	203,065	$	(3,437)	$	36,616	$	(1,202)
Total										Total	$	203,065	$	(3,437)	$	36,616	$	(1,202)

The following table summarizes investment sales, related gains and losses and unrealized holding gains for the periods shown:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021			(Dollars in thousands)	2022		2021		2022		2021
Sales of available-for-sale securities		$	60,635	$	41,037
Proceeds from sales of available-for-sale securities							Proceeds from sales of available-for-sale securities	$	—	$	34,279	$	60,635	$	75,316
Gains, gross	Gains, gross	717		1,156			Gains, gross	—		1,708		717		2,864
Losses, gross	Losses, gross	67		13			Losses, gross	—		—		67		13

Proceeds from sales of equity securities							Proceeds from sales of equity securities	$	1,100	$	61	$	1,100	$	61
Gain, gross							Gain, gross	100		5		100		5
Losses, gross							Losses, gross	—		—		—		—

Unrealized holding gains (losses) on equity securities	Unrealized holding gains (losses) on equity securities	(59)		515			Unrealized holding gains (losses) on equity securities	(26)		699		(85)		1,214

1516

Note 3 – Loans and Allowance for Loan Losses

The following table presents the components of loans as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2022		December 31, 2021
Commercial:	Commercial:					Commercial:
Business	Business	785,307		818,986		Business	830,180		818,986
Real estate	Real estate	599,262		561,718		Real estate	697,636		561,718
Acquisition, development and construction	Acquisition, development and construction	96,838		99,823		Acquisition, development and construction	112,256		99,823
Total commercial	Total commercial	$	1,481,407	$	1,480,527	Total commercial	$	1,640,072	$	1,480,527
Residential real estate	Residential real estate	313,563		306,140		Residential real estate	440,561		306,140
Home equity	Home equity	21,424		22,186		Home equity	20,190		22,186
Consumer	Consumer	65,631		43,919		Consumer	107,885		43,919
Total loans, excluding PCI	Total loans, excluding PCI	1,882,025		1,852,772		Total loans, excluding PCI	2,208,708		1,852,772
Purchased credit impaired loans:	Purchased credit impaired loans:					Purchased credit impaired loans:
Commercial:	Commercial:					Commercial:
Business	Business	2,381		2,629		Business	3,180		2,629
Real estate	Real estate	9,140		11,018		Real estate	—		11,018
Acquisition, development and construction	Acquisition, development and construction	246		257		Acquisition, development and construction	—		257
Total commercial	Total commercial	$	11,767	$	13,904	Total commercial	$	3,180	$	13,904
Residential real estate	Residential real estate	3,782		4,358		Residential real estate	2,602		4,358

Consumer	Consumer	398		413		Consumer	—		413
Total purchased credit impaired loans	Total purchased credit impaired loans	15,947		18,675		Total purchased credit impaired loans	5,782		18,675
Total Loans	Total Loans	$	1,897,972	$	1,871,447	Total Loans	$	2,214,490	$	1,871,447
Deferred loan origination costs and (fees), net	Deferred loan origination costs and (fees), net	(119)		(1,609)		Deferred loan origination costs and (fees), net	624		(1,609)
Loans receivable	Loans receivable	$	1,897,853	$	1,869,838	Loans receivable	$	2,215,114	$	1,869,838

We currently manage our loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments, which are levels at which we develop and document our systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows:

Commercial business loans – Commercial business loans are made to provide funds for equipment and general corporate needs, as well as to finance owner-occupied real estate, and to finance future cash flows of Federal government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial business loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both internally originated and purchased participation loans. Credit risk arises from the successful operation of the business, which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both internally originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies, which can adversely impact cash flow.

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

1617

Commercial Small Business Administration (“SBA”) loans – Loans originated through the various SBA programs have become an area of lending focus for the Bank. As of ~~March 31,~~June 30, 2022, these loans have not yet been designated as a unique portfolio segment due to the relative insignificance from a loan volume perspective. These loans are currently included within the loan types noted above, based on the purpose of each loan originated. However, it is anticipated that this portfolio will continue to expand through a dedicated SBA lending focus, which we continue to monitor. When appropriate, the portfolio segments will be adjusted to segregate the SBA loan portfolio segment from the other commercial loan portfolio segments.

Commercial SBA Paycheck Protection Program (“PPP”) loans –This segment includes the loan originated through the SBA PPP loan program. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds. These loans are currently included within the commercial business loan type above.

Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios and collateral values. Credit risk arises from the borrower’s, and where applicable, the builder’s, continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. This segment ~~also~~primarily includes loans purchased from a third-party originator ~~which it~~that originates loans in order to finance the purchase of personal automotive ~~vehicles.~~vehicles for sub-prime borrowers. Credit risk is unique in comparison to the Consumer segment as this segment includes only those loans provided to consumers that cannot typically obtain financing through traditional lenders. As such, these loans are subject to a higher risk of default than the typical consumer loan.

1718

The following table presents impaired loans by class, excluding PCI loans, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods ~~indicated:~~shown:


		Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans					Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(Dollars in thousands)	(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2022
June 30, 2022												June 30, 2022
Commercial	Commercial											Commercial
Business	Business	$	2,356	$	218	$	8,729	$	11,085	$	12,944	Business	$	3,197	$	1,076	$	8,756	$	11,953	$	13,882
Real estate	Real estate	661		224		535		1,196		1,315		Real estate	654		223		528		1,182		1,303
Acquisition, development and construction	Acquisition, development and construction	—		—		1,139		1,139		2,554		Acquisition, development and construction	—		—		1,069		1,069		2,484

Total commercial	Total commercial	3,017		442		10,403		13,420		16,813		Total commercial	3,851		1,299		10,353		14,204		17,669
Residential	Residential	1,212		84		7,152		8,364		8,376		Residential	1,212		84		7,195		8,407		8,419
Home equity	Home equity	—		—		230		230		235		Home equity	—		—		198		198		203
Consumer	Consumer	473		111		39		512		512		Consumer	829		212		2		831		831
Total impaired loans	Total impaired loans	$	4,702	$	637	$	17,824	$	22,526	$	25,936	Total impaired loans	$	5,892	$	1,595	$	17,748	$	23,640	$	27,122

December 31, 2021	December 31, 2021											December 31, 2021
Commercial	Commercial											Commercial
Business	Business	$	2,401	$	232	$	8,796	$	11,197	$	13,010	Business	$	2,401	$	232	$	8,796	$	11,197	$	13,010
Real estate	Real estate	668		243		543		1,211		1,329		Real estate	668		243		543		1,211		1,329
Acquisition, development and construction	Acquisition, development and construction	—		—		1,392		1,392		2,807		Acquisition, development and construction	—		—		1,392		1,392		2,807

Total commercial	Total commercial	3,069		475		10,731		13,800		17,146		Total commercial	3,069		475		10,731		13,800		17,146
Residential	Residential	—		—		8,179		8,179		8,219		Residential	—		—		8,179		8,179		8,219
Home equity	Home equity	—		—		217		217		221		Home equity	—		—		217		217		221
Consumer	Consumer	—		—		259		259		259		Consumer	—		—		259		259		259
Total impaired loans	Total impaired loans	$	3,069	$	475	$	19,386	$	22,455	$	25,845	Total impaired loans	$	3,069	$	475	$	19,386	$	22,455	$	25,845

The following table presents the average recorded investment in impaired loans, excluding PCI loans, and related interest income recognized for the periods ~~indicated:~~shown:


		Three Months Ended March 31,																Three Months Ended June 30,
		2022								2021								2022						2021
(Dollars in thousands)	(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis			Interest Income Recognized on Cash Basis			Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis			(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial	Commercial																Commercial
Business	Business	$	10,505	$	—		$	—		$	6,521	$	—	$	—		Business	$	11,015	$	—	$	—	$	6,361	$	—	$	—
Real estate	Real estate	1,728		16			18			2,278		11		10			Real estate	1,597		16		15		2,154		11		12
Acquisition, development and construction	Acquisition, development and construction	322		—			—			357		—		—			Acquisition, development and construction	306		—		—		347		—		—

Total commercial	Total commercial	12,555		16			18			9,156		11		10			Total commercial	12,918		16		15		8,862		11		12
Residential	Residential	8,370		5			5			1,944		3		4			Residential	8,374		5		4		7,282		3		3
Home equity	Home equity	190		—			—			69		—		—			Home equity	159		—		—		69		—		—
Consumer	Consumer	433		—			—			3		—		—			Consumer	754		—		—		3		—		—
Total	Total	$	21,548	$	21		$	23		$	11,172	$	14	$	14		Total	$	22,205	$	21	$	19	$	16,216	$	14	$	15

						Six Months Ended June 30,
									2022							2021
(Dollars in thousands)																	(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial																	Commercial
Business																	Business	$	10,741	$	—	$	—	$	6,641	$	—	$	—
Real estate																	Real estate	1,681		33		33		2,216		22		21
Acquisition, development and construction																	Acquisition, development and construction	314		—		—		352		—		—

Total commercial																	Total commercial	12,736		33		33		9,209		22		21
Residential																	Residential	8,372		10		9		4,613		8		7
Home equity																	Home equity	174		—		—		69		—		—
Consumer																	Consumer	593		—		—		3		—		—
Total																	Total	$	21,875	$	43	$	42	$	13,894	$	30	$	28

As of ~~March 31,~~June 30, 2022, the Bank’s other real estate owned balance totaled ~~$2.1~~$1.3 million, all of which ~~$1.5 million~~ was related to the acquisition of The First State Bank (“First State”) in 2020. The Bank held ~~$1.9~~$1.2 million, or ~~90.0%~~92.3%, of other real estate owned as a result of the foreclosure of 75 unrelated commercial loans. The remaining ~~$0.2~~$0.1 million, or ~~10.0%~~7.7%, consists of 43 foreclosed residential real estate properties. There are 1110 additional consumer mortgage loans collateralized by residential real estate

properties in the process of foreclosure, with a total recorded investment of ~~$2.1~~$1.9 million as of ~~March 31,~~June 30, 2022. These include five legacy Bank loans totaling $1.4 million and ~~six~~five loans acquired from First State totaling ~~$0.7~~$0.5 million. These loans are included in the table above and have 0 specific allowance allocated to them.

Bank management uses a 9-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first 6 categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions.

Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize

the liquidation of the debt and are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Loans categorized as “Doubtful” rated have all the weakness inherent in those classified ~~substandard~~Substandard with the added characteristic that the weakness makes collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

The ~~Special Mention~~"Special Mention" rated category includes assets that are currently protected but are potentially weak, resulting in undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the "Loss" category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories, unless a specific action, such as past due status, bankruptcy, repossession or death, occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Bank's Credit Department ensures that a review of all commercial relationships of $1.0 million or more is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan review process and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Bank's Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

1921

The following table represents the classes of the loan portfolio, excluding PCI loans, summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2022
June 30, 2022												June 30, 2022
Commercial	Commercial											Commercial
Business	Business	$	754,937	$	11,133	$	19,212	$	25	$	785,307	Business	$	803,435	$	6,912	$	19,568	$	265	$	830,180
Real estate	Real estate	558,252		11,965		28,972		73		599,262		Real estate	657,419		11,733		28,410		74		697,636
Acquisition, development and construction	Acquisition, development and construction	89,471		4,955		1,592		820		96,838		Acquisition, development and construction	105,452		4,595		1,428		781		112,256

Total commercial	Total commercial	1,402,660		28,053		49,776		918		1,481,407		Total commercial	1,566,306		23,240		49,406		1,120		1,640,072
Residential	Residential	302,094		794		8,701		1,974		313,563		Residential	430,273		784		7,532		1,972		440,561
Home equity	Home equity	20,817		392		189		26		21,424		Home equity	19,615		377		158		40		20,190
Consumer	Consumer	65,113		7		511		—		65,631		Consumer	107,054		—		831		—		107,885
Total loans	Total loans	$	1,790,684	$	29,246	$	59,177	$	2,918	$	1,882,025	Total loans	$	2,123,248	$	24,401	$	57,927	$	3,132	$	2,208,708

December 31, 2021	December 31, 2021											December 31, 2021
Commercial	Commercial											Commercial
Business	Business	$	789,413	$	11,964	$	17,581	$	28	$	818,986	Business	$	789,413	$	11,964	$	17,581	$	28	$	818,986
Real estate	Real estate	520,446		12,065		29,134		73		561,718		Real estate	520,446		12,065		29,134		73		561,718
Acquisition, development and construction	Acquisition, development and construction	89,768		4,960		4,031		1,064		99,823		Acquisition, development and construction	89,768		4,960		4,031		1,064		99,823

Total commercial	Total commercial	1,399,627		28,989		50,746		1,165		1,480,527		Total commercial	1,399,627		28,989		50,746		1,165		1,480,527
Residential	Residential	294,933		899		9,815		493		306,140		Residential	294,933		899		9,815		493		306,140
Home equity	Home equity	21,582		387		191		26		22,186		Home equity	21,582		387		191		26		22,186
Consumer	Consumer	43,645		15		259		—		43,919		Consumer	43,645		15		259		—		43,919
Total loans	Total loans	$	1,759,787	$	30,290	$	61,011	$	1,684	$	1,852,772	Total loans	$	1,759,787	$	30,290	$	61,011	$	1,684	$	1,852,772

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A complete review is presented to the Chief Credit Officer and/or the Special Asset Review Committee (“(��SARC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, becomes likely the borrower cannot or will not make scheduled principal or interest payments, full repayment of principal and interest is not expected or the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status unless we believe it is likely the accrued interest will be collected. Any payments subsequently received are applied to the principal. All principal and interest due must be paid up-to-date and the Bank is reasonably sure of future satisfactory payment performance to remove a loan from non-accrual status. Usually, this requires the receipt of six consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.

2022

The following table presents the classes of the loan portfolio, excluding PCI loans, summarized by aging categories of performing loans and non-accrual loans as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing		(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing
March 31, 2022
June 30, 2022																		June 30, 2022
Commercial	Commercial																	Commercial
Business	Business	$	781,516	$	618	$	21	$	3,152	$	3,791	$	785,307	$	7,873	$	—	Business	$	826,892	$	54	$	90	$	3,144	$	3,288	$	830,180	$	9,023	$	—
Real estate	Real estate	599,064		—		125		73		198		599,262		224		—		Real estate	695,209		—		2,295		132		2,427		697,636		185		—
Acquisition, development and construction	Acquisition, development and construction	95,770		—		—		1,068		1,068		96,838		1,383		—		Acquisition, development and construction	112,012		—		—		244		244		112,256		1,069		—

Total commercial	Total commercial	1,476,350		618		146		4,293		5,057		1,481,407		9,480		—		Total commercial	1,634,113		54		2,385		3,520		5,959		1,640,072		10,277		—
Residential	Residential	310,257		1,822		—		1,484		3,306		313,563		7,826		—		Residential	437,796		144		914		1,707		2,765		440,561		7,989		—
Home equity	Home equity	21,212		102		—		110		212		21,424		230		—		Home equity	20,039		86		—		65		151		20,190		198		—
Consumer	Consumer	63,502		2,129		—		—		2,129		65,631		512		—		Consumer	101,085		4,698		1,271		831		6,800		107,885		831		—
Total loans	Total loans	$	1,871,321	$	4,671	$	146	$	5,887	$	10,704	$	1,882,025	$	18,048	$	—	Total loans	$	2,193,033	$	4,982	$	4,570	$	6,123	$	15,675	$	2,208,708	$	19,295	$	—

December 31, 2021	December 31, 2021																	December 31, 2021
Commercial	Commercial																	Commercial
Business	Business	$	815,766	$	1,718	$	11	$	1,491	$	3,220	$	818,986	$	8,261	$	—	Business	$	815,766	$	1,718	$	11	$	1,491	$	3,220	$	818,986	$	8,261	$	—
Real estate	Real estate	561,519		126		—		73		199		561,718		192		—		Real estate	561,519		126		—		73		199		561,718		192		—
Acquisition, development and construction	Acquisition, development and construction	98,524		67		412		820		1,299		99,823		1,392		—		Acquisition, development and construction	98,524		67		412		820		1,299		99,823		1,392		—

Total commercial	Total commercial	1,475,809		1,911		423		2,384		4,718		1,480,527		9,845		—		Total commercial	1,475,809		1,911		423		2,384		4,718		1,480,527		9,845		—
Residential	Residential	300,988		3,343		285		1,524		5,152		306,140		7,636		—		Residential	300,988		3,343		285		1,524		5,152		306,140		7,636		—
Home equity	Home equity	21,974		—		119		93		212		22,186		217		—		Home equity	21,974		—		119		93		212		22,186		217		—
Consumer	Consumer	41,991		1211		461		256		1928		43,919		259		—		Consumer	41,991		1211		461		256		1928		43,919		259		—
Total loans	Total loans	$	1,840,762	$	6,465	$	1,288	$	4,257	$	12,010	$	1,852,772	$	17,957	$	—	Total loans	$	1,840,762	$	6,465	$	1,288	$	4,257	$	12,010	$	1,852,772	$	17,957	$	—

An ALL is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Topic 310 - Receivables ("ASC 310") for loans individually evaluated for impairment and ASC Subtopic 450-20 - Contingencies for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the 2 components represents the Bank’s ALL. The Bank analyzes certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans and the reserve totaled~~$0.1~~ $0.1 million as of both ~~March 31,~~June 30, 2022 andDecember 31, 2021. These loans are included in total loans individually evaluated for impairment and in total impaired loans as these are individually identified as impaired prior to the collective application of allocation rates to calculate impairment.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by qualified factors.

The loan segments described above, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the ~~criticized~~Criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

2123

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, quality of the loan review system, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates.

To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit and revolving lines of credit and based its calculation on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole.

Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in a similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was $0.5 million.

Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The following table presents the primary segments of the ALL, excluding PCI loans, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods ~~indicated:~~shown:

Commercial Residential Home Equity Consumer Total
(Dollars in thousands) Business Real Estate Acquisition, development and construction Total Commercial
ALL balance at December 31, 2021 $ 8,027 $ 5,091 $ 982 $ 14,100 $ 948 $ 128 $ 2,427 $ 17,603
     Charge-offs — — — — — — (1,124) (1,124)
     Recoveries 1 7 — 8 — 2 375 385
     Provision (release) (1,159) 468 (247) (938) 179 1 2,088 1,330
ALL balance at March 31, 2022 $ 6,869 $ 5,566 $ 735 $ 13,170 $ 1,127 $ 131 $ 3,766 $ 18,194
Individually evaluated for impairment $ 218 $ 224 $ — $ 442 $ 84 $ — $ 111 $ 637
Collectively evaluated for impairment $ 6,651 $ 5,342 $ 735 $ 12,728 $ 1,043 $ 131 $ 3,655 $ 17,557


	Commercial								Residential		Home Equity		Consumer		Total
(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial
ALL balance at December 31, 2021	$	8,027	$	5,091	$	982	$	14,100	$	948	$	128	$	2,427	$	17,603
Charge-offs	—		—		—		—		—		—		(3,652)		(3,652)
Recoveries	10		62		—		72		—		4		1,664		1,740
Provision (release)	40		1,488		(15)		1,513		824		9		4,697		7,043

ALL balance at June 30, 2022	$	8,077	$	6,641	$	967	$	15,685	$	1,772	$	141	$	5,136	$	22,734
Individually evaluated for impairment	$	1,076	$	223	$	—	$	1,299	$	84	$	—	$	212	$	1,595
Collectively evaluated for impairment	$	7,001	$	6,418	$	967	$	14,386	$	1,688	$	141	$	4,924	$	21,139

(Dollars in thousands)
ALL balance at March 31, 2022	$	6,869	$	5,566	$	735	$	13,170	$	1,127	$	131	$	3,766	$	18,194
Charge-offs	—		—		—		—		—		—		(2,529)		(2,529)
Recoveries	9		55		—		64		—		2		1,289		1,355
Provision	1,199		1,020		232		2,451		645		8		2,610		5,714

ALL balance at June 30, 2022	$	8,077	$	6,641	$	967	$	15,685	$	1,772	$	141	$	5,136	$	22,734

Substantially ~~off~~all of the charge-offs during ~~three~~six months ended ~~March 31,~~June 30, 2022 are related to our subprime consumer automobile portfolio of loans.

The following table presents the primary segments of our loan portfolio, excluding PCI loans, as of the period ~~indicated:~~shown:


		Commercial								Residential		Home Equity			Consumer			Total				Commercial										Residential		Home Equity		Consumer		Total
(Dollars in thousands)	(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial						(Dollars in thousands)			Business				Real Estate			Acquisition, development and construction			Total Commercial
March 31, 2022
June 30, 2022																				June 30, 2022
Individually evaluated for impairment	Individually evaluated for impairment	$	11,085	$	1,196	$	1,139	$	13,420	$	8,364	$	230		$	512		$	22,526	Individually evaluated for impairment		$	11,953		$	1,182		$	1,069	$	14,204	$	8,407	$	198	$	831	$	23,640
Collectively evaluated for impairment	Collectively evaluated for impairment	774,222		598,066		95,699		1,467,987		305,199		21,194			65,119			1,859,499		Collectively evaluated for impairment		818,227			696,454			111,187		1,625,868		432,154		19,992		107,054		2,185,068
Total Loans		$	785,307	$	599,262	$	96,838	$	1,481,407	$	313,563	$	21,424		$	65,631		$	1,882,025
Total loans																				Total loans		$	830,180		$	697,636		$	112,256	$	1,640,072	$	440,561	$	20,190	$	107,885	$	2,208,708


		Commercial								Residential				Home Equity			Consumer				Total					Commercial																	Residential				Home Equity				Consumer				Total
(Dollars in thousands)	(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial								(Dollars in thousands)				Business					Real Estate				Acquisition, development and construction					Total Commercial
ALL balance at December 31, 2020	ALL balance at December 31, 2020	$	12,193	$	9,079	$	2,761	$	24,033			$	1,378						$	298			$	51		$	25,760	ALL balance at December 31, 2020				$	12,193				$	9,079			$	2,761			$	24,033			$	1,378			$	298			$	51	$	25,760
Charge-offs	Charge-offs	(265)		—		—		(265)		—				—			—				(265)			Charge-offs		(265)				—					—				(265)					—				—				—				(265)
Recoveries	Recoveries	10		—		—		10		—				4			3				17			Recoveries		198				16					0				214				—				8				3				225
Provision (release)	Provision (release)	(220)		645		76		501		135				(19)			(5)				612			Provision (release)		788				(1,148)					(963)				(1,323)				(15)				(22)				522				(838)
ALL balance at March 31, 2021		$	11,718	$	9,724	$	2,837	$	24,279	$	1,513			$	283		$	49			$	26,124
ALL balance at June 30, 2021																								ALL balance at June 30, 2021		$	12,914			$	7,947				$	1,798			$	22,659			$	1,363			$	284			$	576			$	24,882
Individually evaluated for impairment	Individually evaluated for impairment	$	743	$	265	$	—	$	1,008	$	—			$	—		$	—			$	1,008		Individually evaluated for impairment		$	841			$	243				$	—			$	1,084			$	—			$	69			$	—			$	1,153
Collectively evaluated for impairment	Collectively evaluated for impairment	$	10,975	$	9,459	$	2,837	$	23,271	$	1,513			$	283		$	49			$	25,116		Collectively evaluated for impairment		$	12,073			$	7,704				$	1,798			$	21,575			$	1,363			$	215			$	576			$	23,729

(Dollars in thousands)																								(Dollars in thousands)
ALL balance at March 31, 2021																								ALL balance at March 31, 2021		$	11,718			$	9,724				$	2,837			$	24,279			$	1,513			$	283			$	49			$	26,124
Charge-offs																								Charge-offs		—				—					—				—				—				—				—				—
Recoveries																								Recoveries		188				16					—				204				—				4				—				208
Provision (release)																								Provision (release)		1,008				(1,793)					(1,039)				(1,824)				(150)				(3)				527				(1,450)

ALL balance at June 30, 2021																								ALL balance at June 30, 2021		$	12,914			$	7,947				$	1,798			$	22,659			$	1,363			$	284			$	576			$	24,882

The following table presents the primary segments of our loan portfolio, excluding PCI loans, as of the period ~~indicated:~~shown:


		Commercial								Residential		Home Equity			Consumer			Total				Commercial										Residential		Home Equity		Consumer		Total
(Dollars in thousands)	(Dollars in thousands)	Business		Real Estate		Acquisition, development and construction		Total Commercial						(Dollars in thousands)			Business				Real Estate			Acquisition, development and construction			Total Commercial
March 31, 2021
June 30, 2021																				June 30, 2021
Individually evaluated for impairment	Individually evaluated for impairment	$	7,328	$	1,723	$	2,035	$	11,086	$	1,927	$	95		$	3		$	13,111	Individually evaluated for impairment		$	7,238		$	1,189		$	1,527	$	9,954	$	6,966	$	95	$	3	$	17,018
Collectively evaluated for impairment	Collectively evaluated for impairment	735,644		489,928		116,681		1,342,253		273,783		28,748			3,146			1,647,930		Collectively evaluated for impairment		791,702			485,715			98,478		1,375,895		248,969		24,738		10,109		1,659,711
Total Loans	Total Loans	$	742,972	$	491,651	$	118,716	$	1,353,339	$	275,710	$	28,843		$	3,149		$	1,661,041	Total Loans		$	798,940		$	486,904		$	100,005	$	1,385,849	$	255,935	$	24,833	$	10,112	$	1,676,729

The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

Troubled Debt Restructurings

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Bank had specific reserve allocations for TDRs of $0.4 million and $0.5 million, respectively. Loans considered to be troubled debt restructured loans totaled ~~$12.5~~$12.3 million and $12.6 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Of these totals, ~~for both periods~~$4.3 million and $4.5 million represent accruing troubled debt restructured loans June 30, 2022 and December 31, 2021, respectively, and represent ~~20%~~19% and 21%, respectively, of total impaired loans. Meanwhile, as of ~~March 31,~~June 30, 2022, ~~$2.3~~$2.2 million represent 3 loans to 2 borrowers that have defaulted under the restructured ~~terms.~~terms during the previous 12 months. The largest of these loans, totaling ~~$2.0~~$1.9 million, is a

commercial loan, and the other three of these loans, totaling $0.3 million, are commercial acquisition and development loans that were considered TDRs due to extended interest-only periods and/or unsatisfactory repayment structures once transitioned to principal and interest payments. These

borrowers have experienced continued financial difficulty and are considered non-performing loans as of ~~March 31,~~June 30, 2022 and December 31, 2021.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, no additional loans were classified as TDRs and 0 restructured loan defaulted under their modified terms that were not already classified as non-performing for having previously defaulted under their modified terms.

Purchased Credit Impaired Loans

As a result of the acquisition of First State, we have PCI loans. The following table presents the carrying amount of the PCI loan portfolio for the periods ~~indicated:~~shown:


(Dollars in thousands)	June 30, 2022		December 31, 2021
Commercial
Business	3,180		2,629
Real estate	—		11,018
Acquisition, development and construction	—		257
Total commercial	$	3,180	$	13,904
Residential	2,602		4,358

Consumer	—		413
Outstanding balance	$	5,782	$	18,675
Carrying amount, net of allowance	$	5,782	$	18,012

(Dollars in thousands) March 31, 2022 December 31, 2021
Commercial
   Business 2,381 2,629
   Real estate 9,140 11,018
   Acquisition, development and construction 246 257
     Total commercial $ 11,767 $ 13,904
Residential 3,782 4,358
Consumer 398 413
Outstanding balance $ 15,947 $ 18,675
Carrying amount, net of allowance $ 15,333 $ 18,012
In June 2022, we sold PCI loans with an unpaid principal balance of $11.8 million, resulting in the recognition of additional accretion income of $1.0 million during the three months ended June 30, 2022.

The following table presents the accretable yield, or income expected to be collected, as of the ~~three months ended March 31, 2022 and December 31, 2021, respectively:~~periods shown:


							Three Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	2022		2021
Beginning balance	Beginning balance	$	6,505	$	6,467	Beginning balance	$	6,253	$	8,247

Accretion of income	Accretion of income	(808)		(867)		Accretion of income	(985)		(939)
Accretion from disposals						Accretion from disposals	(1,041)		—
Disposals						Disposals	(1,271)		—
Other changes in expected cash flows	Other changes in expected cash flows	556		905		Other changes in expected cash flows	(1,047)		(33)
Ending balance						Ending balance	$	1,909	$	7,275

							Six Months Ended June 30,
							2022		2021
Beginning balance						Beginning balance	$	6,505	$	8,313

Accretion of income						Accretion of income	(1,793)		(1,960)
Accretion from disposals						Accretion from disposals	(1,041)		—
Disposals						Disposals	(1,271)		—
Other changes in expected cash flows						Other changes in expected cash flows	(491)		922
Ending balance	Ending balance	$	6,253	$	6,505	Ending balance	$	1,909	$	7,275

Income is not recognized on PCI loans if we cannot reasonably estimate cash flows expected to be collected and, as of ~~March 31,~~June 30, 2022, we held no such loans.

2427

The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the PCI loan portfolio as of the periods ~~indicated:~~shown:


		Commercial													Commercial
(Dollars in thousands)	(Dollars in thousands)	Business		Real Estate		Total Commercial		Residential		Consumer		Total		(Dollars in thousands)	Business		Real Estate		Total Commercial		Residential		Consumer		Total
ALL balance as of December 31, 2021	ALL balance as of December 31, 2021	$	—	$	—	$	—	$	544	$	119	$	663	ALL balance as of December 31, 2021	$	—	$	—	$	—	$	544	$	119	$	663

Recoveries		1		—		1		—		—		1
Provision (release)		111		53		164		(221)		7		(50)

Release														Release	—		—		—		(544)		(119)		(663)
ALL balance as of June 30, 2022														ALL balance as of June 30, 2022	$	—	$	—	$	—	$	—	$	—	$	—

ALL balance as of March 31, 2022	ALL balance as of March 31, 2022	$	112	$	53	$	165	$	323	$	126	$	614	ALL balance as of March 31, 2022	$	112	$	53	$	165	$	323	$	126	$	614

Collectively evaluated for impairment		$	112	$	53	$	165	$	323	$	126	$	614

Release														Release	(112)		(53)		(165)		(323)		(126)		(614)
ALL balance as of June 30, 2022														ALL balance as of June 30, 2022	$	—	$	—	$	—	$	—	$	—	$	—


(Dollars in thousands)	(Dollars in thousands)	Commercial Business		Residential		Total		(Dollars in thousands)	Commercial Business		Residential		Total
ALL balance as of December 31, 2020	ALL balance as of December 31, 2020	$	—	$	84	$	84	ALL balance as of December 31, 2020	$	—	$	84	$	84
Charge-offs		—		—		—

Provision (release)		90		(84)		6

Release								Release	—		(84)		(84)
ALL balance as of June 30, 2021								ALL balance as of June 30, 2021	$	—	$	—	$	—

ALL balance as of March 31, 2021	ALL balance as of March 31, 2021	$	90	$	—	$	90	ALL balance as of March 31, 2021	$	90	$	—	$	90

Collectively evaluated for impairment		$	90	$	—	$	90

Release								Release	(90)		—		(90)
ALL balance as of June 30, 2021								ALL balance as of June 30, 2021	$	—	$	—	$	—

As of ~~March 31,~~June 30, 2022, the loans in our PCI portfolio were all collectively evaluated for impairment and are segmented into three categories: commercial loans totaling ~~$11.8~~$3.2 million and residential loans totaling ~~$3.8 million, and consumer loans totaling $0.4~~$2.6 million, for a portfolio total of ~~$15.9~~$5.8 million.

The following table presents the classes of the PCI loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2022
June 30, 2022												June 30, 2022
Commercial:	Commercial:											Commercial:
Business	Business	$	2,023	$	151	$	201	$	6	$	2,381	Business	$	389	$	—	$	46	$	2,745	$	3,180
Real estate		5,489		1,483		2,168		—		9,140
Acquisition, development and construction		156		90		—		—		246

Total commercial	Total commercial	7,668		1,724		2,369		6		11,767		Total commercial	389		—		46		2,745		3,180
Residential	Residential	3,049		—		733		—		3,782		Residential	2,210		—		392		0		2,602

Consumer		32		—		366		—		398

Total loans	Total loans	$	10,749	$	1,724	$	3,468	$	6	$	15,947	Total loans	$	2,599	$	—	$	438	$	2,745	$	5,782

December 31, 2021	December 31, 2021											December 31, 2021
Commercial:	Commercial:											Commercial:
Business	Business	$	2,257	$	159	$	207	$	6	$	2,629	Business	$	2,257	$	159	$	207	$	6	$	2,629
Real estate	Real estate	7,499		1,571		1,948		—		11,018		Real estate	7,499		1,571		1,948		—		11,018
Acquisition, development and construction	Acquisition, development and construction	178		79		—		—		257		Acquisition, development and construction	178		79		—		—		257

Total commercial	Total commercial	9,934		1,809		2,155		6		13,904		Total commercial	9,934		1,809		2,155		6		13,904
Residential	Residential	3,406		—		952		—		4,358		Residential	3,406		—		952		—		4,358

Consumer	Consumer	36		—		377		—		413		Consumer	36		—		377		—		413
Total loans	Total loans	$	13,376	$	1,809	$	3,484	$	6	$	18,675	Total loans	$	13,376	$	1,809	$	3,484	$	6	$	18,675

The following table presents the classes of the PCI loan portfolio summarized by aging categories of performing loans and non-accrual loans as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans
March 31, 2022
June 30, 2022														June 30, 2022
Commercial:	Commercial:													Commercial:
Business	Business	$	2,174	$	—	$	—	$	207	$	207	$	2,381	Business	$	592	$	—	$	—	$	2,588	$	2,588	$	3,180
Real estate		5,798		230		47		3,065		3,342		9,140
Acquisition, development and construction		226		20		—		—		20		246

Total commercial	Total commercial	8,198		250		47		3,272		3,569		11,767		Total commercial	592		—		—		2,588		2,588		3,180
Residential	Residential	2,702		347		—		733		1,080		3,782		Residential	2,210		—		—		392		392		2,602

Consumer		31		—		—		367		367		398

Total loans	Total loans	$	10,931	$	597	$	47	$	4,372	$	5,016	$	15,947	Total loans	$	2,802	$	—	$	—	$	2,980	$	2,980	$	5,782

December 31, 2021	December 31, 2021													December 31, 2021
Commercial:	Commercial:													Commercial:
Business	Business	$	2,416	$	—	$	—	$	213	$	213	$	2,629	Business	$	2,416	$	—	$	—	$	213	$	213	$	2,629
Real estate	Real estate	7,680		649		—		2689		3338		11,018		Real estate	7,680		649		—		2689		3338		11,018
Acquisition, development and construction	Acquisition, development and construction	243		—		—		14		14		257		Acquisition, development and construction	243		—		—		14		14		257

Total commercial	Total commercial	10,339		649		—		2,916		3,565		13,904		Total commercial	10,339		649		—		2,916		3,565		13,904
Residential	Residential	3,081		325		—		952		1,277		4,358		Residential	3,081		325		—		952		1,277		4,358

Consumer	Consumer	36		—		—		377		377		413		Consumer	36		—		—		377		377		413
Total loans	Total loans	$	13,456	$	974	$	—	$	4,245	$	5,219	$	18,675	Total loans	$	13,456	$	974	$	—	$	4,245	$	5,219	$	18,675

None of the PCI loans are considered non-accrual as they are all currently accreting interest income under PCI accounting.

As our PCI loan portfolio is accounted for in pools with similar risk characteristics in accordance with ASC 310-30, this portfolio is not subject to the impaired loan and TDR guidance. Rather, the revised estimated future cash flows of the individually modified loans are included in the estimated future cash flows of the pool.

PPP Loans and CARES Act Deferrals

We actively participated in the PPP as a lender, evaluating other programs available to assist our clients and providing deferrals consistent with GSE guidelines. As of ~~March 31,~~June 30, 2022, the outstanding balance of PPP loans totaled ~~$13.5~~$9.8 million on loans originated through our internal commercial team and ~~$28.2~~$12.6 million on loans originated through our partnership with a Fintech company.

As of ~~March 31,~~June 30, 2022,all commercial and mortgage loans previously approved for ~~COVID~~COVID-19 related modifications, such as interest-only payment and payment deferrals, had returned to their previous payment structures.These modifications were not considered to be ~~troubled debt restructurings~~TDRs in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”

Note 4 – Premises and Equipment

The following table presents the components of premises and equipment as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2022		December 31, 2021
Land	Land	$	3,465	$	3,465	Land	$	3,465	$	3,465
Buildings and improvements	Buildings and improvements	13,393		13,393		Buildings and improvements	13,393		13,393
Furniture, fixtures and equipment	Furniture, fixtures and equipment	17,409		16,841		Furniture, fixtures and equipment	17,719		16,841
Software	Software	4,786		4,176		Software	5,367		4,176
Construction in progress	Construction in progress	580		531		Construction in progress	502		531
Leasehold improvements	Leasehold improvements	2,895		2,895		Leasehold improvements	2,963		2,895
		42,528		41,301			43,409		41,301
Accumulated depreciation	Accumulated depreciation	(17,171)		(16,249)		Accumulated depreciation	(18,137)		(16,249)
Premises and equipment, net	Premises and equipment, net	$	25,357	$	25,052	Premises and equipment, net	$	25,272	$	25,052

We lease certain premises and equipment under operating and finance leases. At ~~March 31,~~June 30, 2022, we had lease liabilities totaling ~~$18.2~~$15.7 million, substantially all of which was related to operating leases, and right-of-use assets totaling ~~$17.1~~$14.6 million, substantially all of which was related to operating leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At ~~March 31,~~June 30, 2022, the weighted-average remaining lease term for operating leases was ~~11.8~~11.9 years and the weighted-average discount rate used in the measurement of operating lease liabilities was ~~2.8%~~3.0%. At ~~March 31,~~June 30, 2022, the weighted-average remaining lease term for finance leases was ~~1.8~~2.2 years and the weighted-average discount rate used in the measurement of finance lease liabilities was ~~1.8%~~1.4%.

At December 31, 2021, we had lease liabilities totaling $18.6 million, of which $18.5 million was related to operating leases and $0.1 million was related to finance leases, and right-of-use assets totaling $17.5 million, of which $17.5 million was related to operating leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At December 31, 2021, the weighted-average remaining lease term for operating leases was 12 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.8%. At December 31, 2021, the weighted-average remaining lease term for finance leases was 1.8 years and the weighted-average discount rate used in the measurement of finance lease liabilities was 2.0%.

The following table presents lease costs for the periods ~~indicated:~~shown:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021			(Dollars in thousands)	2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	508	$	477		Operating lease cost	$	445	$	477	$	890	$	954
Short-term lease cost	Short-term lease cost	6		1			Short-term lease cost	8		2		14		3
Variable lease cost	Variable lease cost	10		10			Variable lease cost	10		9		19		19
Amortization of right-of-use assets, finance leases	Amortization of right-of-use assets, finance leases	14		14			Amortization of right-of-use assets, finance leases	14		14		29		28
Interest on lease liabilities, finance leases	Interest on lease liabilities, finance leases	—		1			Interest on lease liabilities, finance leases	—		—		—		1
Total lease cost	Total lease cost	$	538	$	503		Total lease cost	$	477	$	502	$	952	$	1,005

2730

For ~~finance leases and~~ operating leases with initial or remaining terms of one year or more as of ~~March 31,~~June 30, 2022, the following table presents future minimum payments for the twelve month periods ended ~~March 31:~~June 30:


(Dollars in thousands)	(Dollars in thousands)	Operating Leases		Finance Leases		(Dollars in thousands)	Operating Leases
2023	2023	$	1,460	$	27	2023	$	851
2024	2024	1,897		5		2024	1,651
2025	2025	1,827		5		2025	1,579
2026	2026	1,826		4		2026	1,576
2027	2027	1,840		—		2027	1,584
2028 and thereafter	2028 and thereafter	12,984		—		2028 and thereafter	11,735
Total future minimum lease payments	Total future minimum lease payments	$	21,834	$	41	Total future minimum lease payments	$	18,976
Less: Amounts representing interest	Less: Amounts representing interest	(3,632)		—		Less: Amounts representing interest	(3,340)
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	18,202	$	41	Present value of net future minimum lease payments	$	15,636

There are no material future minimum payments on finance leases as of June 30, 2022.

Note 5 – Equity Method Investments

In accordance with Rule 10-01(b)(1) of Regulation S-X, we must assess whether our equity method investments are significant. In evaluating the significance of these investments, we performed the income and investment tests described in S-X 1-02(w) for each equity method investment. Rule 10-01(b)(1) of Regulation S-X requires summarized financial information in a quarterly report if any of the tests exceeds 20% and if the investee for which separate financial statements would otherwise be required for annual periods. Under the income test, our proportionate share of the net income of ICM exceeded the applicable threshold of 20%, and criteria for reporting separate financial statements is also applicable, accordingly, we are required to provide summarized income statement information for this investee for all periods presented. There were no other equity method investments which met any of the applicable thresholds for interim reporting as of the quarter ended ~~March 31,~~June 30, 2022.

Our equity method investments are initially recorded at fair value and subsequently adjusted for changes in the valuation of the entities and our share of the entities' earnings.

ICM

The following table presents summarized income statement information for our equity method investment in ICM for the periods ~~indicated.~~shown:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)		2022		2021			(Dollars in thousands)	2022		2021		2022		2021
Total revenues	Total revenues		$	22,116	$	50,797		Total revenues	$	22,063	$	40,080	$	44,179	$	90,877
Net income	Net income		$	3,230	$	15,864		Net income	$	1,938	$	10,921	$	5,169	$	26,785

Gain on sale of loans	Gain on sale of loans		$	15,088	$	47,594		Gain on sale of loans	$	14,872	$	44,308	$	29,961	$	91,902
Volume of loans sold	Volume of loans sold		$	688,094	$	1,778,090		Volume of loans sold	$	692,553	$	1,492,309	$	1,380,646	$	3,270,399

Our ownership percentage of 40% of ICM allows us to have significant influence over the operations and decision making at ICM. Accordingly, the investment is accounted for as an equity method investment. Our share of ICM's net income totaled ~~$1.3~~$0.7 million and ~~$6.5~~$2.0 million for the three and six months ended June 30, 2022, respectively, and $4.5 million and $11.0 million for the three and six months ended ~~March 31, 2022 and~~June 30, 2021, respectively. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the mortgage pipeline was ~~$1.1~~$1.11 billionand ~~$1.0~~$1.01 billion, respectively.

Interchecks

Our ownership percentage of ~~16.9%~~16% of Interchecks allows us to have significant influence over the operations and decision making at Interchecks. Accordingly, the investment is accounted for as an equity method investment. Our share of net loss from Interchecks totaled ~~$0.1~~$0.2 million and $0.3 million for the three and six months ended ~~March 31, 2022.~~June 30, 2022, respectively. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, we recorded a gain due to an observable transaction based on an in-substance sale of ownership in

the amount of ~~$1.8~~$1.9 million. The equity method investment in Interchecks is not considered a significant investment based on the criteria of Rule 10-01(b)(1) of Regulation S-X.

We have multiple business relationships with Interchecks beyond our investment. Interchecks is a banking client of ours and utilizes the software developed by Victor, which provides revenue to us. Additionally, Interchecks provides management services to MVB Technology, which provides revenue to Interchecks. Such revenues have not been material.

Ayers Socure II

Our ownership percentage of ~~10.0%~~10% of Ayers Socure II allows us to have significant influence over the company. Accordingly, the investment is accounted for as an equity method investment. Our share of net income from Ayers Socure II for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was not significant. The equity method investment in Ayers Socure II is not considered a significant investment based on the criteria of Rule 10-01(b)(1) of Regulation S-X.

Ayers Socure II's sole business is ownership of equity securities in Socure Inc. ("Socure"). In addition to our equity method investment in Ayers Socure II, we also have direct equity security ownership interest in Socure. With the combination of our investments in both Ayers Socure II and Socure directly, we own less than 1% of Socure in total.

Note 6 – Deposits

The following table presents the components of deposits as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2022		December 31, 2021
Noninterest-bearing demand	Noninterest-bearing demand	$	1,308,998	$	1,120,433	Noninterest-bearing demand	$	1,342,916	$	1,120,433
Interest-bearing demand	Interest-bearing demand	630,155		651,016		Interest-bearing demand	726,950		651,016
Savings and money markets	Savings and money markets	491,346		510,068		Savings and money markets	376,790		510,068
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	78,580		96,088		Time deposits, including CDs and IRAs	168,314		96,088
Total deposits	Total deposits	$	2,509,079	$	2,377,605	Total deposits	$	2,614,970	$	2,377,605

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	10,111	$	9,573	Time deposits that meet or exceed the FDIC insurance limit	$	9,073	$	9,573

The following table presents the maturities of time deposits for the twelve month periods ended ~~March 31:~~June 30:


(Dollars in thousands)	(Dollars in thousands)			(Dollars in thousands)
2023	2023	$	43,011	2023	$	151,754
2024	2024	20,114		2024	10,664
2025	2025	10,539		2025	4,218
2026	2026	3,207		2026	986
2027	2027	1,709		2027	692
Total	Total	$	78,580	Total	$	168,314

As of ~~March 31,~~June 30, 2022, overdrawn deposit accounts totaling ~~$2.8~~$3.7 million were reclassified as loan balances.

Note 7 – Borrowed Funds

The Bank is a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh, Pennsylvania. As of ~~March 31,~~June 30, 2022, the Bank's maximum borrowing capacity with the FHLB was ~~$435.2~~$459.4 million and the remaining borrowing capacity was ~~$423.9~~$380.7 million, with the difference being deposit letters of credit.

Short-term borrowings

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Bank had no borrowings under Fed Funds purchased outstanding.

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The following table presents information related to short-term borrowings as of and for the periods ~~indicated:~~shown:

~~(Dollars in thousands)~~

~~Three Months Ended March 31, 2022~~

~~Year Ended December 31, 2021~~

~~Balance at end of period~~

—

~~Average balance during the period~~

—

~~25,275~~

~~Maximum month-end balance~~

—

~~130,047~~

~~Weighted-average rate during the period~~

—

~~0.05~~

~~Weighted-average rate at end of period~~

—


(Dollars in thousands)	Six Months Ended June 30, 2022			Year Ended December 31, 2021
Balance at end of period	$	—		$	—
Average balance during the period	1,163			25,275
Maximum month-end balance	—			130,047
Weighted-average rate during the period	1.91		%	0.05		%
Weighted-average rate at end of period	—		%	—		%

Long-term borrowings

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Bank had no long-term borrowings with the FHLB or the Federal Reserve Bank.

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”) with clients representing funds deposited by clients, on an overnight basis, that are collateralized by investment securities owned by us. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between us and the client and are accounted for as secured borrowings. Our repurchase agreements reflected in liabilities consist of client accounts and securities which are pledged on an individual security basis.

We monitor the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected in the amount of cash received in connection with the transaction. The primary risk with our repurchase agreements is the market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

As of ~~March 31,~~June 30, 2022and December 31, 2021, all of our repurchase agreements were overnight agreements.These borrowings were collateralized with investment securities with a carrying value of~~$12.5~~ $11.5 millionand $15.8 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and were comprised of United States government agency securities and United States sponsored mortgage-backed securities. Declines in the value of the collateral would require us to increase the amounts of securities pledged.

The following table presents information related to repurchase agreements as of and for the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended March 31, 2022			Year Ended December 31, 2021			(Dollars in thousands)	Six Months Ended June 30, 2022			Year Ended December 31, 2021
Balance at end of period	Balance at end of period	$	12,101		$	11,385		Balance at end of period	$	11,152		$	11,385
Average balance during the period	Average balance during the period	11,823			10,821			Average balance during the period	11,693			10,821
Maximum month-end balance	Maximum month-end balance	12,680			11,398			Maximum month-end balance	12,680			11,398
Weighted-average rate during the period	Weighted-average rate during the period	0.05		%	0.12		%	Weighted-average rate during the period	0.05		%	0.12		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.05		%	0.05		%	Weighted-average rate at end of period	0.05		%	0.05		%

Subordinated debt

The following table presents information related to subordinated debt as of and for the periods shown:


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended March 31, 2022			Year Ended December 31, 2021			(Dollars in thousands)	Six Months Ended June 30, 2022			Year Ended December 31, 2021
Balance at end of period	Balance at end of period	$	73,094		$	73,030		Balance at end of period	$	73,158		$	73,030
Average balance during the period	Average balance during the period	73,062			51,149			Average balance during the period	73,094			51,149
Maximum month-end balance	Maximum month-end balance	73,094			73,030			Maximum month-end balance	73,158			73,030
Weighted-average rate during the period	Weighted-average rate during the period	4.12		%	4.28		%	Weighted-average rate during the period	4.17		%	4.28		%
Weighted-average rate at end of period	Weighted-average rate at end of period	3.74		%	3.71		%	Weighted-average rate at end of period	3.80		%	3.71		%

In September 2021, MVB completed the private placement of $30.0 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a 10-year term, maturing October 1, 2031, and will bear interest at a fixed rate of 3.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate

will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR,

plus 254 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes.

In November 2020, MVB completed the private placement of $40.0 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a 10-year term, maturing December 1, 2030, and will bear interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR, plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes.

In March 2007, we completed the private placement of $4.0 million Floating Rate, Trust Preferred Securities through our MVB Financial Statutory Trust I subsidiary (the “Trust”). We established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The Trust Preferred Securities and the Debentures mature in 2037 and have been redeemable by us since 2012. Interest payments are due in March, June, September and December and are adjusted at the interest due dates at a rate of 1.62% over the three-month LIBOR Rate. The obligations we provide with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by us of the Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. The securities issued by the Trust are includable for regulatory purposes as a component of our Tier 1 capital.

Note 8 – Pension and Supplemental Executive Retirement Plans

Supplemental executive retirement plan

In June 2017, we approved a Supplemental Executive Retirement Plan (the “SERP”), pursuant to which the Chief Executive Officer of Potomac Mortgage Group ("PMG") is entitled to receive certain supplemental nonqualified retirement benefits. The SERP took effect on December 31, 2017. As the executive completed three years of continuous employment with PMG prior to retirement date (which shall be no earlier than the date he attains age 55) he will, upon retirement, be entitled to receive $1.8 million payable in 180 equal consecutive monthly installments of $10 thousand. The liability is calculated by discounting the anticipated future cash flows at 4.0%.The liability accrued for this obligation was~~$1.3~~ $1.3 million as of both ~~March 31,~~June 30, 2022 and December 31, ~~2021.~~ 2021. Service costs were not material for any periods covered by this report.

Pension plan

We participate in a trusteed pension plan known as the Allegheny Group Retirement ~~Plan covering virtually all full-time employees.~~Plan. Benefits are based on years of service and the employee’s compensation. Accruals under the plan were frozen as of May 31, 2014. Freezing the plan resulted in a remeasurement of the pension obligations and plan assets as of the freeze date. The pension obligation was remeasured using the discount rate based on the Citigroup Above Median Pension Discount Curve in effect on May 31, 2014 of 4.5%.

The following table presents information pertaining to the activity in our defined benefit plan, using the latest available actuarial valuations with a measurement date of ~~March 31,~~June 30, 2022 and 2021 for the periods ~~indicated:~~shown:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021			(Dollars in thousands)	2022		2021		2022		2021

Interest cost	Interest cost	$	85	$	78		Interest cost	$	85	$	78	170		156
Expected return on plan assets	Expected return on plan assets	(167)		(118)			Expected return on plan assets	(167)		(118)		(334)		(236)
Amortization of net actuarial loss	Amortization of net actuarial loss	107		127			Amortization of net actuarial loss	107		127		214		254

Net periodic benefit cost	Net periodic benefit cost	$	25	$	87		Net periodic benefit cost	$	25	$	87	$	50	$	174
Contributions paid	Contributions paid	$	—	$	3,835		Contributions paid	$	—	$	—	$	—	$	3,835

There was no service cost or amortization of prior service cost for the three and six months ended ~~March 31,~~June 30, 2022 and 2021.

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Note 9 – Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of our financial instruments as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)		(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
March 31, 2022
June 30, 2022												June 30, 2022
Financial Assets:	Financial Assets:											Financial Assets:
Cash and cash equivalents	Cash and cash equivalents	$	353,972	$	353,972	$	353,972	$	—	$	—	Cash and cash equivalents	$	161,761	$	161,761	$	161,761	$	—	$	—
Certificates of deposit with banks	Certificates of deposit with banks	2,229		2,244		—		2,244		—		Certificates of deposit with banks	496		496		—		496		—
Securities available-for-sale	Securities available-for-sale	395,301		395,301		—		355,633		39,668		Securities available-for-sale	376,737		376,737		—		339,702		37,035
Equity securities	Equity securities	34,447		34,447		247		—		34,200		Equity securities	34,250		34,250		264		—		33,986
Loans held-for-sale	Loans held-for-sale	9,161		9,161		—		9,161		—		Loans held-for-sale	11,856		11,856		—		11,856		—
Loans receivable, net	Loans receivable, net	1,879,045		1,892,687		—		—		1,892,687		Loans receivable, net	2,192,380		2,177,104		—		—		2,177,104
Servicing rights	Servicing rights	2,711		2,729		—		—		2,729		Servicing rights	1,040		1,063		—		—		1,063
Interest rate swap	Interest rate swap	3,492		3,492		—		3,492		—		Interest rate swap	4,398		4,398		—		4,398		—
Fair value hedge	Fair value hedge	873		873		—		873		—		Fair value hedge	204		204		—		204		—
Accrued interest receivable	Accrued interest receivable	8,234		8,234		—		2,413		5,821		Accrued interest receivable	9,202		9,202		—		2,249		6,953
Bank-owned life insurance	Bank-owned life insurance	42,500		42,500		—		42,500		—		Bank-owned life insurance	42,744		42,744		—		42,744		—

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Deposits	Deposits	$	2,509,079	$	2,468,181	$	—	$	2,468,181	$	—	Deposits	$	2,614,970	$	2,440,813	$	—	$	2,440,813	$	—
Repurchase agreements	Repurchase agreements	12,101		12,101		—		12,101		—		Repurchase agreements	11,152		11,152		—		11,152		—

Interest rate swap	Interest rate swap	3,492		3,492		—		3,492		—		Interest rate swap	4,398		4,398		—		4,398		—
Fair value hedge		148		148		—		148		—

Accrued interest payable	Accrued interest payable	1,238		1,238		—		1,238		—		Accrued interest payable	632		632		—		632		—
Subordinated debt	Subordinated debt	73,094		73,319		—		73,319		—		Subordinated debt	73,158		73,531		—		73,531		—

December 31, 2021	December 31, 2021											December 31, 2021
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	307,437	$	307,437	$	307,437	$	—	$	—	Cash and cash equivalents	$	307,437	$	307,437	$	307,437	$	—	$	—
Certificates of deposits with banks	Certificates of deposits with banks	2,719		2,738		—		2,738		—		Certificates of deposits with banks	2,719		2,738		—		2,738		—
Securities available-for-sale	Securities available-for-sale	421,466		421,466		—		379,703		41,763		Securities available-for-sale	421,466		421,466		—		379,703		41,763
Equity securities	Equity securities	32,402		32,402		247		—		32,155		Equity securities	32,402		32,402		247		—		32,155

Loans held-for-sale												Loans held-for-sale	—		—		—		—		—
Loans receivable, net	Loans receivable, net	1,851,572		1,865,013		—		—		1,865,013		Loans receivable, net	1,851,572		1,865,013		—		—		1,865,013
Servicing rights	Servicing rights	2,812		2,831		—		—		2,831		Servicing rights	2,812		2,831		—		—		2,831
Interest rate swap	Interest rate swap	6,702		6,702		—		6,702		—		Interest rate swap	6,702		6,702		—		6,702		—
Fair value hedge	Fair value hedge	1,552		1,552		—		1,552		0		Fair value hedge	1,552		1,552		—		1,552		0
Accrued interest receivable	Accrued interest receivable	7,860		7,860		—		2,402		5,458		Accrued interest receivable	7,860		7,860		—		2,402		5,458
Bank-owned life insurance	Bank-owned life insurance	42,257		42,257		—		42,257		—		Bank-owned life insurance	42,257		42,257		—		42,257		—

Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	2,377,605	$	2,338,868	$	—	$	2,338,868	$	—	Deposits	$	2,377,605	$	2,338,868	$	—	$	2,338,868	$	—
Repurchase agreements	Repurchase agreements	11,385		11,385		—		11,385		—		Repurchase agreements	11,385		11,385		—		11,385		—
Interest rate swap	Interest rate swap	6,702		6,702		—		6,702		—		Interest rate swap	6,702		6,702		—		6,702		—
Fair value hedge	Fair value hedge	807		807		—		807		—		Fair value hedge	807		807		—		807		—
Accrued interest payable	Accrued interest payable	690		690		—		690		—		Accrued interest payable	690		690		—		690		—
Subordinated debt	Subordinated debt	73,030		74,774		—		74,774		—		Subordinated debt	73,030		74,774		—		74,774		—

Note 10 – Fair Value Measurements

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time of our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of

3235

various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

The methods of determining the fair value of assets and liabilities presented in this footnote are consistent with our methodologies disclosed in Note 1 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the 2021 Form 10-K.

Assets Measured on a Recurring Basis

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. We classified investments in government securities as Level II instruments and valued them using the market approach.

The following measurements are made on a recurring ~~basis.~~basis:

Available-for-sale investment securities – Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange and money market funds. Level II securities include mortgage-backed securities issued by government-sponsored entities and private label entities, municipal bonds, United States Treasury securities that are traded by dealers or brokers in inactive over-the-counter markets and corporate debt securities. There have been no changes in valuation techniques for thethree and six months ended ~~March 31,~~June 30, 2022. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. We classified investments in government securities as Level II instruments and valued them using the market approach.

Equity securities – Certain equity securities are recorded at fair value on both a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the three and six months ended ~~March 31,~~June 30, 2022. Valuation techniques are consistent with techniques used in prior periods.

Interest rate swap – Interest rate swaps are recorded at fair value based on third-party vendors who compile prices from various sources and may determine the fair value of identical or similar instruments by using pricing models that consider observable market data.

Fair value hedge – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third-party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

Loans held-for-sale - The fair value of loans held-for-sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. If the fair value at the reporting date exceeds the amortized cost of a loan, the loan is reported at amortized cost.

Bank-owned life insurance - Life insurance where the bank is both the policy beneficiary and owner. Bank-owned life insurance ("BOLI") is recorded at fair value on a recurring basis, and increases in cash surrender, contract value and net insurance proceeds at maturity are recorded as other income.

The following tables present assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of the periods ~~indicated~~shown by level within the fair value hierarchy:


		March 31, 2022									June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:	Assets:									Assets:
United States government agency securities	United States government agency securities	$	—	$	52,451	$	—	$	52,451	United States government agency securities	$	—	$	49,711	$	—	$	49,711
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	—		68,481		—		68,481		United States sponsored mortgage-backed securities	—		63,068		—		63,068
United States treasury securities	United States treasury securities	—		105,842		—		105,842		United States treasury securities	—		104,280		—		104,280
Municipal securities	Municipal securities	—		111,675		39,668		151,343		Municipal securities	—		107,489		37,035		144,524
Corporate debt securities										Corporate debt securities	—		6,794		—		6,794

Other securities	Other securities	—		868		—		868		Other securities	—		855		—		855
Equity securities	Equity securities	247		—		—		247		Equity securities	264		—		—		264

Loans held-for-sale										Loans held-for-sale	—		11,856		—		11,856
Interest rate swap	Interest rate swap	—		3,492		—		3,492		Interest rate swap	—		4,398		—		4,398
Fair value hedge	Fair value hedge	—		873		—		873		Fair value hedge	—		204		—		204
Bank-owned life insurance										Bank-owned life insurance	—		42,744		—		42,744
Liabilities:	Liabilities:									Liabilities:
Interest rate swap	Interest rate swap	—		3,492		—		3,492		Interest rate swap	—		4,398		—		4,398
Fair value hedge	Fair value hedge	—		148		—		148		Fair value hedge	—		(142)		—		(142)


		December 31, 2021									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:	Assets:									Assets:
United States government agency securities	United States government agency securities	$	—	$	40,437	$	—	$	40,437	United States government agency securities	$	—	$	40,437	$	—	$	40,437
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	—		76,108		—		76,108		United States sponsored mortgage-backed securities	—		76,108		—		76,108
United States treasury securities										United States treasury securities	—		110,389		—		110,389
Municipal securities	Municipal securities	—		133,249		41,763		175,012		Municipal securities	—		133,249		41,763		175,012

Corporate debt securities										Corporate debt securities	—		11,142		—		11,142
Other debt securities										Other debt securities	—		7,500		—		7,500
Other securities	Other securities	—		878		—		878		Other securities	—		878		—		878
Equity securities	Equity securities	247		—		—		247		Equity securities	247		—		—		247

Interest rate swap	Interest rate swap	—		6,702		—		6,702		Interest rate swap	—		6,702		—		6,702
Fair value hedge	Fair value hedge	—		1,552		—		1,552		Fair value hedge	—		1,552		—		1,552

Bank-owned life insurance										Bank-owned life insurance	—		42,257		—		42,257
Liabilities:	Liabilities:									Liabilities:
Interest rate swap	Interest rate swap	—		6,702		—		6,702		Interest rate swap	—		6,702		—		6,702
Fair value hedge	Fair value hedge	—		807		—		807		Fair value hedge	—		807		—		807

The following table represents recurring Level III assets, consisting of only municipal securities, as of the periods ~~indicated:~~shown:

(Dollars in thousands)

Total

Balance at March 31, 2022

39,668

Realized and unrealized gains included in earnings

Purchase of securities

186

Maturities/calls

(785)

Unrealized loss included in other comprehensive income (loss)

(2,035)

Balance at June 30, 2022

37,035

Balance at December 31, 2021

41,763

Realized and unrealized gains included in earnings

Purchase of securities

~~862~~1,048

Maturities/calls

~~(2,290)~~(3,075)

Unrealized loss included in other comprehensive income (loss)

(2,709)

Balance at June 30, 2022

37,035

Balance at March 31, 2021

40,272

Realized and unrealized losses included in earnings

Purchase of securities

627

Maturities/calls

(1,241)

Unrealized gain included in other comprehensive income (loss)

~~1,766~~3,293

Unrealized loss included in other comprehensive income (loss)

~~(2,440)~~(3,182)

Balance at ~~March 31, 2022~~June 30, 2021

~~39,668~~39,770

Balance at December 31, 2020

43,679

Realized and unrealized ~~losses~~gains included in earnings

1920

Purchase of securities

~~1,191~~1,818

Maturities/calls

~~(3,933)~~(5,174)

Unrealized gain included in other comprehensive income (loss)

~~1,127~~4,420

Unrealized loss included in other comprehensive income (loss)

~~(1,811)~~(4,993)

Balance at ~~March 31,~~June 30, 2021

~~40,272~~39,770

Assets Measured on a Nonrecurring Basis

From time to time, we may be required to measure certain financial and non-financial assets and liabilities at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and liabilities measured at fair value in the second step of a goodwill impairment test and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during 2022 and 2021 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

Impaired loans – Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate-related loans, we obtain a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process, is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time the foreclosure is completed, we obtain a current external appraisal.

Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

The following table presents the fair value of these assets as of the periods ~~indicated:~~shown:


		March 31, 2022									June 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	Impaired loans	$	—	$	—	$	21,889	$	21,889	Impaired loans	$	—	$	—	$	22,045	$	22,045
Other real estate owned	Other real estate owned	—		—		2,106		2,106		Other real estate owned	—		—		1,334		1,334

Other debt securities										Other debt securities	—		—		7,500		7,500
Equity securities										Equity securities	—		—		33,986		33,986


		December 31, 2021									December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	Impaired loans	$	—	$	—	$	21,980	$	21,980	Impaired loans	$	—	$	—	$	21,980	$	21,980
Other real estate owned	Other real estate owned	—		—		2,330		2,330		Other real estate owned	—		—		2,330		2,330

Other debt securities										Other debt securities	—		—		7,500		7,500
Equity securities										Equity securities	—		—		32,155		32,155

~~There were no changes to the fair value of other debt securities or equity securities measured on a nonrecurring basis as of March 31, 2022.~~

3539

The following tables present quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value as of the periods ~~indicated:~~shown:

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

~~March 31,~~June 30, 2022

Nonrecurring measurements:

Impaired loans

~~21,889~~22,045

Appraisal of collateral 1

Appraisal adjustments 2

~~20%~~0% - ~~62%~~20%

Liquidation expense 2

~~5% - 10%~~6%

Other real estate owned

~~2,106~~1,334

Appraisal of collateral 1

Appraisal adjustments 2

~~20%~~0% - ~~30%~~20%

Liquidation expense 2

~~5% - 10%~~6%

Other debt securities

7,500

Net asset value

Cost minus impairment

—%

Equity securities

33,986

Net asset value

Cost minus impairment

—%

Recurring measurements:

Municipal securities 5

~~39,668~~37,035

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

December 31, 2021

Nonrecurring measurements:

Impaired loans

21,980

Appraisal of collateral 1

Appraisal adjustments 2

10% - 20%

Liquidation expense 2

5% - 10%

Other real estate owned

2,330

Appraisal of collateral 1

Appraisal adjustments 2

10% - 20%

Liquidation expense 2

5% - 10%

Other debt securities

7,500

Net asset value

Cost minus impairment

—%

Equity securities

32,155

Net asset value

Cost minus impairment

—%

Recurring measurements:

Municipal securities 5

41,763

Appraisal of bond 3

Bond appraisal adjustment 4

1% - 20%

1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level III inputs that are not identifiable.

2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

3 Fair value is determined through independent analysis of liquidity, rating, yield and duration.

4 Appraisals may be adjusted for qualitative factors, such as local economic conditions, liquidity, marketability and legal structure.

5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.

Note 11 – Earnings per Share

We determine basic earnings per share (“EPS”) by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is determined by dividing net income available to common shareholders by the weighted-average number of shares outstanding, increased by both the number of shares that would be issued assuming the exercise of instruments under our incentive stock plan.

3640

The following table presents our calculation of EPS for the periods ~~indicated:~~shown:


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands except shares and per share data)	(Dollars in thousands except shares and per share data)	2022		2021			(Dollars in thousands except shares and per share data)	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:	Numerator for basic and diluted earnings per share:						Numerator for basic and diluted earnings per share:
Net income	Net income	$	2,864	$	8,085		Net income	$	2,956	$	9,247	$	5,820	$	17,332
Less: Dividends on preferred stock	Less: Dividends on preferred stock	—		35			Less: Dividends on preferred stock	—		—		—		35

Net income available to common shareholders - basic		$	2,864	$	8,050
Net income available to common shareholders							Net income available to common shareholders	$	2,956	$	9,247	$	5,820	$	17,297

Denominator:	Denominator:						Denominator:
Total weighted-average shares outstanding	Total weighted-average shares outstanding	12,093,179		11,530,279			Total weighted-average shares outstanding	12,176,805		11,639,237		12,135,223		11,585,059

Effect of dilutive stock options and restricted stock units	Effect of dilutive stock options and restricted stock units	834,632		756,452			Effect of dilutive stock options and restricted stock units	718,776		972,793		735,669		864,914
Total diluted weighted-average shares outstanding	Total diluted weighted-average shares outstanding	12,927,811		12,286,731			Total diluted weighted-average shares outstanding	12,895,581		12,612,030		12,870,892		12,449,973

Earnings per share - basic	Earnings per share - basic	$	0.24	$	0.70		Earnings per share - basic	$	0.24	$	0.79	$	0.48	$	1.49

Earnings per share - diluted	Earnings per share - diluted	$	0.22	$	0.66		Earnings per share - diluted	$	0.23	$	0.73	$	0.45	$	1.39

Securities not included in the computation of diluted EPS because the effect would be antidilutive	Securities not included in the computation of diluted EPS because the effect would be antidilutive	405,994		111,148			Securities not included in the computation of diluted EPS because the effect would be antidilutive	499,887		225,991		496,625		213,652

3741

Note 12 – Comprehensive Income

The following tables present the reclassified components of accumulated other comprehensive income (“AOCI”) as of and for the periods ~~indicated:~~shown:


		Three Months Ended March 31,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021				(Dollars in thousands)	2022		2021		2022		2021
Details about AOCI components	Details about AOCI components	Amount reclassified from AOCI		Amount reclassified from AOCI		Affected income statement line item		Details about AOCI components	Amount reclassified from AOCI		Amount reclassified from AOCI		Amount reclassified from AOCI		Amount reclassified from AOCI		Affected income statement line item
Available-for-sale securities	Available-for-sale securities							Available-for-sale securities
Unrealized holding gains	Unrealized holding gains	$	650	$	1,143	Gain on sale of available-for-sale securities		Unrealized holding gains	$	—	$	1,708	$	650	$	2,851	Gain on sale of available-for-sale securities

		(152)		(268)		Income tax effect			—		(400)		(152)		(668)		Income tax effect
		498		875		Net of tax			—		1,308		498		2,183		Net of tax
Defined benefit pension plan items	Defined benefit pension plan items							Defined benefit pension plan items
Amortization of net actuarial loss	Amortization of net actuarial loss	(107)		(127)		Salaries and employee benefits		Amortization of net actuarial loss	(107)		$	(127)	$	(214)	$	(254)	Salaries and employee benefits

		25		30		Income tax effect			27		30		52		59		Income tax effect
		(82)		(97)		Net of tax			(80)		(97)		(162)		(195)		Net of tax
Investment hedge	Investment hedge							Investment hedge
Carrying value adjustment	Carrying value adjustment	10		(264)		Interest on investment securities		Carrying value adjustment	187		(359)		197		(623)		Interest on investment securities

		(2)		62		Income tax effect			(47)		84		(49)		146		Income tax effect
		8		(202)		Net of tax			140		(275)		148		(477)		Net of tax

Total reclassifications	Total reclassifications	$	424	$	576			Total reclassifications	$	60	$	936	$	484	$	1,511

(Dollars in thousands) Unrealized gains (losses) on available for-sale securities Defined benefit pension plan items Investment hedge Total
Balance at December 31, 2021 $ 147 $ (4,069) $ 316 $ (3,606)
Other comprehensive income (loss) before reclassification (13,415) 283 — (13,132)
Amounts reclassified from accumulated other comprehensive income (loss) (498) 82 (8) (424)
Net current period other comprehensive income (loss) (13,913) 365 (8) (13,556)
Balance at March 31, 2022 $ (13,766) $ (3,704) $ 308 $ (17,162)
Balance at December 31, 2020 7,586 (5,047) (313) 2,226
Other comprehensive income (loss) before reclassification (4,848) 1,306 — (3,542)
Amounts reclassified from accumulated other comprehensive income (loss) (875) 97 202 (576)
Net current period other comprehensive income (loss) (5,723) 1,403 202 (4,118)
Balance at March 31, 2021 $ 1,863 $ (3,644) $ (111) $ (1,892)


(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment hedge		Total






Balance at March 31, 2022	$	(13,766)	$	(3,704)	$	308	$	(17,162)
Other comprehensive income (loss) before reclassification	(12,437)		239		—		(12,198)
Amounts reclassified from accumulated other comprehensive income (loss)	—		80		(140)		(60)
Net current period other comprehensive income (loss)	(12,437)		319		(140)		(12,258)
Balance at June 30, 2022	$	(26,203)	$	(3,385)	$	168	$	(29,420)

Balance at December 31, 2021	147		(4,069)		316		(3,606)
Other comprehensive income (loss) before reclassification	(25,852)		522		—		(25,330)
Amounts reclassified from accumulated other comprehensive income (loss)	(498)		162		(148)		(484)
Net current period other comprehensive income (loss)	(26,350)		684		(148)		(25,814)
Balance at June 30, 2022	$	(26,203)	$	(3,385)	$	168	$	(29,420)

Balance at March 31, 2021	$	1,863	$	(3,644)	$	(111)	$	(1,892)
Other comprehensive income before reclassification	2,581		246		—		2,827
Amounts reclassified from accumulated other comprehensive income (loss)	(1,308)		97		275		(936)
Net current period other comprehensive income	1,273		343		275		1,891
Balance at June 30, 2021	$	3,136	$	(3,301)	$	164	$	(1)

Balance at December 31, 2020	7,586		(5,047)		(313)		2,226
Other comprehensive income (loss) before reclassification	(2,267)		1,551		—		(716)
Amounts reclassified from accumulated other comprehensive income (loss)	(2,183)		195		477		(1,511)
Net current period other comprehensive income (loss)	(4,450)		1,746		477		(2,227)
Balance at June 30, 2021	$	3,136	$	(3,301)	$	164	$	(1)

Note 13 – Segment Reporting

We have identified 5 reportable segments: CoRe banking; mortgage banking; professional services; Edge Ventures; and financial holding company. Revenue from CoRe banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Our Fintech division and MVB CDC are included in the CoRe banking segment. Revenue from ~~the~~our mortgage banking segment is primarily comprised of our share of net income from mortgage banking activities ~~is comprised~~ of ~~interest earned on loans and fees received as a result of the mortgage loan origination process.~~our equity method investment in ICM. Professional services is the aggregate of Chartwell, Trabian and Paladin Fraud. Revenue from these operating segments is made up of primarily of professional consulting income to banks and Fintech companies. Edge

Ventures is the aggregate of Victor, MVB Technology, Flexia and the ~~MVB~~ Edge Ventures holding company. These

operating segments are aggregated together as Edge Ventures and are all start-up Fintech software development companies. Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.

The following tables present information about the reportable segments and reconciliation to the consolidated financial statements for the periods ~~indicated:~~shown:


Three Months Ended March 31, 2022		CoRe Banking			Mortgage Banking			Professional Services			Edge Ventures				Financial Holding Company								Intercompany Eliminations					Consolidated
Three Months Ended June 30, 2022																	Three Months Ended June 30, 2022			CoRe Banking						Mortgage Banking								Professional Services			Edge Ventures					Financial Holding Company									Intercompany Eliminations				Consolidated
(Dollars in thousands)	(Dollars in thousands)			CoRe Banking						Mortgage Banking					Professional Services				Edge Ventures						Financial Holding Company											Intercompany Eliminations								Consolidated	(Dollars in thousands)					CoRe Banking			Mortgage Banking			Professional Services		Edge Ventures				Intercompany Eliminations
Interest income	Interest income												$	23,262			Interest income	$			27,910	$					103		$	—		$	—							$	87					$	(10)					$			28,090
Interest expense	Interest expense	659					—				7				—				753									(5)						1,414		Interest expense		672					—						8					—			760						(10)	1,430
Net interest income (expense)	Net interest income (expense)	22,512			103			(7)			—				(760)								—					21,848			Net interest income (expense)				27,238			103					(8)				—						(673)							—		26,660
Provision for loan losses	Provision for loan losses	1,280			—			—			—				—								—					1,280			Provision for loan losses				5,100			—					—				—					—							—		5,100
Net interest income (expense) after provision for loan losses	Net interest income (expense) after provision for loan losses	21,232			103			(7)			—				(760)								—					20,568			Net interest income (expense) after provision for loan losses				22,138			103					(8)				—					(673)							—		21,560

Total noninterest income	Total noninterest income	6,898			1,223			5,557			75				2,671								(4,554)					11,870			Total noninterest income				7,093			787					5,686				110					3,228							(4,995)		11,909

Noninterest Expenses:	Noninterest Expenses:																														Noninterest Expenses:
Salaries and employee benefits	Salaries and employee benefits	9,508			—			3,798			599				4,056								—					17,961			Salaries and employee benefits				9,948			—					3,872				724					4,439							—		18,983
Other expenses	Other expenses	11,048			—			1,155			1,047				2,205								(4,554)					10,901			Other expenses				10,913			94					1,407				1,170					2,247							(4,995)		10,836
Total noninterest expenses	Total noninterest expenses	20,556			—			4,953			1,646				6,261								(4,554)					28,862			Total noninterest expenses				20,861			94					5,279				1,894					6,686							(4,995)		29,819

Income (loss) before income taxes	Income (loss) before income taxes	7,574			1,326			597			(1,571)				(4,350)								—					3,576			Income (loss) before income taxes				8,370			796					399				(1,784)					(4,131)							—		3,650
Income taxes	Income taxes	1,631			341			164			(362)				(869)								—					905			Income taxes				1,771			207					95				(399)					(815)							—		859
Net income (loss)	Net income (loss)	5,943			985			433			(1,209)				(3,481)								—					2,671			Net income (loss)				6,599			589					304				(1,385)					(3,316)							—		2,791

Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—			—			95			98				—								—					193			Net loss attributable to noncontrolling interest				—			—					63				102					—							—		165

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	5,943		$	985		$	528		$	(1,111)			$	(3,481)							$	—				$	2,864		Net income (loss) available to common shareholders				$	6,599		$	589				$	367			$	(1,283)				$	(3,316)						$	—	$	2,956

Capital expenditures for the three months ended March 31, 2022		$	250		$	—		$	21		$	618			$	338							$	—				$	1,227
Total assets as of March 31, 2022		2,908,045			51,632			14,677			18,947				349,824								(449,661)					2,893,464
Capital expenditures for the three months ended June 30, 2022																															Capital expenditures for the three months ended June 30, 2022				$	—		$	—				$	5			$	829				$	47						$	—	$	881
Total assets as of June 30, 2022																															Total assets as of June 30, 2022				$	3,003,459		$	52,519				$	16,463			$	17,777				$	338,132						$	(443,922)	$	2,984,428
Total assets as of December 31, 2021	Total assets as of December 31, 2021	2,804,840			50,202			—			—				363,971								(449,688)					2,792,449			Total assets as of December 31, 2021				$	2,804,840		$	50,202				$	—			$	—				$	363,971						$	(449,688)	$	2,792,449
Goodwill as of March 31, 2022		—			—			3,988			—				—								—					3,988
Goodwill as of June 30, 2022																															Goodwill as of June 30, 2022				$	—		$	—				$	3,988			$	—				$	—						$	—	$	3,988
Goodwill as of December 31, 2021	Goodwill as of December 31, 2021	—			—			3,988			—				—								—					3,988			Goodwill as of December 31, 2021				$	—		$	—				$	3,988			$	—				$	—						$	—	$	3,988

3944


Three Months Ended March 31, 2021		CoRe Banking			Mortgage Banking			Professional Services			Edge Ventures				Financial Holding Company								Intercompany Eliminations					Consolidated
Three Months Ended June 30, 2021																	Three Months Ended June 30, 2021			CoRe Banking						Mortgage Banking								Professional Services			Edge Ventures					Financial Holding Company									Intercompany Eliminations				Consolidated
(Dollars in thousands)	(Dollars in thousands)			CoRe Banking						Mortgage Banking					Professional Services				Edge Ventures						Financial Holding Company											Intercompany Eliminations								Consolidated	(Dollars in thousands)					CoRe Banking			Mortgage Banking			Professional Services		Edge Ventures				Intercompany Eliminations
Interest income	Interest income												$	19,063			Interest income	$			20,736	$					98		$	—		$	—							$	—					$	(1)					$			20,833
Interest expense	Interest expense	1,092					—				—				—				466									—						1,558		Interest expense		1,287					—						3					—			490						(2)	1,778
Net interest income (expense)	Net interest income (expense)	17,867			104			—			—				(465)								(1)					17,505			Net interest income (expense)				19,449			98					(3)				—						(490)							1		19,055
Provision for (release of) loan losses		620			(2)			—			—				—								—					618
Net interest income (expense) after provision for (release of) loan losses		17,247			106			—			—				(465)								(1)					16,887
Release of allowance for loan losses																															Release of allowance for loan losses				(1,540)			—					—				—					—							—		(1,540)
Net interest income (expense) after provision for loan losses																															Net interest income (expense) after provision for loan losses				20,989			98					(3)				—					(490)							1		20,595

Total noninterest income	Total noninterest income	4,745			6,407			1,692			—				1,581								(1,967)					12,458			Total noninterest income				6,700			4,546					3,286				—					2,309							(3,197)		13,644

Noninterest Expenses:	Noninterest Expenses:																														Noninterest Expenses:
Salaries and employee benefits	Salaries and employee benefits	7,836			—			894			112				3,069								—					11,911			Salaries and employee benefits				8,038			—					2,212				134					3,277							—		13,661
Other expenses	Other expenses	7,440			63			518			71				1,083								(1,968)					7,207			Other expenses				10,289			23					1,167				122					1,337							(3,196)		9,742
Total noninterest expenses	Total noninterest expenses	15,276			63			1,412			183				4,152								(1,968)					19,118			Total noninterest expenses				18,327			23					3,379				256					4,614							(3,196)		23,403

Income (loss) before income taxes	Income (loss) before income taxes	6,716			6,450			280			(183)				(3,036)								—					10,227			Income (loss) before income taxes				9,362			4,621					(96)				(256)					(2,795)							—		10,836
Income taxes	Income taxes	1,137			1,564			59			(47)				(544)								—					2,169			Income taxes				1,266			1,120					(32)				(66)					(615)							—		1,673
Net income (loss)	Net income (loss)	5,579			4,886			221			(136)				(2,492)								—					8,058			Net income (loss)				8,096			3,501					(64)				(190)					(2,180)							—		9,163

Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—			—			—			27				—								—					27			Net loss attributable to noncontrolling interest				—			—					46				38					—							—		84
Net income (loss) attributable to parent		5,579			4,886			221			(109)				(2,492)								—					8,085
Preferred stock dividends		—			—			—			—				35								—					35

Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	5,579		$	4,886		$	221		$	(109)			$	(2,527)							$	—				$	8,050		Net income (loss) available to common shareholders				$	8,096		$	3,501				$	(18)			$	(152)				$	(2,180)						$	—	$	9,247

Capital expenditures for the three months ended March 31, 2021		$	1,936		$	—		$	—		$	—			$	—							$	—				$	1,936
Capital expenditures for the three months ended June 30, 2021																															Capital expenditures for the three months ended June 30, 2021				$	687		$	22				$	7			$	—				$	—						$	—	$	716


Six Months Ended June 30, 2022	CoRe Banking		Mortgage Banking		Professional Services		Edge Ventures		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	51,081	$	206	$	—	$	—	$	80	$	(15)	$	51,352
Interest expense	1,331		—		15		—		1,513		(15)		2,844
Net interest income (expense)	49,750		206		(15)		—		(1,433)		—		48,508
Provision for loan losses	6,380		—		—		—		—		—		6,380
Net interest income (expense) after provision for loan losses	43,370		206		(15)		—		(1,433)		—		42,128


Total noninterest income	13,991		2,010		11,243		185		5,899		(9,549)		23,779

Noninterest Expenses:
Salaries and employee benefits	19,456		—		7,670		1,323		8,495		—		36,944
Other expenses	21,961		94		2,562		2,217		4,452		(9,549)		21,737
Total noninterest expenses	41,417		94		10,232		3,540		12,947		(9,549)		58,681

Income (loss) before income taxes	15,944		2,122		996		(3,355)		(8,481)		—		7,226
Income taxes	3,402		548		259		(761)		(1,684)		—		1,764
Net income (loss)	12,542		1,574		737		(2,594)		(6,797)		—		5,462




Net loss attributable to noncontrolling interest	—		—		158		200		—		—		358


Net income (loss) available to common shareholders	$	12,542	$	1,574	$	895	$	(2,394)	$	(6,797)	$	—	$	5,820

Capital expenditures for the six months ended June 30, 2022	$	250	$	—	$	26	$	1,448	$	385	$	—	$	2,109


Six Months Ended June 30, 2021	CoRe Banking		Mortgage Banking		Professional Services		Edge Ventures		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	39,695	$	202	$	—	$	—	$	1	$	(2)	$	39,896
Interest expense	2,379		—		3		—		956		(2)		3,336
Net interest income (expense)	37,316		202		(3)		—		(955)		—		36,560
Release of allowance for loan losses	(920)		(2)		—		—		—		—		(922)
Net interest income (expense) after provision for loan losses	38,236		204		(3)		—		(955)		—		37,482




Total noninterest income	11,445		10,953		4,978		—		3,890		(5,164)		26,102

Noninterest Expenses:
Salaries and employee benefits	15,874		—		3,106		246		6,346		—		25,572
Other expenses	17,729		86		1,685		193		2,420		(5,164)		16,949
Total noninterest expenses	33,603		86		4,791		439		8,766		(5,164)		42,521

Income (loss) before income taxes	16,078		11,071		184		(439)		(5,831)		—		21,063
Income taxes	2,403		2,684		27		(113)		(1,159)		—		3,842
Net income (loss)	13,675		8,387		157		(326)		(4,672)		—		17,221




Net loss attributable to noncontrolling interest	—		—		46		65		—		—		111
Net income (loss) attributable to parent	13,675		8,387		203		(261)		(4,672)		—		17,332
Preferred stock dividends	—		—		—		—		35		—		35
Net income (loss) available to common shareholders	$	13,675	$	8,387	$	203	$	(261)	$	(4,707)	$	—	$	17,297

Capital expenditures for the six months ended June 30, 2021	$	928	$	22	$	7	$	1,500	$	—	$	—	$	2,457

Note 14 – Pending Acquisition

Warp Speed Holdings LLC

OnIn March ~~13,~~ 2022, the Bank entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Warp Speed Holdings LLC, a Wyoming limited liability company (“Warp Speed”), pursuant to which the Bank agreed to purchase Class B Common Units of Warp Speed in an amount equal to 37.5% of the outstanding equity interests of Warp Speed on a fully-diluted basis (the “MVB Investment”). On April 28, 2022, MVB Financial Corp. assumed the Bank's obligations under the Purchase Agreement. The aggregate consideration to be paid for the MVB Investment at closing pursuant to the Purchase Agreement is $38.4 million in cash, plus $9.6 million in shares of MVB common stock, with the number of shares of MVB common stock to be issued based on the volume-weighted average closing price for shares of MVB common stock for the 20 trading days ending the day prior to the closing date, which is currently expected to occur ~~mid-2022.~~during the third quarter of 2022.

Note 15 – Subsequent Event

In August 2022, the Bank executed an amendment to an existing program management agreement with CK Progress, Inc., a subsidiary of Credit Karma, LLC, whereby the term of the agreement was renewed for a 24-month period through July 31, 2024.

4047

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the 2021 Form 10-K. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. See the “Forward-Looking Statements” section of this Report for further information on forward-looking statements.

Executive Summary

We have continued to invest in infrastructure to support anticipated future growth in each area that is key to our performance, including personnel, technology and processes in order to meet the increasing compliance obligations of the financial services industry. We believe we are well-positioned in the high-growth markets in which we operate and will continue to focus on margin improvement, leveraging capital, organic portfolio loan growth and operating efficiency. We believe the key challenge for us in the future is to expand our lending platform and utilize the increase in our low cost deposits, while continuing to manage asset quality, as well as management of compliance in emerging and fast growing markets. We are expanding the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. We continue to expand our debit card program sponsorship to further enhance fee income and noninterest income. In addition, we continue to expand our Fintech industry offerings through the acquisition of technology, including a software development team, in order to scale and diversify our banking capabilities.

Financial Results

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Net interest income increased ~~$4.3~~$7.6 million, noninterest income decreased ~~$0.6~~$1.7 million and noninterest expenses increased by ~~$9.7~~$6.4 million during the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021. Our yield on earning assets (tax-equivalent) in the three months ended ~~March 31,~~June 30, 2022 was ~~3.38%~~4.32% compared to 3.54% in the three months ended ~~March 31,~~June 30, 2021. Loans receivable increased by ~~$28~~$317.3 million to ~~$1.90~~$2.22 billion during the three months ended ~~March 31,~~June 30, 2022. Our overall cost of interest-bearing liabilities was ~~0.39%~~0.47% in the three months ended ~~March 31,~~June 30, 2022 ~~compared to 0.48% in the three months ended March 31,~~and 2021. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a net interest margin (tax-equivalent) of ~~3.18%~~4.10% in the three months ended ~~March 31,~~June 30, 2022 compared to ~~3.26%~~3.24% in the three months ended ~~March 31,~~June 30, 2021.

We earned ~~$2.9~~$3.0 million in the three months ended ~~March 31,~~June 30, 2022 compared to ~~$8.1~~$9.2 million in the three months ended ~~March 31,~~June 30, 2021.The three months ended ~~March 31,~~June 30, 2022 earnings equated to a return on average assets of 0.4% and a return on average equity of ~~4.2%~~4.6%, compared to the three months ended ~~March 31,~~June 30, 2021 results of ~~1.3%~~1.4% and ~~13.6%~~15.5%, respectively. Basic and diluted earnings per share were $0.24 and ~~$0.22,~~$0.23, respectively, for the three months ended ~~March 31,~~June 30, 2022 compared to ~~$0.70~~$0.79 and ~~$0.66,~~$0.73, respectively, for the three months ended ~~March 31,~~June 30, 2021.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Net interest income increased $11.9 million, noninterest income decreased $2.3 million and noninterest expenses increased by $16.2 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Our yield on earning assets (tax-equivalent) in the six months ended June 30, 2022 was 3.84% compared to 3.54% in the six months ended June 30, 2021. Loans receivable increased by $345.3 million to $2.22 billion during the six months ended June 30, 2022. Our overall cost of interest-bearing liabilities was 0.45% in the six months ended June 30, 2022 compared to 0.47% in the six months ended June 30, 2021. This cost of interest-bearing liabilities, combined with the earning asset yield, resulted in a net interest margin (tax-equivalent) of 3.63% in the six months ended June 30, 2022 compared to 3.25% in the six months ended June 30, 2021.

We earned $5.8 million in the six months ended June 30, 2022 compared to $17.3 million in the six months ended June 30, 2021. The six months ended June 30, 2022 earnings equated to a return on average assets of 0.4% and a return on average equity of 4.4%, compared to the six months ended June 30, 2021 results of 1.4% and 14.6%, respectively. Basic and diluted earnings per share were $0.48 and $0.45, respectively, for the six months ended June 30, 2022 compared to $1.49 and $1.39, respectively, for

the six months ended June 30, 2021.

Corporate Updates

On March 13, 2022, the Bank entered into the Purchase Agreement with Warp Speed, pursuant to which the Bank agreed to make the MVB Investment. On April 28, 2022, MVB Financial Corp. assumed the Bank's obligations under the Purchase Agreement. The aggregate consideration to be paid for the MVB Investment at closing pursuant to the Purchase Agreement is $38.4 million in cash, plus $9.6 million in shares of MVB common stock, with the number of shares of MVB common stock to be issued based on the volume-weighted average closing price for shares of MVB common stock for the 20 trading days ending the day prior to the closing date, which is currently expected to occur ~~mid-2022.~~

during the third quarter of 2022.

Warp Speed is the holding company for the Warp Family of Companies, which includes CalCon Mutual Mortgage, dba OneTrust Home Loans, One Trust International and Warp Speed Mortgage, as well as investments in Click2Bind Insurance, Empower Title LLC and Grind Analytics LLC. Together, Warp Speed represents a horizontally integrated financial services platform focused on residential and commercial loan origination and servicing, title insurance services, business and personal insurance brokerage and data analytics to optimize business decisions in real time.

COVID-19 Pandemic

The COVID-19 pandemic has continued to cause a great degree of uncertainty in both the global and domestic economy and financial markets. The full impact of COVID-19 is unknown and continues to evolve. Financial markets adjusted dramatically to the reduced economic activity and the pace of recovery is uncertain. The financial market benchmark most relevant to our current and future profitability is the United States Government Treasury yield curve. The United States Government Treasury yield curve is used as a basis for pricing most bonds, loans, borrowings, deposits and other fixed income yield curves.As the outlook for the COVID-19 pandemic improves, management expects that the United States Government Treasury curve will experience some degree of an upward shift over time.

We actively participated in the ~~Paycheck Protection Program (“PPP”),~~PPP, and may evaluate other programs available to assist our clients and provide consumer deferrals consistent with government-sponsored enterprise (“GSE”) guidelines. ~~Management is working to incorporate scenarios that reflect decreased loan cash flows in the short term into our interest rate risk models.~~

There was considerable demand for the PPP implemented by the CARES Act to combat the economic slowdown brought on by the COVID-19 pandemic. The PPP was created to provide funding to small business owners who may have had to temporarily close or scale back production as a result of the COVID-19 pandemic. The intended use of this funding is to pay employees who may be temporarily unable to work. The original tranche of PPP funding of $349 billion ran out 13 days after the program's implementation. The second tranche of PPP funding of $310 billion had funds available as of the program's closure date. On July 2, 2020, additional legislation was passed that allowed small businesses to apply for loans through August 8, 2020. On January 8, 2021, the Small Business Administration (“SBA”) announced that the PPP would reopen on January 11, 2021 for new borrowers and certain existing PPP borrowers. During the latest round, funds totaling $284 billion were authorized through March 31, 2021. As of ~~March 31,~~June 30, 2022, we originated 734 PPP loans with outstanding balances of ~~$13.5~~$9.8 million through our internal commercial team and originated 3,731 PPP loans with outstanding balances of ~~$28.2~~$12.6 million through our partnership with a Fintech company.

As of March 31, 2022, mortgage loans totaling $0.5 million were outstanding for modifications, such as interest-only payments and payment deferrals. There were no commercial loan modifications outstanding as of March 31, 2022. These modifications were not considered to be troubled debt restructurings in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”

Net Interest Income and Net Interest Margin (Average Balance Schedules)

The following tables present ~~for the periods indicated,~~ information ~~about~~regarding (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) as of and for the periods ~~indicated.~~shown. The average balances presented are derived from daily average balances.

4249


		Three Months Ended March 31,													Three Months Ended June 30,
		2022						2021							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost		(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets	Assets													Assets
Interest-bearing balances with banks	Interest-bearing balances with banks	$	595,574	$	214	0.15	%	$	259,491	$	65	0.10	%	Interest-bearing balances with banks	$	197,613	$	304	0.62	%	$	178,792	$	40	0.09	%
CDs with banks	CDs with banks	2,352		13		2.24		11,803		57		1.96		CDs with banks	1,582		9		2.28		11,803		58		1.97
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	241,974		648		1.09		172,902		631		1.48		Taxable	237,745		838		1.41		254,536		625		0.98
Tax-exempt 2	Tax-exempt 2	128,588		1,137		3.59		212,488		1,714		3.27		Tax-exempt 2	147,646		1,342		3.65		207,830		1,640		3.17
Loans and loans held-for-sale: 1	Loans and loans held-for-sale: 1													Loans and loans held-for-sale: 1
Commercial 3	Commercial 3	1,453,262		16,979		4.74		1,262,444		14,171		4.55		Commercial 3	1,564,266		20,021		5.13		1,416,669		15,884		4.50
Tax exempt 2	Tax exempt 2	5,066		52		4.16		7,205		81		4.56		Tax exempt 2	4,930		52		4.23		6,905		78		4.53
Real estate	Real estate	338,826		2,340		2.80		293,076		2,684		3.71		Real estate	393,983		2,674		2.72		320,528		2,747		3.44
Consumer	Consumer	54,623		2,128		15.80		7,696		37		1.95		Consumer	88,366		3,142		14.26		6,550		122		7.47
Total loans	Total loans	1,851,777		21,499		4.71		1,570,421		16,973		4.38		Total loans	2,051,545		25,889		5.06		1,750,652		18,831		4.31
Total earning assets	Total earning assets	2,820,265		23,511		3.38		2,227,105		19,440		3.54		Total earning assets	2,636,131		28,382		4.32		2,403,613		21,194		3.54
Less: Allowance for loan losses	Less: Allowance for loan losses	(18,343)						(26,170)						Less: Allowance for loan losses	(19,927)						(26,625)
Cash and due from banks	Cash and due from banks	6,067						20,951						Cash and due from banks	5,579						22,141
Other assets	Other assets	248,803						209,995						Other assets	237,016						193,165
Total assets	Total assets	$	3,056,792					$	2,431,881					Total assets	$	2,858,799					$	2,592,294

Liabilities	Liabilities													Liabilities
Deposits:	Deposits:													Deposits:
NOW	NOW	$	785,108	$	193	0.10	%	$	518,937	$	344	0.27	%	NOW	$	654,781	$	256	0.16	%	$	716,924	$	643	0.36	%
Money market checking	Money market checking	466,287		202		0.18		487,281		231		0.19		Money market checking	380,295		184		0.19		466,091		221		0.19
Savings	Savings	50,041		1		0.01		39,668		6		0.06		Savings	27,496		1		0.01		52,992		—		—
IRAs	IRAs	6,370		17		1.08		12,693		42		1.34		IRAs	6,314		17		1.08		12,358		40		1.30
CDs	CDs	87,237		243		1.13		168,951		425		1.02		CDs	75,487		203		1.08		156,507		332		0.85
Repurchase agreements and federal funds sold	Repurchase agreements and federal funds sold	11,823		5		0.17		10,249		3		0.12		Repurchase agreements and federal funds sold	11,566		1		0.03		10,833		3		0.11
FHLB and other borrowings	FHLB and other borrowings	—		—		—		46,349		41		0.36		FHLB and other borrowings	2,312		8		1.39		55,402		49		0.35
Subordinated debt	Subordinated debt	73,062		753		4.18		43,425		466		4.35		Subordinated debt	73,126		760		4.17		43,462		490		4.52
Total interest-bearing liabilities	Total interest-bearing liabilities	1,479,928		1,414		0.39		1,327,553		1,558		0.48		Total interest-bearing liabilities	1,231,377		1,430		0.47		1,514,569		1,778		0.47
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	1,260,965						821,923						Noninterest-bearing demand deposits	1,331,357						810,298
Other liabilities	Other liabilities	46,318						45,311						Other liabilities	40,900						28,688
Total liabilities	Total liabilities	2,787,211						2,194,787						Total liabilities	2,603,634						2,353,555

Stockholders’ equity	Stockholders’ equity													Stockholders’ equity
Preferred stock		—						2,349

Common stock	Common stock	13,458						12,378						Common stock	13,289						12,487
Paid-in capital	Paid-in capital	143,795						136,864						Paid-in capital	145,014						141,782
Treasury stock	Treasury stock	(16,741)						(16,741)						Treasury stock	(16,741)						(16,741)
Retained earnings	Retained earnings	137,633						100,273						Retained earnings	137,989						98,413
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(9,466)						1,971						Accumulated other comprehensive income (loss)	(25,097)						2,194
Total stockholders’ equity	Total stockholders’ equity	268,679						237,094						Total stockholders’ equity	254,454						238,135
Noncontrolling interest	Noncontrolling interest	902						—						Noncontrolling interest	711						604
Total stockholders’ equity attributable to parent	Total stockholders’ equity attributable to parent	269,581						237,094						Total stockholders’ equity attributable to parent	255,165						238,739
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,056,792					$	2,431,881					Total liabilities and stockholders’ equity	$	2,858,799					$	2,592,294

Net interest spread (tax-equivalent)	Net interest spread (tax-equivalent)					2.99	%					3.06	%	Net interest spread (tax-equivalent)					3.85	%					3.07	%
Net interest income and margin (tax-equivalent) 2	Net interest income and margin (tax-equivalent) 2			$	22,097	3.18	%			$	17,882	3.26	%	Net interest income and margin (tax-equivalent) 2			$	26,952	4.10	%			$	19,416	3.24	%
Less: Tax-equivalent adjustments	Less: Tax-equivalent adjustments			$	(249)					$	(377)			Less: Tax-equivalent adjustments			$	(292)					$	(361)
Net interest spread	Net interest spread					2.96	%					3.00	%	Net interest spread					3.80	%					3.01	%
Net interest income and margin	Net interest income and margin			$	21,848	3.14	%			$	17,505	3.19	%	Net interest income and margin			$	26,660	4.06	%			$	19,055	3.18	%

1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the three months ended ~~March 31,~~June 30, 2022and 2021, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.

3 Our PPP loans, totaling~~$41.7~~ $22.3 millionat ~~March 31,~~June 30, 2022 and ~~$190.6~~$207.3 million at ~~March 31,~~June 30, 2021, are included in this amount.

4350


	Six Months Ended June 30,
	2022						2021
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets
Interest-bearing balances with banks	$	395,494	$	518	0.26	%	$	218,919	$	105	0.10	%
CDs with banks	1,964		22		2.26		11,803		115		1.96
Investment securities:
Taxable	239,849		1,486		1.25		213,944		1,256		1.18
Tax-exempt 2	138,170		2,478		3.62		210,146		3,354		3.22
Loans and loans held-for-sale: 1
Commercial 3	1,509,071		37,000		4.94		1,339,983		30,055		4.52
Tax exempt 2	4,998		105		4.24		7,055		159		4.54
Real estate	366,557		5,014		2.76		306,878		5,430		3.57
Consumer	71,588		5,271		14.85		7,120		160		4.53
Total loans	1,952,214		47,390		4.90		1,661,036		35,804		4.35
Total earning assets	2,727,691		51,894		3.84		2,315,848		40,634		3.54
Less: Allowance for loan losses	(19,139)						(26,399)
Cash and due from banks	5,822						21,549
Other assets	242,875						201,533
Total assets	$	2,957,249					$	2,512,531

Liabilities
Deposits:
NOW	$	650,903	$	449	0.14	%	$	618,478	$	987	0.32	%
Money market checking	423,053		386		0.18		476,628		452		0.19
Savings	38,706		2		0.01		46,366		5		0.02
IRAs	6,341		34		1.08		12,525		82		1.32
CDs	81,329		446		1.11		162,694		758		0.94
Repurchase agreements and federal funds sold	11,693		3		0.05		10,542		8		0.15
FHLB and other borrowings	1,163		11		1.91		50,901		88		0.35
Subordinated debt	73,094		1,513		4.17		43,444		956		4.44
Total interest-bearing liabilities	1,286,282		2,844		0.45		1,421,578		3,336		0.47
Noninterest-bearing demand deposits	1,365,037						816,078
Other liabilities	43,594						36,960
Total liabilities	2,694,913						2,274,616

Stockholders’ equity
Preferred stock	—						1,168
Common stock	13,373						12,433
Paid-in capital	144,408						139,330
Treasury stock	(16,741)						(16,741)
Retained earnings	137,815						99,336
Accumulated other comprehensive income (loss)	(17,325)						2,083
Total stockholders’ equity	261,530						237,609
Noncontrolling interest	806						306
Total stockholders’ equity attributable to parent	262,336						237,915
Total liabilities and stockholders’ equity	$	2,957,249					$	2,512,531

Net interest spread (tax-equivalent)					3.39	%					3.07	%
Net interest income and margin (tax-equivalent) 2			$	49,050	3.63	%			$	37,298	3.25	%
Less: Tax-equivalent adjustments			$	(542)					$	(738)
Net interest spread					3.35	%					3.00	%
Net interest income and margin			$	48,508	3.59	%			$	36,560	3.18	%

1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the six months ended June 30, 2022 and 2021, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.

3 Our PPP loans, totaling $22.3 million at June 30, 2022 and $207.3 million at June 30, 2021,are included in this amount.

The following table presents the reconciliation of net interest margin for the periods ~~indicated:~~shown:


		Three Months Ended March 31,						Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022			2021				(Dollars in thousands)	2022			2021			2022			2021
Net interest margin - U.S. GAAP basis	Net interest margin - U.S. GAAP basis								Net interest margin - U.S. GAAP basis
Net interest income	Net interest income	$	21,848		$	17,505			Net interest income	$	26,660		$	19,055		$	48,508		$	36,560
Average interest-earning assets	Average interest-earning assets	2,820,265			2,227,105				Average interest-earning assets	2,636,131			2,403,613			2,727,691			2,315,848
Net interest margin	Net interest margin	3.14		%	3.19		%		Net interest margin	4.06		%	3.18		%	3.59		%	3.18		%

Net interest margin - non-U.S. GAAP basis	Net interest margin - non-U.S. GAAP basis								Net interest margin - non-U.S. GAAP basis
Net interest income	Net interest income	$	21,848		$	17,505			Net interest income	$	26,660		$	19,055		$	48,508		$	36,560
Impact of fully tax-equivalent adjustment	Impact of fully tax-equivalent adjustment	249			377				Impact of fully tax-equivalent adjustment	292			361			542			738
Net interest income on a fully tax-equivalent basis	Net interest income on a fully tax-equivalent basis	22,097			17,882				Net interest income on a fully tax-equivalent basis	26,952			19,416			49,050			37,298
Average interest-earning assets	Average interest-earning assets	$	2,820,265		$	2,227,105			Average interest-earning assets	$	2,636,131		$	2,403,613		$	2,727,691		$	2,315,848
Net interest margin on a fully tax-equivalent basis	Net interest margin on a fully tax-equivalent basis	3.18		%	3.26		%		Net interest margin on a fully tax-equivalent basis	4.10		%	3.24		%	3.63		%	3.25		%

Key Metrics
As of and for the three months ended March 31,
(Dollars in thousands, except per share data) 2022 2021
     Book value per common share $ 21.66 $ 20.38
     Tangible book value per common share 5
$ 21.16 $ 19.98
     Efficiency ratio 1 5
85.6 % 63.8 %
     Overhead ratio 2 3 5
3.8 % 3.1 %
     Net loan charge-offs to total loans receivable 4
0.2 % 0.1 %
     Allowance for loan losses to total loans receivable 1.0 % 1.5 %
     Nonperforming loans $ 18,048 $ 11,577
     Nonperforming loans to total loans receivable 1.0 % 0.7 %
     Equity to assets 9.1 % 8.9 %
     Community Bank Leverage Ratio 10.8 % 11.3 %


	As of and for the three months ended June 30,						As of and for the six months ended June 30,
(Dollars in thousands, except per share data)	2022			2021			2022			2021
Book value per common share	$	20.63		$	21.12		$	20.63		$	21.12
Tangible book value per common share 5	$	20.14		$	20.54		$	20.14		$	20.54
Efficiency ratio 1 5	77.3		%	71.6		%	81.2		%	67.9		%
Overhead ratio 2 3 5	4.2		%	3.6		%	4.0		%	3.4		%
Net loan charge-offs to total loans receivable 4	0.2		%	(0.1)		%	0.2		%	—		%
Allowance for loan losses to total loans receivable	1.03		%	1.50		%	1.03		%	1.47		%
Nonperforming loans	$	19,295		$	15,501		$	19,295		$	15,501
Nonperforming loans to total loans receivable	0.9		%	0.9		%	0.9		%	0.9		%
Equity to assets	8.5		%	9.1		%	8.5		%	9.1		%
Community Bank Leverage Ratio	11.6		%	11.0		%	11.6		%	11.0		%

1 Noninterest expense as a percentage of net interest income and noninterest income

2 Annualized for the quarterly periods presented

3 Noninterest expense as a percentage of average assets

4 Charge-offs less recoveries

5 Non-U.S. GAAP metric

Tangible book value ("TBV") per common share was ~~$21.16~~$20.14 and ~~$19.98~~$20.54 as of ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021, respectively. TBV per common share is a non-U.S. GAAP measure that we believe is helpful to interpreting financial results. A reconciliation of TBV per common share is included below.


		As of March 31,					As of June 30,
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2022		2021		(Dollars in thousands, except per share data)	2022		2021
Goodwill	Goodwill	$	3,988	$	2,350	Goodwill	$	3,988	$	4,119
Intangibles	Intangibles	2,155		2,246		Intangibles	1,981		2,692
Total intangibles	Total intangibles	6,143		4,596		Total intangibles	5,969		6,811

Total equity attributable to parent	Total equity attributable to parent	263,080		236,210		Total equity attributable to parent	252,300		248,611
Less: Preferred equity		—		—

Less: Total intangibles	Less: Total intangibles	(6,143)		(4,596)		Less: Total intangibles	(5,969)		(6,811)
Tangible common equity	Tangible common equity	256,937		231,614		Tangible common equity	246,331		241,800

Tangible common equity	Tangible common equity	256,937		231,614		Tangible common equity	246,331		241,800
Common shares outstanding (000s)	Common shares outstanding (000s)	12,143		11,590		Common shares outstanding (000s)	12,229		11,774
Tangible book value per common share	Tangible book value per common share	$	21.16	$	19.98	Tangible book value per common share	$	20.14	$	20.54

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 certificates of deposit in banks. Interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts, repurchase agreements and subordinated debt. 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 income is impacted favorably by increases in noninterest-bearing demand deposits and equity.

Net interest margin is calculated by dividing net interest income by average interest-earning assets and measures the net revenue stream generated by the Bank’s balance sheet. The net interest margin continues to face considerable pressure due to low interest rates and competitive pricing of loans and deposits in the Bank’s markets. 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 income, while maintaining an appropriate level of interest rate risk.

In 2022, the Federal Reserve raised its key interest rate from a range of 0.00% to 0.25% to a range of ~~0.25%~~1.50% to ~~0.50% and remains at this rate~~1.75% as of ~~March 31,~~June 30, 2022. Effective July 28, 2022, the Federal Reserve raised its key interest rate to a range of 2.25% to 2.50%. We continue to analyze methods to deploy assets into an earning asset mix to result in a stronger net interest margin. Loan growth continues to be strong and management anticipates that loan activity will remain strong in the near-term future.

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Net interest margin (tax-equivalent) was~~3.18%~~ 4.10% for the three months ended ~~March 31,~~June 30, 2022 compared to ~~3.26%~~3.24% for the three months ended ~~March 31,~~June 30, 2021. The ~~decrease~~increase in net interest margin (tax equivalent) was driven by the ~~increase in average interest-bearing balances with banks~~strong loan growth and higher loan yields, particularly driven by the consumer loan portfolio and by accelerated accretion of ~~$336.1 million primarily related to additional deposits received through our banking as a service ("BaaS") tax refund partnerships. As a result of these partnerships,~~ the ~~average loan-to-deposit ratio decreased to 70%~~discount on PCI loans sold during the ~~three months ended March 31, 2022, compared~~quarter. Accelerated accretion of the discount on the PCI loan portfolio contributed approximately 20 basis points to ~~77%~~net interest margin during the ~~three months ended March 31, 2021.~~second quarter of 2022. Net interest spread (tax-equivalent) was~~2.99%~~ 3.85% for the three months ended ~~March 31,~~June 30, 2022 compared to ~~3.06%~~3.07% for the three months ended ~~March 31,~~June 30, 2021. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 1925 basis points in the three months ended ~~March 31,~~June 30, 2022 compared to 2017 basis points in the three months ended ~~March 31,~~June 30, 2021. This was driven by the 78 basis point increase in yield on earning assets outpacing the impact of the increase of $521.1 million in average noninterest-bearing demand deposits.

During thethree months ended ~~March 31,~~June 30, 2022, net interest income increased by ~~$4.3~~$7.6 million, or ~~24.8%~~39.9%, to ~~$21.8~~$26.7 million from ~~$17.5~~$19.1 million during the three months ended ~~March 31,~~June 30, 2021. This increase is largely due to the increase in the average earning assets of ~~$593.2~~$232.5 million being primarily funded by the increase in noninterest-bearing demand deposits of ~~$439.0~~$521.1 million. Average total earning assets were ~~$2.82~~$2.64 billion in the three months ended ~~March 31,~~June 30, 2022 compared to ~~$2.23~~$2.40 billion in the three

months ended ~~March 31,~~June 30, 2021.Total interest income increased by ~~$4.2~~$7.3 million, or ~~22.0%~~34.8%, to~~$23.3~~ $28.1 million in the three months ended ~~March 31,~~June 30, 2022 from ~~$19.1~~$20.8 million in the three months ended ~~March 31,~~June 30, 2021.This increase in total interest income was driven by higher yields from new loan production at favorable interest rates, as well as the ~~growth~~change in ~~earning assets offsetting~~our loan portfolio, including the ~~decrease~~increase in consumer loans and accelerated accretion on PCI loans, which resulted in an increase in the yield on earning assets of 1678 basis points. Average total loans increased to ~~$1.85 billionin the three months ended March 31, 2022 from $1.57~~$2.05 billion in the three months ended ~~March 31,~~

June 30, 2022 from $1.75 billion in the three months ended June 30, 2021, primarily as the result of a ~~$190.8~~$147.6 million increase in average commercial loans.. The yield on total loans increased 3375 basis points.

Average investment securities decreased~~$14.8~~ $77.0 millionas the result of a ~~$83.9~~$60.2 million decrease in tax-exempt investments and a~~$69.1~~ $16.8 million ~~increase~~decrease in taxable investments during three months ended ~~March 31,~~June 30, 2022, compared to three months ended ~~March 31,~~June 30, 2021.The yield on tax-exempt securities increased 3248 basis points and the taxable securities yield increased 3943 basis points.

Average interest-bearing liabilities ~~increased~~decreased by ~~$152.4~~$283.2 million for three months ended ~~March 31~~, June 30, 2022 fromthree months ended ~~March 31~~, ~~2021~~. June 30, 2021. The ~~increase~~decrease was primarily the result of average balance ~~increase~~decrease of ~~$266.2~~$85.8 million in money market checking accounts, $81.0 million in certificates of deposit, $62.1 million in negotiable order of withdrawal accounts and ~~$29.6~~$53.1 million in ~~subordinated debt,~~FHLB and other borrowings, partially offset by average balance ~~decrease~~increase of~~$81.7~~ $29.7 million in ~~certificates of deposit, $21.0 million in money market checking accounts and $46.3 million in FHLB and other borrowings.~~subordinated debt.

Average interest-bearing deposits were~~$1.40~~ $1.14 billion for the three months ended ~~March 31,~~June 30, 2022 and ~~$1.23~~$1.40 billion for the three months ended ~~March 31,~~June 30, 2021. Total interest expense decreased by~~$0.1~~ $0.3 million, caused primarily by a ~~$0.4~~$0.6 million decrease in deposit interest. The result was a ~~nine~~zero basis point change in the cost of interest-bearing liabilities, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Net interest margin (tax-equivalent) was 3.63% for the six months ended June 30, 2022 compared to 3.25% for the six months ended June 30, 2021. Net interest spread (tax-equivalent) was 3.39% for the six months ended June 30, 2022 compared to 3.07% for the six months ended June 30, 2021. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 24 basis points in the six months ended June 30, 2022 compared to 18 basis points in the six months ended June 30, 2021. This was driven by the 30 basis point increase in yield on earning assets outpacing the impact of the increase of $549.0 million in average noninterest-bearing demand deposits.

During the six months ended June 30, 2022, net interest income increased by $11.9 million, or 32.7%, to $48.5 million from $36.6 million during the six months ended June 30, 2021. This increase is largely due to the increase in the average earning assets of $411.8 million being primarily funded by the increase in average noninterest-bearing demand deposits of $549.0 million. Average total earning assets were $2.73 billion in the six months ended June 30, 2022 compared to $2.32 billion in the six months ended June 30, 2021. Total interest income increased by $11.5 million, or 28.7%, to $51.4 million in the six months ended June 30, 2022 from $39.9 million in the six months ended June 30, 2021. This increase in total interest income was driven by higher yields from new loan production at favorable interest rates, as well as the change in our loan portfolio, including the increase in consumer loans and accelerated accretion on PCI loans, which resulted in the increase in yield on earning assets of 30 basis points. Average total loans increased to $1.95 billion in the six months ended June 30, 2022 from $1.66 billion in the six months ended June 30, 2021, primarily as the result of a $169.1 million increase in average commercial loans. The yield on total loans increased 55 basis points.

Average investment securities decreased $46.1 million as the result of a $72.0 million decrease in tax-exempt investments and offset by a $25.9 million increase in taxable investments during the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The yield on tax-exempt securities increased 40 basis points and the taxable securities yield increased 7 basis points.

Average interest-bearing liabilities decreased by $135.3 million for the six months ended June 30, 2022 from the six months ended June 30, 2021. The decrease was primarily the result of average balance decrease of $81.4 million in certificates of deposit, $53.6 million in money market checking accounts and $49.7 million in FHLB and other borrowings, partially offset by an average balance increase of $32.4 million in negotiable order of withdrawal accounts and $29.7 million in subordinated debt.

Average interest-bearing deposits were $1.20 billion for the six months ended June 30, 2022 and $1.32 billion for the six months ended June 30, 2021. Total interest expense decreased by $0.5 million, caused primarily by a $1.0 million decrease in deposit interest, partially offset by a $0.6 million increase in interest on subordinated debt. The result was a 2 basis point decrease in the cost of interest-bearing liabilities, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.

The Bank’s yield on earning assets for the three months ended March 31, 2022 declined due to a decrease in investment portfolio yield of 52 basis points and cost of interest-bearing liabilities decreased by nine basis points compared to three months ended March 31, 2021.

The cost of interest-bearing liabilitiesdecreased to ~~0.39%~~0.45% in the ~~three~~six months ended ~~March 31,~~June 30, 2022 from ~~0.48%~~0.47% in the ~~three~~six months ended ~~March 31,~~June 30, 2021. Thisdecreaseis primarily the result of 16adecreaseof 13 basis ~~point decrease~~points in the cost of deposits and a27basis pointdecreasein the cost of subordinated debt, primarily from the improved deposit mix resulting from the replacement of high-cost deposits with noninterest-bearing deposits.

Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.

Provision for Loan Losses

The provision for loan losses, which is a product of management’s formal quarterly analysis, is recorded in response to inherent losses in the loan portfolio.Loan loss provisions were ~~$1.3~~$5.1 million for the three months ended ~~March 31,~~June 30, 2022 and ~~$0.6~~$1.5 million was released for the three months ended ~~March 31,~~June 30, 2021. The increase in loan loss provision is primarily the result of the changes to the outstanding balances of the loan portfolios, level of recognized charge-offs and resulting historical loss rates, as well as adjustments to the risk grading of loans within the portfolio. In addition, changes to the outstanding balances of the loan portfolios, changes to the level of recognized charge-offs and changes in the resulting historical loss rates, and adjustments to the risk grading of loans within the portfolio were all contributing factors in the ultimate change in loan loss provision.

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Total loan balances, excluding ~~purchased credit impaired ("PCI")~~PCI loans, increased ~~$29.2~~$326.7 million during the three months ended ~~March 31,~~June 30, 2022 versus an increase of ~~$245.6~~$15.7 million in the three months ended ~~March 31,~~June 30, 2021. The commercial loan portfolio increased by ~~$0.9~~$158.7 million during the three months ended ~~March 31,~~June 30, 2022, in comparison to an increase of ~~$212.2~~$32.5 million in the three months ended ~~March 31,~~June 30, 2021, while the residential mortgage loan portfolio increased by ~~$7.5~~$127.0 million during the three months ended ~~March 31,~~June 30, 2022, as compared to a ~~$35.4~~$19.8 million ~~increase~~decrease during the three months ended ~~March 31,~~June 30, 2021. Additionally, our consumer loan portfolio increased by ~~$21.7~~$42.3 million during the three months ended ~~March 31,~~June 30, 2022, while it ~~decreased~~increased by ~~$0.1~~$7.0 million in the three months ended ~~March 31,~~June 30, 2021. Offsetting the commercial and total loan volume increases are SBA PPP loans, which decreased ~~$90.0~~$19.4 million during the quarter ended ~~March 31,~~June 30, 2022. In addition, net charge-offs during the three months ended ~~March 31,~~June 30, 2022 totaled ~~$0.6~~$1.2 million, compared to net ~~charge-offs~~recoveries of $0.2 million in the three months ended ~~March 31,~~June 30, 2021. Provision was also impacted by a ~~$0.1~~$1.0 million increase in the specific loan loss allocations in the three months ended ~~March 31,~~June 30, 2022, relative to a ~~$0.3~~$0.1 million ~~decrease~~increase in the three months ended ~~March 31,~~June 30, 2021.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Total loan balances, excluding PCI loans, increased $355.9 million during the six months ended June 30, 2022 versus an increase of $260.0 million in the six months ended June 30, 2021. The commercial loan portfolio increased by $159.6 million during the six months ended June 30, 2022, in comparison to an increase of $250.0 million in the six months ended June 30, 2021, while the residential mortgage loan portfolio increased by $134.5 million during the six months ended June 30, 2022, while increasing by $15.6 million in the six months ended June 30, 2021. Included in the commercial and total loan volume increases are SBA PPP loans totaling $22.3 million as of June 30, 2022 compared to $207.3 million as of June 30, 2021. In addition, net charge-offs during the six months ended June 30, 2022 totaled $1.9 million compared to net charge-offs of $0.04 million in the six months ended June 30, 2021. Additionally, provision was impacted by a $1.1 million increase in the specific loan loss allocations in the six months ended June 30, 2022, relative to a $0.1 million decrease in the six months ended June 30, 2021.

Noninterest Income

Payment card and service charge income, consulting compliance income, equity method investment income and gains on securities generally account for the majority of our noninterest income. Also, from time to time, we recognize gains or losses on acquisition and divestiture activity.

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Noninterest income for the three months ended ~~March 31,~~June 30, 2022 and 2021 totaled~~$11.9~~ $11.9 millionand ~~$12.5~~$13.6 million, respectively.The decrease in noninterest income for the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021 was primarily the result of a decrease of ~~$5.3~~$4.0 million in equity method investment income and ~~$0.5~~$1.7 million in the gain on sale of available-for-sale securities.These decreases were partially offset by increases of ~~$2.6~~$2.1 million in payment card, $1.9 million in compliance and consulting income ~~$1.1~~and $1.2 million in ~~payment card and service charge income and $1.1 million in gain on sale of loans.~~other operating income.

Equity method investment income decreased ~~$5.3~~$4.0 million due to ~~decreased volume from~~mortgage income being down as a result of sharp increases in market interest rates during the ~~ICM combination.~~second quarter. Gain on sale of available-for-sale securities decreased ~~$0.5~~$1.7 million due to ~~the sale~~no sales of available-for-sale investments ~~totaling $60.6 million~~ in the ~~first~~second quarter of 2022 compared to ~~$41.0~~sales of $34.3 million in the ~~first~~second quarter of 2021. Compliance and consulting income increased ~~$2.6~~$1.9 million, primarily due to team expansion.Payment card and service charge income increased ~~$1.1~~$2.1 million due to several sponsoring agreements, ~~and~~ new products and services as a result of recent investments in Fintech ~~capabilities. Gain on sale of loans~~capabilities and our banking as a service relationships. Other operating income increased ~~$1.1~~$1.2 million primarily due to the ~~further expansion~~sale of mortgaging servicing rights during the ~~SBA lending team.~~

three months ended June 30, 2022.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Noninterest income for the six months ended June 30, 2022 and 2021 totaled $23.8 million and $26.1 million, respectively. The decrease in noninterest income for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily the result of a decrease of $9.3 million in equity method investment income from ICM, $2.2 million in the gain on sale of available-for-sale securities and $1.3 million in holding gain on equity securities. These decreases were partially offset by increases of $4.5 million in compliance consulting income, $3.2 million in payment card and service charge income, $1.9 million in equity method holding gains and $0.5 million in other operating income.

Equity method investment income decreased $9.3 million for the six months ended June 30, 2022 primarily due to lower mortgage banking revenue. Gain on sale of available-for-sale securities decreased $2.2 million for the six months ended June 30, 2022 due to the decreased sales of available-for-sale securities totaling $60.6 million in the six months ended June 30, 2022 compared to $75.3 million in the six months ended June 30, 2021 and market conditions. Compliance and consulting income increased $4.5 million for the six months ended June 30, 2022 primarily by revenue growth from professional services companies. Payment card and service charge income increased $3.2 million for the six months ended June 30, 2022 due to increased interchange income from our banking-as-a-service relationships. Equity method holding gains increased $1.9 million primarily due to an increased investments in current equity method investment portfolio. Other operating income increased $0.5 million primarily due to the sale of mortgage servicing rights in June 2022.

Noninterest Expense

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Noninterest expense was ~~$28.9~~$29.8 million and ~~$19.1~~$23.4 million in the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Approximately 64% and 58% ~~Approximately 62%~~ of noninterest expense for each of the three months ended ~~March 31,~~June 30, 2022 and 2021, respectably,was related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to financial services organizations.~~Salaries~~ The increase relative to the prior year period primarily reflects higher salaries and employee benefits ~~increased by $6.1 million, primarily~~costs of $5.3 million. The increases in salaries and employee benefits were due to continued hiring during the second quarter that resulted in a 35% increase in average full time equivalent employees for the first half of 2022 as ~~a result of our continued efforts to support our growing Fintech portfolio. Professional fees increased by $1.1 million in the three months ended March 31, 2022~~ compared to the ~~three months ended March 31,~~first half of 2021, ~~due~~including front-line revenue producers and enhanced risk management infrastructure, amidst the transformation of the Company’s business model, mitigated in part by a focused reallocation of resources, including lower infrastructure costs related to ~~increased expenses relating to the Bank's risk and compliance function to support our current and expected Fintech strategy needs.~~a reduction in branch count.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Noninterest expense was $58.7 millionand $42.5 million in the six months ended June 30, 2022 and 2021, respectively. Approximately 63% and 60% of noninterest expense for the six months ended June 30, 2022 and 2021, respectively, was related to personnel costs. Personnel costs are a significant part of our noninterest expense, as such costs are critical to financial services organizations. The increase relative to the prior year period primarily reflects higher salaries and employee benefits costs of $11.4 million. The increases in salaries and employee benefits were due to continued hiring during the second quarter that resulted in a 35% increase in average full time equivalent employees for the first half of 2022 as compared to the first half of 2021, including front-line revenue producers and enhanced risk management infrastructure, amidst the transformation of the Company’s business model, mitigated in part by a focused reallocation of resources, including lower infrastructure costs related to a reduction in branch count.

Return on Assets and Equity

Assets

Total assets increased ~~$101.0~~$192.0 million to ~~$2.89~~$2.98 billion at ~~March 31,~~June 30, 2022from $2.79 billion at December 31, 2021. Earning assets increased ~~$61.0~~$167.4 million to ~~$2.65~~$2.76 billion at ~~March 31,~~June 30, 2022 from $2.59 billion at December 31, 2021. This increase in earning assets was primarily driven by the ~~$50.4~~$350.0 million increase in loans receivable to $2.22 billion at June 30, 2022, from $1.87 billion at December 31, 2021, partially offset by the $142.8 million decrease in interest-bearing deposits with banks from $298.6 million at December 31, 2021 to ~~$349.0~~$155.8 million at ~~March 31,~~June 30, 2022, as well as ~~the $30.0 million increase inloans receivable to $1.90 billion at March 31, 2022,from $1.87 billion at December 31, 2021, partially offset by~~ the decrease in investment securities available-for-sale of ~~$26.2~~$44.8 million to ~~$395.3~~$376.7 million at ~~March 31,~~June 30, 2022, from $421.5 million at December 31, 2021.

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Our return on average assets was 0.4% for the three months ended ~~March 31,~~June 30, 2022, compared to ~~1.3%~~1.4% for the three months ended ~~March 31,2021~~. June 30, 2021. The decreased return in 2022 is a result of a ~~$5.2~~$6.2 million decrease in earnings, while average total assets increased by~~$630.0~~ $270.0 million, mainly as the result of a ~~$336.1~~$300.0 million increase in average total loans, a $18.8 million increase in average interest-bearing deposits with banks, partially offset by a ~~$280.0~~$77.0 million decrease in average investment securities.

Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Our return on average assets was 0.4% for the six months ended June 30, 2022, compared to 1.4% for the six months ended June 30, 2021. The decreased return in 2022 is a result of a $11.5 million decrease in earnings being outpaced by an increase in average total assets of $444.7 million, mainly as the result of a $291.2 million increase in average total loans, ~~and~~ a ~~$14.8~~$176.6 million increase in average interest-bearing balances with banks, partially offset by a $46.1 million decrease in average investment securities.

Equity

Three Months Ended ~~March 31,~~June 30, 2022 vs. Three Months Ended ~~March 31,~~June 30, 2021

Our return on average stockholders’ equity was ~~4.2%~~4.6% for the three months ended ~~March 31,~~June 30, 2022,compared to ~~13.6%~~15.5% for the three months ended ~~March 31,~~June 30, 2021. The decreased return in 2022 is a result of an ~~$5.2~~$6.2 million decrease in earnings,while average equity increased by ~~$32.5~~$16.5 million.

47Six Months Ended June 30, 2022 vs. Six Months Ended June 30, 2021

Our return on average stockholders’ equity was 4.4% for the six months ended June 30, 2022, compared to 14.6% for the six months ended June 30, 2021. The decreased return in 2022 is a result of a $11.5 million decrease in earnings, while average equity increased by $24.4 million.

Statement of Financial Condition

Cash and Cash Equivalents

Cash and cash equivalents totaled ~~$354.0~~$161.8 million at ~~March 31,~~June 30, 2022, compared to $307.4 million at December 31, 2021. We believe the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate daily due to transactions in process and other liquidity demands. We believe liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable us to meet cash obligations as they come due. Due to the increase in liquidity driven by growth in noninterest-bearing deposits, we have elected to maintain a higher cash and cash equivalents balance to provide flexibility during the COVID-19 pandemic.

Investment Securities

Investment securities, including equity securities, totaled ~~$429.7~~$411.0 million at ~~March 31,~~June 30, 2022, compared to $453.9 million at December 31, 2021. The following table presents a summary of the investment securities portfolio as of the periods ~~indicated.~~shown. The available-for-sale securities are reported at estimated fair value.


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2022		December 31, 2021
Available-for-sale securities:	Available-for-sale securities:					Available-for-sale securities:
United States government agency securities	United States government agency securities	$	52,451	$	40,437	United States government agency securities	$	49,711	$	40,437
United States sponsored mortgage-backed securities	United States sponsored mortgage-backed securities	68,481		76,108		United States sponsored mortgage-backed securities	63,068		76,108
United States treasury securities	United States treasury securities	105,842		110,389		United States treasury securities	104,280		110,389
Municipal securities	Municipal securities	151,343		175,012		Municipal securities	144,524		175,012
Corporate debt securities	Corporate debt securities	8,816		11,142		Corporate debt securities	6,799		11,142
Other debt securities	Other debt securities	7,500		7,500		Other debt securities	7,500		7,500
Other securities	Other securities	868		878		Other securities	855		878
Total investment securities available-for-sale	Total investment securities available-for-sale	$	395,301	$	421,466	Total investment securities available-for-sale	$	376,737	$	421,466

Equity securities	Equity securities	$	34,447	$	32,402	Equity securities	$	34,250	$	32,402

Management monitors the earnings performance and liquidity of the investment portfolio regularly through the Asset and Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in managing interest rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity is maintained to satisfy depositor requirements and the various credit needs of our customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.

Loans

Our loan portfolio totaled ~~$1.90~~$2.22 billion as of ~~March 31,~~June 30, 2022 and ~~$1.87~~$1.87 billion as of December 31, 2021.The Bank’s lending is primarily focused in North Central West Virginia and Northern Virginia. The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending. The growth in loans is primarily ~~attributable to organic growth within the Bank’s primary~~driven by our strategic lending ~~areas, as well as the addition of an SBA lending team in the fourth quarter of 2020.~~partnerships.

For more information regarding our loans, see Note 3 – Loans and Allowance for Loan Losses accompanying the consolidated financial statements included elsewhere in this report.

Loan Concentration

At ~~March 31,~~June 30, 2022 and December 31, 2021, commercial and non-residential real estate loans comprised the largest component of the loan portfolio. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers in numerous different industries, generally located in our primary market areas. Additionally, within the commercial portfolio, there is a concentration within the healthcare industry which includes loans to physicians, nursing homes and pharmacies.

Allowance for Loan Losses

The ALL was ~~$18.8~~$22.7 million or ~~1.0%~~1.03% of loans receivable at ~~March 31,~~June 30, 2022 compared to $18.3 million or ~~1.0%~~0.98% of loans receivable at December 31, 2021. This ratio remained constant due to increased loan loss provision of ~~$1.3~~$6.4 million, offset by a decrease in net charge-offs ~~of $1.3~~totaling $2.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022. The ~~modest~~ increase in ALL was primarily the result of changes to the outstanding balances of the loan portfolios, changes in the level of recognized charge-offs and changes in the resulting historical loss rates, and adjustments to the risk grading of loans within the portfolio were all contributing factors in the ultimate change in the allowance for loan losses. More specifically, loan portfolios with lower loss allocation rates, such as the PPP portfolio, saw a large decrease in loan balances, while the subprime consumer automobile portfolio, with its relatively higher allocation rate, saw an increase in loan balances.The total increase in the ALL of ~~$0.5~~$4.5 million is the product of a ~~$1.3~~$1.6 million increase in ALL required by changes in loan balances and allocation rates for the ~~growth of~~commercial loan portfolio segments, a $1.2

million increase in ALL caused by the changes in loan balances and allocation rates for the subprime consumer automobile portfolio ~~which was offset by a net $0.8~~and $1.7 million ~~decrease~~increase in ALL caused by the changes in loan balances and allocation rates for all other loan portfolio segments combined.

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 ALL. 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.

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. Traditional deposits remain the most significant source of funds, totaling ~~$2.51~~$2.61 billion, or ~~96.7%~~96.9% of funding sources at ~~March 31,~~June 30, 2022. This same information at December 31, 2021 reflected $2.38 billion in deposits representing 96.6% of funding sources. Subordinated debt of ~~$73.1~~$73.2 million represented ~~2.8%~~2.7% of funding sources at ~~March 31,~~June 30, 2022 and $73.0 million, or 3.0%, of funding sources at December 31, 2021. There were no outstanding amounts due to FHLB and other borrowings at ~~March 31,~~June 30, 2022 and December 31, 2021. Repurchase agreements, which are available to large corporate customers, represented ~~0.5%~~0.4% of funding sources at both ~~March 31,~~June 30, 2022 and 0.5% at December 31, 2021.

Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for the

Company. At ~~March 31,~~June 30, 2022, noninterest-bearing balances totaled ~~$1.3~~$1.34 billion, compared to ~~$1.1~~$1.12 billion at December 31, 2021, or ~~52.2%~~51.4% and 47.1%, respectively, of total deposits. Interest-bearing deposits totaled ~~$1.2~~$1.27 billion at ~~March 31,~~June 30, 2022, compared to ~~$1.3~~$1.26 billion at December 31, 2021, or ~~47.8%~~48.6% and 52.9%, respectively, of total deposits. The main driver of deposit growth has been the increase in Fintech deposits from $1.14 billion at December 31, 2021 to ~~$1.25~~$1.42 billion as of ~~March 31,~~June 30, 2022, through the addition of new relationships and continuing to grow current relationships. This growth in Fintech deposits is primarily due to the increase in gaming ~~deposits, largely as a result of the increasing number of states legalizing sports gaming.~~deposits. Gaming deposits, which are included in total Fintech deposits, totaled ~~$970.4 million~~$1.01 billion as of ~~March 31,~~June 30, 2022, compared to $911.6 million at December 31, 2021. Gaming deposits hold a significant concentration of our deposits and of those gaming deposits, $509.7 million is with one client at June 30, 2022, compared to $484.0 million at December 31, 2021. We currently expect our Fintech banking deposits to continue to grow.

The following table presents the balance of each of the deposit categories as of the periods ~~indicated:~~shown:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2022		December 31, 2021
Noninterest-bearing demand	Noninterest-bearing demand	$	1,308,998	$	1,120,433	Noninterest-bearing demand	$	1,342,916	$	1,120,433
Interest-bearing demand	Interest-bearing demand	630,155		651,016		Interest-bearing demand	726,950		651,016
Savings and money markets	Savings and money markets	491,346		510,068		Savings and money markets	376,790		510,068
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	78,580		96,088		Time deposits, including CDs and IRAs	168,314		96,088
Total deposits	Total deposits	$	2,509,079	$	2,377,605	Total deposits	$	2,614,970	$	2,377,605

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	10,111	$	9,573	Time deposits that meet or exceed the FDIC insurance limit	$	9,073	$	9,573

Average interest-bearing deposits were ~~$1.40~~$1.14 billion during the three months ended ~~March 31,~~June 30, 2022, compared to ~~$1.23~~$1.40 billion during the same time period in 2021 and average noninterest-bearing deposits were ~~$1.26~~$1.33 billion during the three months ended ~~March 31,~~June 30, 2022 compared to ~~$821.9~~$810.3 million during the same time period in 2021.

Average interest-bearing deposits were $1.20 billion during the six months ended June 30, 2022 compared to $1.32 billion during the same time period in 2021 and average noninterest-bearing deposits were $1.37 billion during the six months ended June 30, 2022 compared to $816.1 million during the same time period in 2021.

Along with traditional 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 and Stockholders' Equity

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, stockholders’ equity decreased ~~$11.4~~$22.4 million to ~~$263.9~~$252.9 million. Thisdecreaseconsists of other comprehensive loss of ~~$13.6~~$25.8 million, primarily due to unrealized holding loss on available-for-sale securities, net of taxes, of ~~$13.4~~$25.9 million and cash dividends paid of ~~$2.1~~$4.1 million, partially offset by net income available to common shareholders of ~~$2.9~~$5.8 million, stock-based compensation of $1.4 million and common stock options exercised totaling ~~$0.7 million and stock-based compensation of $0.7~~$1.1 million.

With the stockholders’ equity decreasingas noted above and being outpaced by the growth in assets of ~~$101.0~~$192.0 million in the ~~three~~six months ended ~~March 31,~~June 30, 2022, the equity to assets ratio decreasedfrom 9.8% at December 31, 2021 to ~~9.1%~~8.5% at ~~March 31,~~June 30, 2022. We paid dividends to common shareholders of ~~$2.1~~$4.1 millionand ~~$1.2~~$2.6 million in the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, compared to earnings of ~~$2.9~~$5.8 million and ~~$8.1~~$17.3 millionin the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, resulting in the dividend payout ratio increasing to ~~71.9%~~71.0% in the ~~three~~six months ended ~~March 31,~~June 30, 2022 from ~~14.3%~~14.8% in the ~~three~~six months ended ~~March 31,~~June 30, 2021.

We and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. The Bank is required to comply with applicable capital adequacy standards established by the FDIC. We are exempt from the Federal Reserve Board’s capital adequacy standards as we believes it meets the requirements of the Small Bank Holding Company Policy Statement. 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 to the consolidated financial statements and accompanying notes contained in the 2021 Form 10-K.

In November 2019, federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The CBLR intends to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e., leverage ratio) exceeds a 9% threshold, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.

In April 2020, under the CARES Act, the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID-19 pandemic. The threshold increased to 8.5% in 2021 and has returned to 9% in 2022. The Bank elected to begin using

the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:

● Total assets of less than $10 billion;

● Total trading assets plus liabilities of 5% or less of consolidated assets;

● Total off-balance sheet exposures of 25% or less of consolidated assets;

● Cannot be an advanced approaches banking organization; and

● Leverage ratio greater than 9%, or temporarily prescribed threshold established in response to COVID-19.

The Bank's CBLR at ~~March 31,~~June 30, 2022 was ~~10.8%~~11.6%, which is above the well-capitalized standard of 8.5%. Management 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 manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions. We believe liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable us to meet cash obligations as they come due.

The main source of liquidity for the Bank 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, cash provided by financing activities totaled ~~$130.9~~$233.4 million, cash ~~provided~~used by investing activity totaled ~~$27.0~~$368.5 million and cash used by operating activities totaled ~~$57.3~~$10.5 million. Significant changes in operating cash flows during the quarter include outflows for loans originated for sale of ~~$16.5~~$28.3 million related to the SBA lending program and outflows for changes in other assets of ~~$41.6~~$19.9 million from BaaS products, ~~related to tax refunds. Through our partner that provided tax anticipation~~partially offset by proceeds of loans ~~and through early advance tax refunds, we received the corresponding deposits and receivables~~sold of $45.4 million related to the ~~settlement~~SBA lending program and sale of ~~the early advances.~~ PCI loans.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. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity.

We have an effective shelf registration covering $75 million of debt and equity securities, all of which is available, subject to authorization from the Board of Directors and market conditions, to issue debt or equity securities at our discretion. While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to sell securities on acceptable terms or at all.

We continue to experience increasing concentrations of deposits from emerging industries and have instituted policies and procedures to ensure that we maintain adequate liquidity to manage such deposit levels. For instance, gaming deposits totaled $1.01 billion as of June 30, 2022, compared to $911.6 million at December 31, 2021. Gaming deposits hold a significant concentration of our deposits and of those gaming deposits, $509.7 million is with one client at June 30, 2022, compared to $484.0 million at December 31, 2021.

Current Economic Conditions

We consider our primary market area for CoRe banking services to be comprised of North Central West Virginia and Northern Virginia. We consider our Fintech banking market to be customers located throughout the entire United States.

We believe that the current economic climate in our primary market areas reflect economic climates that are consistent with the general national economic climate. Unemployment in the United States was ~~3.6%~~ 3.8%and ~~6.2%~~6.1% for ~~March~~June 2022and 2021, respectively.

Commitments and Contingent Liabilities

We are a party to financial instruments with off-balance-sheet risk in the ordinary course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by us upon extension of credit, varies and is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third-party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Our policy for obtaining collateral, and the nature of such collateral, is substantially the same as that involved in making commitments to extend credit.

Concentration of Credit Risk

We grant a majority of our commercial, financial, agricultural, real estate and installment loans to customers throughout the North Central West Virginia and Northern Virginia markets. Collateral for loans is primarily residential and commercial real estate, personal property and business equipment. We evaluate the creditworthiness of each of our customers on a case-by-case basis and the amount of collateral it obtains is based upon management’s credit evaluation.

~~Regulatory~~

We are required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. In accordance with these requirements, we implemented a deposit reclassification program that allows us to maintain no such reserve balances as of March 31, 2022 and December 31, 2021.

~~Additional information regarding supervision and regulatory matters related to our business and operations can be found in~~ ~~Item 1, Business~~ ~~of the 2021 Form 10-K under the heading~~ ~~Supervision and Regulation~~.

Contingent Liability

We are involved in various legal actions arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.

Off-Balance Sheet Commitments

The Bank has entered into certain agreements that represent off-balance sheet arrangements that could significantly impact the consolidated financial statements and could have a significant impact in future periods. Specifically, the Bank has entered into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds deposits.

Commitments to extend credit, including loan commitments, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

Critical Accounting Policies and Estimates

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses.

There have been no significant changes to our critical accounting policies and estimates or in the underlying accounting assumptions and estimates used in these critical accounting policies from those disclosed in the consolidated financial statements and accompanying notes contained in the 2021 Form 10-K.

Recent Accounting Pronouncements and Developments

Recent accounting pronouncements and developments applicable us are described further in Note 1 – Nature of Operations and Basis of Presentation accompanying the consolidated financial statements included elsewhere in this report.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Our market risk is composed primarily of interest rate risk. The ALCO is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and coordinate our sources, uses and pricing of funds.

Credit Risk

We have counterparty risk, which may arise from the possible inability of third-party investors to meet the terms of their forward sales contracts. We work with third-party investors that are generally well-capitalized, 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 expect these third parties to fail to meet their obligations.

We expect that some clients will be unable to meet their financial obligations in the near term as a result of the decreased economic activity brought on by the COVID-19 pandemic. However, we do not expect that these credit concerns will perpetuate

indefinitely. Many clients may be eligible to defer loan payments to a later date. We are working to incorporate scenarios that reflect decreased loan cash flows in the short term into our interest rate risk models.

Item 4 – Controls and Procedures

As of ~~March 31,~~June 30, 2022, we carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the results of this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~June 30, 2022.

During the three months ended ~~March 31,~~June 30, 2022, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

5363

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

From time to time in the ordinary course of business, we and our subsidiaries are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.

Item 1A – Risk Factors

Our operations are subject to many risks that could adversely affect our future financial condition and performance, including the risk factors that are described in the 2021 Form 10-K. There have been no material changes in our risk factors from those disclosed.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None.

Item 6 – Exhibits


Exhibit Number	Description	Exhibit Location
Exhibit 10.1	Equity Purchase Agreement, dated March 13, 2022, between Warp Speed Holdings LLC and MVB Bank, Inc.	Form 8-K, File No. 001-38314, filed March 14, 2022, and incorporated by reference herein
Exhibit 31.1	Certificate of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 31.2	Certificate of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 32.1	Certificate of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 32.2	Certificate of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
Exhibit 101.INS	XBRL Instance Document	Filed herewith
Exhibit 101.SCH	XBRL Taxonomy Extension Schema	Filed herewith
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase	Filed herewith

5464


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		MVB Financial Corp.

Date:	~~May 2,~~August 8, 2022	By:	/s/ Larry F. Mazza
			Larry F. Mazza
			CEO and Director
			(Principal Executive Officer)

Date:	~~May 2,~~August 8, 2022	By:	/s/ Donald T. Robinson
			Donald T. Robinson
			President and CFO
			(Principal Financial and Accounting Officer)

5565


		Page
PART I	FINANCIAL INFORMATION	5

Item 1	Financial Statements	5

	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Changes in Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	910
	Notes to the Consolidated Financial Statements	1112

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4148

Item 3	Quantitative and Qualitative Disclosures About Market Risk	5362

Item 4	Controls and Procedures	5363

PART II	OTHER INFORMATION	5464

Item 1	Legal Proceedings	5464

Item 1A	Risk Factors	5464

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	5464

Item 3	Defaults Upon Senior Securities	5464

Item 4	Mine Safety Disclosures	5464

Item 5	Other Information	5464

Item 6	Exhibits	5464

	SIGNATURES	5565


	As of and for the three months ended March 31,
(Dollars in thousands, except per share data)	2022			2021
Book value per common share	$	21.66		$	20.38
Tangible book value per common share 5	$	21.16		$	19.98
Efficiency ratio 1 5	85.6		%	63.8		%
Overhead ratio 2 3 5	3.8		%	3.1		%
Net loan charge-offs to total loans receivable 4	0.2		%	0.1		%
Allowance for loan losses to total loans receivable	1.0		%	1.5		%
Nonperforming loans	$	18,048		$	11,577
Nonperforming loans to total loans receivable	1.0		%	0.7		%
Equity to assets	9.1		%	8.9		%
Community Bank Leverage Ratio	10.8		%	11.3		%