ITEM 6.
MANAGEMENTS DISCUSSION AND ANALYSIS
Forward-looking Statements:
The following discussion contains statements that refer to future expectations, contain projections of the results of operations or of financial condition, or state other
information that is forward-looking. Forward-looking statements are easily identified by the use of words such as could, anticipate, estimate, believe, and similar words that
refer to a future outlook. There is always a degree of uncertainty associated with forward-looking statements. MVBs management believes that the expectations reflected in such statements are based upon reasonable assumptions and on
the facts and circumstances existing at the time of these disclosures. Actual results could differ significantly from those anticipated.
Many factors
could cause MVBs actual results to differ materially from the results contemplated by the forward-looking statements. Some factors, which could negatively affect the results, include:
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|
|
General economic conditions, either nationally or within MVBs market, could be less favorable than expected;
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Changes in market interest rates could affect interest margins and profitability;
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|
|
Competitive pressures could be greater than anticipated;
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|
Legal or accounting changes could affect MVBs results; and
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Adverse changes could occur in the securities and investments markets.
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In Managements Discussion and Analysis we review and explain the general financial condition and the results of operations for MVB Financial Corp. and its subsidiaries. We have designed this discussion to assist
you in understanding the significant changes in MVBs financial condition and results of operations. We have used accounting principles generally accepted in the United States to prepare the accompanying consolidated financial statements. We
engaged S.R. Snodgrass, A.C. to audit the consolidated financial statements and their independent audit report is included in Item 7 herein.
Introduction
The following discussion and analysis of the Consolidated Financial Statements of MVB is presented to provide insight into
managements assessment of the financial results and operations of MVB. MVB Bank, Inc. is the sole operating subsidiary of MVB and all comments, unless otherwise noted, are related to the Bank. You should read this discussion and analysis in
conjunction with the audited Consolidated Financial Statements and footnotes and the ratios and statistics contained elsewhere in this Form 10-KSB.
Application of Critical Accounting Policies
MVBs consolidated financial statements are prepared in accordance with U. S. generally
accepted accounting principles and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements;
accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have
a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the
value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and
liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided
by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal forecasting techniques.
11
The most significant accounting policies followed by the Bank are presented in Note 1 to the consolidated financial
statements. These policies, along with the disclosures presented in the other financial statement notes and in managements discussion and analysis of operations, provide information on how significant assets and liabilities are valued in the
financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the
determination of the allowance for loan losses to be the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.
The allowance for loan losses represents managements estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for
loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of losses inherent in classifications of homogeneous loans based on historical loss
experience of peer banks, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Non-homogeneous loans are specifically evaluated due to the increased risks inherent in those loans. The
loan portfolio also represents the largest asset type in the consolidated balance sheet. Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors
driving changes in the amount of the allowance for loan losses is included in the Allowance for Loan Losses section of this financial review.
Recent
Accounting Pronouncements and Developments
Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, Accounting for Income Taxes and prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 will be effective for the Companys fiscal years beginning after December 15, 2006. The adoption of FIN 48 did not materially impact the Companys
financial position, income or cash flows.
Fair Value Measurements
In September 2006, the FASB issued SFAS N. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. The standard also responds
to investors request for expanded information about the extent to which a company measures assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. This Statement
is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this standard is not expected to have a material effect on the Companys
financial position.
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
In September 2006, the FASB issued SFAS no. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, and amendment of FASB
Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires the Company to (a) recognize in its statement of financial position the overfunded or underfunded status of a defined benefit postretirement plan measured as
the difference between the fair value of plan assets and the benefit obligation, (b) recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during
the period, (c) measure defined benefit plan assets and defined benefit plan
12
obligations as of the date of the Companys statement of financial position, and (d) disclose additional information about certain effects on net
periodic benefit costs in the upcoming fiscal year that arise from the delayed recognition of the actuarial gains and losses and the prior service costs and credits. An employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of
the date of the employers fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The adoption of FASB 158 did not have a material effect on the financial statements.
The Fair Value Option for Financial Assets and Financial Liabilities
The objective of the FAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the
complex provisions of hedge accounting. FAS No. 159 is effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007 provided the entity also elects to apply the provisions of FAS No. 157, Fair Value Measurements. The Company is currently evaluating the impact the adoption of the standard will have on the Companys
results of operations.
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Agreements
In September 2006, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 06-4 (EITF 06-4), Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The guidance is applicable to endorsement split-dollar life insurance arrangements, whereby the employer owns and controls the
insurance policy, that are associated with a postretirement benefit. EITF 06-4 requires that for a split-dollar life insurance arrangement within the scope of the Issue, an employer should recognize a liability for future benefits in accordance with
FAS No. 106 (if, in substance, a postretirement benefit plan exists) or Accounting Principles Board Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with
the employee. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The adoption of this EITF is not expected to have a material effect on the Companys results of operations.
Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements
In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 (EITF 06-10), Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements. EITF 06-10 provides guidance for determining a liability
for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15,
2007. The adoption of the EITF is not expected to have a material effect on the Companys results of operations.
Several other new accounting
standards became effective during the periods presented or will be effective subsequent to December 31, 2007. None of these new standards had or is expected to have a significant impact on the Companys consolidated financial statements.
Summary Financial Results
MVB earned $1.3 million in
2007 compared to $973,000 in 2006. The earnings equated to a 2007 return on average assets of .62% and a return on average equity of 5.78%, compared to prior year results of .58% and 4.86%, respectively. Basic earnings per share was $.87 in 2007
compared to $.68 in 2006. Diluted earnings per share was $.85 in 2007 compared to $.67 in 2006. The most significant factor in the increase in 2007 profitability was the performance of two offices added in 2005. Salaries expense increased by
$588,000,
13
mostly relating to staffing of the additional office, as well as increases for existing staff and the addition of mortgage lending staff. Advertising expense
increased by $154,000 mostly relating to the Berkeley and Harrison County areas. Data processing expense increased by $76,000, the result of an increased volume of transactions and the increased offering of additional services such as online banking
and bill payment. Interest income increased by $3.3 million to $13.3 million and interest expense increased by $2.1 million to $6.4 million, resulting in an increase in net interest income of $1.2 million, mainly relating to the improved performance
of the new offices. Other income increased by $383,000, $131,000 of which related to income on loans held for sale and $56,000 in additional service charges on deposit accounts. In addition other income increased by 136,000, the largest item of
which was $48,000 from title insurance income. The 2007 results support MVBs belief that it has added further value to the franchise by establishing a presence in what we believe are two of the better markets in West Virginia. As these
locations have time to develop further in 2008, results of operations should continue to reap the rewards of the outlay of expenditures in 2005.
While
operating in a challenging interest rate environment, the Bank achieved a 7.15% yield on earning assets in 2007 compared to 6.59% in 2006. Despite extensive competition, total loans increased to $181.5 million at December 31, 2007, from $142.6
million at December 31, 2006. The Banks ability to originate quality loans is supported by a minimal delinquency rate.
Deposits increased to
$157.4 million at December 31, 2007, from $134.6 million at December 31, 2006, due in large part to MVBs expansion into the Harrison and Jefferson County markets. MVB offers an uncomplicated product design accompanied by a simple fee
structure that is attractive to customers. The overall cost of funds for the bank was 3.94% in 2007 compared to 3.32% in 2006. This cost of funds, combined with the earning asset yield, resulted in a net interest margin of 3.71% in 2007 compared to
3.72% in 2006.
The Bank maintained a high-quality, short-term investment portfolio during 2007 to provide liquidity in the balance sheet, to fund loan
growth, for repurchase agreements and to provide security for state and municipal deposits.
Interest Income and Expense
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 and investment securities. Interest-bearing liabilities include interest-bearing deposits, borrowed funds such as sweep accounts, and repurchase agreements. Net interest income remains the primary source of revenue for MVB. Net
interest income is also impacted by changes in market interest rates, as well as the mix of interest-earning assets and interest-bearing liabilities. Net interest income is also impacted favorably by increases in non-interest bearing demand deposits
and equity.
Net interest margin is calculated by dividing net interest income by average interest-earning assets and serves as a measurement of the net
revenue stream generated by MVBs balance sheet. As noted above, the net interest margin was 3.71% in 2007 compared to 3.72% in 2006. The net interest margin continues to face considerable pressure due to competitive pricing of loans and
deposits in MVBs markets. During 2007, the Federal Reserve decreased interest rates three times for a total decrease of 1.00% which had little impact on MVBs interest margin, as they occurred in the late third and fourth quarter of the
year. Managements estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk.
Management continues to analyze methods to deploy MVBs assets into an earning asset mix which will 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.
During 2007, net interest income increased by $1.2 million or 22.0% to $6.9 million in 2007 from $5.7 million in 2006.
This increase is largely due to the growth in average earning assets, primarily $33.3 million in loans. Average total earning assets were
14
$185.9 million in 2007 compared to $151.8 million in 2006. Average total loans grew to $158.5 million in 2007 from $124.8 million in 2006. Primarily as a
result of this growth, total interest income increased by $3.3 million, or 32.6%, to $13.3 million in 2007 from $10.0 million in 2006. Average interest-bearing liabilities, mainly deposits, likewise increased in 2007 by $30.5 million. Average
interest-bearing deposits grew to $108.9 million in 2007 from $86.4 million in 2006. Total interest expense increased by $2.0 million or 46.3%, to $6.4 million in 2007 from $4.4 million in 2006. This increase in interest expense was the result of a
62 basis point increase in interest cost from 2006 to 2007, along with an increase in average interest-bearing liabilities of $30.5 million.
The growth in
the volume of earning assets during 2007 resulted in the yield on earning assets improving to 7.15% in 2007 from 6.59% in 2006. The loan portfolio yield increased by 49 basis points, due mainly to the volume of adjustable rate loans repricing as
interest rates increased throughout 2006, while MVBs investment portfolio yield increased by 33 basis points and interest-bearing deposits in banks yield increased by 76 basis points.
The cost of interest-bearing liabilities increased to 3.94% in 2007 from 3.32% in 2006. This increase is primarily the result of the higher interest rates paid on money
market accounts, certificates of deposit, individual retirement accounts and repurchase agreements.
15
Statistical Financial Information Regarding MVB Financial Corp.
The following tables provide further information about MVBs interest income and expense:
Average Balances and Analysis of Net Interest Income:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
(Dollars in thousands)
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
Income/
Expense
|
|
Yield/
Cost
|
|
Interest-bearing deposits in banks
|
|
$
|
1,981
|
|
|
$
|
102
|
|
5.15
|
%
|
|
$
|
683
|
|
|
$
|
30
|
|
4.39
|
%
|
Federal funds sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
|
26,658
|
|
|
|
1,237
|
|
4.64
|
|
|
|
27,335
|
|
|
|
1,179
|
|
4.31
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
89,597
|
|
|
|
7,337
|
|
8.19
|
|
|
|
60,195
|
|
|
|
4,698
|
|
7.80
|
|
Tax exempt
|
|
|
6,374
|
|
|
|
304
|
|
4.77
|
|
|
|
6,536
|
|
|
|
302
|
|
4.62
|
|
Real estate
|
|
|
48,406
|
|
|
|
3,234
|
|
6.68
|
|
|
|
42,262
|
|
|
|
2,642
|
|
6.25
|
|
Consumer
|
|
|
14,118
|
|
|
|
1,060
|
|
7.51
|
|
|
|
15,801
|
|
|
|
1,160
|
|
7.34
|
|
Allowance for loan losses
|
|
|
(1,430
|
)
|
|
|
|
|
|
|
|
|
(1,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
157,065
|
|
|
|
11,935
|
|
7.60
|
|
|
|
123,793
|
|
|
|
8,802
|
|
7.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
185,704
|
|
|
|
13,274
|
|
7.15
|
|
|
|
151,811
|
|
|
|
10,011
|
|
6.59
|
|
Cash and due from banks
|
|
|
4,589
|
|
|
|
|
|
|
|
|
|
4,297
|
|
|
|
|
|
|
|
Other assets
|
|
|
15,251
|
|
|
|
|
|
|
|
|
|
12,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
205,544
|
|
|
|
|
|
|
|
|
$
|
168,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
20,211
|
|
|
$
|
|
|
|
|
|
$
|
16,797
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
|
13,583
|
|
|
|
104
|
|
0.77
|
|
|
|
11,452
|
|
|
|
64
|
|
0.56
|
|
Money market checking
|
|
|
28,896
|
|
|
|
831
|
|
2.88
|
|
|
|
25,405
|
|
|
|
606
|
|
2.39
|
|
Savings
|
|
|
5,952
|
|
|
|
35
|
|
0.59
|
|
|
|
6,151
|
|
|
|
36
|
|
0.59
|
|
IRAs
|
|
|
6,559
|
|
|
|
293
|
|
4.47
|
|
|
|
5,875
|
|
|
|
238
|
|
4.05
|
|
CDs
|
|
|
74,104
|
|
|
|
3,595
|
|
4.85
|
|
|
|
54,269
|
|
|
|
2,259
|
|
4.16
|
|
Repurchase agreements and federal funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold
|
|
|
18,360
|
|
|
|
726
|
|
3.95
|
|
|
|
19,581
|
|
|
|
698
|
|
3.56
|
|
Federal Home Loan Bank borrowings
|
|
|
11,309
|
|
|
|
568
|
|
5.02
|
|
|
|
8,673
|
|
|
|
459
|
|
5.28
|
|
Long-term debt
|
|
|
3,141
|
|
|
|
225
|
|
7.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
161,904
|
|
|
|
6,377
|
|
3.94
|
|
|
|
131,406
|
|
|
|
4,360
|
|
3.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
1,170
|
|
|
|
|
|
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
183,285
|
|
|
|
|
|
|
|
|
|
148,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,431
|
|
|
|
|
|
|
|
|
|
1,360
|
|
|
|
|
|
|
|
Paid-in capital
|
|
|
17,701
|
|
|
|
|
|
|
|
|
|
16,314
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
3,479
|
|
|
|
|
|
|
|
|
|
2,791
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
(450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
22,259
|
|
|
|
|
|
|
|
|
|
20,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
205,544
|
|
|
|
|
|
|
|
|
$
|
168,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
3.21
|
|
|
|
|
|
|
|
|
|
3.27
|
|
Impact of non-interest bearing funds on margin
|
|
|
|
|
|
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income-margin
|
|
|
|
|
|
$
|
6,897
|
|
3.71
|
%
|
|
|
|
|
|
$
|
5,651
|
|
3.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Rate/Volume Analysis of Changes in Interest Income and Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs. 2006
Increase
(Decrease)
Due to change in:
Rate(1)
|
|
|
|
|
(Dollars in thousands)
|
|
Volume(1)
|
|
|
|
Net
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,295
|
|
|
$
|
344
|
|
|
$
|
2,639
|
|
Tax exempt
|
|
|
(7
|
)
|
|
|
10
|
|
|
|
3
|
|
Real Estate
|
|
|
384
|
|
|
|
208
|
|
|
|
592
|
|
Consumer
|
|
|
(124
|
)
|
|
|
23
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,548
|
|
|
$
|
585
|
|
|
$
|
3,133
|
|
Investment securities (1)
|
|
|
(29
|
)
|
|
|
87
|
|
|
|
58
|
|
Interest-bearing deposits in banks
|
|
|
57
|
|
|
|
15
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,576
|
|
|
$
|
687
|
|
|
$
|
3,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
12
|
|
|
$
|
28
|
|
|
$
|
40
|
|
Money market checking
|
|
|
83
|
|
|
|
142
|
|
|
|
225
|
|
Savings
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
IRAs
|
|
|
28
|
|
|
|
27
|
|
|
|
55
|
|
CDs
|
|
|
826
|
|
|
|
511
|
|
|
|
1,337
|
|
Repurchase agreements
|
|
|
(44
|
)
|
|
|
71
|
|
|
|
27
|
|
FHLB borrowings
|
|
|
140
|
|
|
|
(30
|
)
|
|
|
110
|
|
Long-term debt
|
|
|
|
|
|
|
225
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
1,044
|
|
|
$
|
974
|
|
|
$
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,532
|
|
|
$
|
(287
|
)
|
|
$
|
1,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 vs. 2005
Increase
(Decrease)
Due to change in:
Rate(1)
|
|
|
|
|
(Dollars in thousands)
|
|
Volume(1)
|
|
|
|
Net
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,477
|
|
|
$
|
437
|
|
|
$
|
1,914
|
|
Tax exempt
|
|
|
77
|
|
|
|
2
|
|
|
|
79
|
|
Real Estate
|
|
|
881
|
|
|
|
140
|
|
|
|
1,021
|
|
Consumer
|
|
|
217
|
|
|
|
(70
|
)
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
2,652
|
|
|
$
|
509
|
|
|
$
|
3,161
|
|
Investment securities (1)
|
|
|
210
|
|
|
|
123
|
|
|
|
333
|
|
Interest-bearing deposits in banks
|
|
|
(196
|
)
|
|
|
66
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
$
|
2,666
|
|
|
$
|
698
|
|
|
$
|
3,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW
|
|
$
|
11
|
|
|
$
|
5
|
|
|
$
|
16
|
|
Money market checking
|
|
|
9
|
|
|
|
201
|
|
|
|
210
|
|
Savings
|
|
|
|
|
|
|
|
|
|
|
|
|
IRAs
|
|
|
46
|
|
|
|
25
|
|
|
|
71
|
|
CDs
|
|
|
665
|
|
|
|
355
|
|
|
|
1,020
|
|
Repurchase agreements
|
|
|
305
|
|
|
|
145
|
|
|
|
450
|
|
FHLB borrowings
|
|
|
250
|
|
|
|
17
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
$
|
1,286
|
|
|
$
|
748
|
|
|
$
|
2,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
1,380
|
|
|
$
|
(50
|
)
|
|
$
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in
each.
|
17
Provision for Loan Losses
MVBs provision for loan losses for 2007 and 2006 were approximately $584,000 and $445,000, respectively. This increase principally relates to the increase in loans outstanding.
Determining the appropriate level of the Allowance for Loan Losses (ALL) requires considerable management judgment. In exercising this judgment, management considers
numerous internal and external factors including, but not limited to, portfolio growth, national and local economic conditions, trends in the markets served and guidance from the Banks primary regulators. Management seeks to maintain an ALL
that is appropriate in the circumstances and that complies with applicable accounting and regulatory standards. Further discussion can be found later in this discussion under Allowance for Loan Losses.
Non-Interest Income
Fees related to deposit accounts and cash
management accounts and income on loans held for sale represent the significant portion of the Banks primary non-interest income. The total of non-interest income for 2007 was $1.6 million versus $1.2 million in 2006.
The most significant increase in non-interest income from 2007 to 2006 was $136,000 in other income. This increase is primarily the result of the following: 48,000 in
title insurance income, 30,000 from a trust preferred transaction, 22,000 in investment commissions and 17,000 in credit card income. Other areas of significant increase in non-interest income were income on loans held for sale, which increased by
$131,000 to $377,000, service charges on deposit accounts which increased by $56,000 to $647,000 and visa debit card income which increased by $42,000 to $212,000.
Loss on sale of securities during 2007 totaled $0 versus $4,000 in 2006. The Bank does not routinely sell securities from the portfolio, however, during 2006, some very small mortgage-backed securities were sold and replaced with higher
yielding agencies which were used for repurchase agreements.
The Bank is constantly searching for new non-interest income opportunities that enhance
income and provide customer benefits.
Non-Interest Expense
Non-interest Expense was $6.2 million in 2007 versus $5.1 in 2006. Approximately 56% and 56% of non-interest expense for 2007 and 2006, respectively, related to personnel costs. Personnel is the lifeblood of every service organization,
which is why personnel cost is such a significant part of the expenditure mix. This increase in personnel cost from $2.9 million to $3.5 million represents staffing for the Berkeley office as well as salary adjustments for existing staff, and
additional staff in the mortgage loan area.
Data processing comprised approximately 9.5% and 10.1% of total non-interest expense during 2007 and 2006,
respectively, growing from $517,000 in 2006 to $593,000 in 2007. This increase is the result of increasing account and transaction volumes from one year to the next and the continued focus on internet banking and bill payment services.
In 2007 other expense increased by 24.3% to $660,000. This was largely the result of increased FDIC insurance costs of $63,000, along with increased travel, training
and postage expense totaling $39,000.
18
2006 compared to 2005
Net interest income increased by $1.3 million when comparing 2006 with 2005 results. This increase is largely due to growth in average earning assets, primarily loans, of $37.6 million in 2006. Average interest-bearing liabilities, mainly
deposits, increased by $32.8 million in 2006. This increase was due to an increase in average interest-bearing deposits of $19.5 million.
Non-interest
income is comprised of fees related to deposit accounts and cash management accounts. Non-interest income was $1.2 million in 2006 compared to $876,000 in 2005. This increase was due primarily to increased focus on secondary market loans, along with
continued increases in service charges on deposit accounts and Visa debit card income.
Non-interest expense reached $5.1 million in 2006 compared to $4.3
million in 2005. This increase is representative of the continued growth in the Harrison and Jefferson county markets.
Income Taxes
MVB incurred income tax expense of $414,000 in 2007 and $341,000 in 2006.
The effective tax rate was 24% in 2007 and 26% 2006. This decrease was due to the fact that MVB had tax credits relating to tax exempt interest on loans from 2004, 2005 and 2006.
Return on Assets
MVBs return on average assets was .62% in
2007, .58% in 2006 and .45% in 2005. The increased return in 2007 is a direct result of the improving performance of the Harrison and Jefferson offices as they continue to grow and mature.
Return on Equity
MVBs return on average stockholders
equity (ROE) was 5.78% in 2007, compared to 4.86% in 2006 and 4.34% in 2005. The increased return in 2007 is a direct result of the improving performance of the Harrison and Jefferson offices as they continue to grow.
Overview of the Statement of Condition
The MVB balance sheet changed
significantly from 2006 to 2007. Loans increased by $38.9 million to $181.5 million at December 31, 2007. This increase was largely due to growth in Jefferson and Berkeley Counties, where $20.7 million in new loans were added to the portfolio,
along with Harrison County where loans increased by $13.4 million. Bank premises, furniture and equipment increased by $1.7 million as MVB has constructed a new facility in Berkeley County, West Virginia. Additionally, loans held for sale decreased
by $1.1 million and other assets increased by $1.7 million, $500,000 of which was additional bank owned life insurance, $393,000 accrued interest receivable and $330,000 of which was FHLB stock. Deposits increased by $22.9 million, $14.0 million
relating to Harrison County and $8.0 million relating to the eastern panhandle, comprised of Jefferson and Berkeley Counties. FHLB borrowings increased by $9.8 million, much of which was used to fund loan growth. Long-term debt increased by $4.1
million as MVB completed a trust preferred offering in the first quarter of 2007. Finally, stockholders equity increased by $1.9 million, $587,000 of which represents the beginning of a $4.0 million public offering began in 2007 and $1.3
million in 2007 earnings. These areas of growth are in large part the direct result of growth in the Harrison, Jefferson and Berkeley county markets, in addition to the continued success of MVB in the Marion County market.
19
Cash and Cash Equivalents
MVBs cash and cash equivalents totaled $4.9 million at December 31, 2007, compared to $6.4 million at December 31, 2006, a decrease of $1.5 million. This represents a decrease in the cash letter on the final day of the year.
Management believes the current balance of cash and cash equivalents adequately serves MVBs liquidity and performance needs. Total cash and cash
equivalents fluctuate on a daily basis due to transactions in process and other liquidity demands. Management believes the liquidity needs of MVB 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 MVB to meet cash obligations as they come due.
Investment Securities
Investment securities totaled $27.8 million at
December 31, 2007, compared to $28.7 million at December 31, 2006.
MVBs investment securities are primarily classified as
available-for-sale. Management believes the available-for-sale classification provides flexibility for MVB in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities. At December 31,
2007, the amortized cost of MVBs investment securities totaled $28.1 million, resulting in unrealized depreciation in the investment portfolio of $266,000.
Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through Investment/Asset and Liability Committee (IALC) meetings. The IALC also monitors net interest income and manages
interest rate risk for MVB. Through active balance sheet management and analysis of the investment securities portfolio, MVB maintains sufficient liquidity to satisfy depositor requirements and the various credit needs of its customers. Management
believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.
Loans
MVBs lending is primarily focused in Marion, Harrison, Berkeley and Jefferson County, West Virginia with a secondary focus on the adjacent counties in West
Virginia. The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages and consumer lending. Loans totaled $181.5 million as of December 31, 2007, compared to $142.6 million at
December 31, 2006.
During 2007, MVB experienced loan growth of $38.9 million, $13.4 million in Harrison County and $20.7 million in Jefferson and
Berkeley counties combined. The most significant portion of the growth came in the commercial and non-residential real estate area. Commercial and non-residential real estate loans grew approximately $45.4 million.
At December 31, 2007, commercial loans represented the largest portion of the portfolio approximating 70.8% of the total loan portfolio. Commercial loans totaled
$128.5 million at December 31, 2007, compared to $83.1 million at December 31, 2006. Management will continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards and
risk/price balance. Management expects commercial loan demand to continue to be strong in 2008.
20
Residential real estate loans to MVBs retail customers (including home equity lines of credit) account for the
second largest portion of the loan portfolio, comprising 23.1% of MVBs total loan portfolio. Residential real estate loans totaled $42.0 million at December 31, 2007, compared to $48.1 million at December 31, 2006. Included in
residential real estate loans are home equity credit lines totaling $12.4 million at December 31,2007, compared to $10.7 million at December 31, 2006. Management believes the home equity loans are competitive products with an acceptable
return on investment after risk considerations. Residential real estate lending continues to represent a primary focus of MVBs lending due to the lower risk factors associated with this type of loan and the opportunity to provide service to
those in the Marion, Harrison and Jefferson County markets. Residential real estate portfolio loans were down due to MVBs increased focus on secondary market lending, to better serve customers by offering attractive long-term rates.
Consumer lending continues to be a part of MVBs core lending. At December 31, 2007, consumer loan balances totaled $11.0 million compared to
$11.4 million at December 31, 2006. The majority of MVBs consumer loans are in the direct lending area. Management is pleased with the performance and quality of the consumer loan portfolio, which can be attributed to the many years of
experience of its consumer lenders. This is another important product necessary to serve MVBs market areas.
21
The following table provides additional information about MVBs loans:
Loan maturities at December 31, 2007:
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
or Less
|
|
Thru
Five
Years
|
|
Due After
Five
Years
|
|
Total
|
Commercial and nonresidential real estate
|
|
$
|
77,121
|
|
$
|
47,558
|
|
$
|
3,856
|
|
$
|
128,535
|
|
|
|
|
|
Residential real estate
|
|
|
5,884
|
|
|
26,059
|
|
|
10,087
|
|
|
42,030
|
|
|
|
|
|
Consumer and other
|
|
|
3,511
|
|
|
7,351
|
|
|
110
|
|
|
10,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,516
|
|
$
|
80,968
|
|
$
|
14,053
|
|
$
|
181,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The preceding data has been compiled based upon the earlier of either contractual maturity or next repricing date
Loan Portfolio Analysis:
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
2006
|
Year-end balances:
|
|
|
|
|
Commercial, financial and agricultural
|
|
128,535
|
|
83,124
|
Real estate
|
|
42,030
|
|
48,065
|
Consumer
|
|
10,972
|
|
11,410
|
|
|
|
|
|
Total
|
|
181,537
|
|
142,599
|
|
|
|
|
|
Loan Concentration
At December 31, 2007, commercial loans comprised the largest component of the loan portfolio. There are very few commercial loans that are not secured by real estate. Such non-real estate secured loans generally are lines of credit
secured by accounts receivable. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in numerous different industries but primarily located in our market areas.
Allowance for Loan Losses
Management continually monitors the
risk in the loan portfolio through 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 allowance for loan losses. 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,
local market rumors, which are generally based on some factual information, and changes in the local and national economy. While local market rumors are not measurable or perhaps not readily supportable, historically, this form of information has
been a valuable indication of a potential problem.
22
The result of the evaluation of the adequacy at each period presented herein indicated that the allowance for loan losses
was considered adequate to absorb losses inherent in the loan portfolio.
At December 31, 2007 and 2006 MVB had impaired loans totaling $470,000 and
$5,000 respectively. Included in these totals were non-accrual loans totaling $469,000 and $5,000 respectively. A portion of the Allowance for Loan Losses was allocated to cover any loss in these loans. Loans past due more than 30 days were
$2,152,000 and $2,276,000, respectively at December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
Loans past due more than 30 days to gross loans
|
|
1.18
|
%
|
|
1.59
|
%
|
Loans past due more than 90 days to gross loans
|
|
.18
|
%
|
|
.03
|
%
|
MVB incurred net charge-offs of $57,000 in 2007 and $112,000 in 2006. MVBs provision for loan losses was
$584,000 in 2007 and $445,000 in 2006. Net charge-offs represented .04% and .09% in 2007 and 2006, respectively, compared to average outstanding loans for the indicated period.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Balance, January 1
|
|
$
|
1,206
|
|
|
$
|
873
|
|
|
|
|
Provision
|
|
|
584
|
|
|
|
445
|
|
|
|
|
Charge-offs
|
|
|
68
|
|
|
|
119
|
|
Recoveries
|
|
|
(11
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
57
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
1,733
|
|
|
$
|
1,206
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the allocation of the allowance for loan losses as of December 31:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2006
|
|
Allocation of allowance for loan losses at December 31:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,167
|
|
|
$
|
482
|
|
Real estate
|
|
|
303
|
|
|
|
362
|
|
Consumer
|
|
|
263
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,733
|
|
|
$
|
1,206
|
|
|
|
|
|
|
|
|
|
|
Percent of loans to total loans at December 31:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
71
|
%
|
|
|
58
|
%
|
Real estate
|
|
|
23
|
|
|
|
34
|
|
Consumer
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
23
Non-performing assets consist of loans that are no longer accruing interest, loans that have been renegotiated to below
market rates based upon financial difficulties of the borrower, and real estate acquired through foreclosure. When interest accruals are suspended, accrued interest income is reversed with current year accruals charged to earnings and prior year
amounts generally charged off as a credit loss. When, in managements judgment, the borrowers ability to make periodic interest and principal payments resumes and collectibility is no longer in doubt, the loan is returned to accrual
status.
Non-performing assets and past due loans:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2006
|
|
Non-accrual loans
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
|
|
|
$
|
|
|
Real estate
|
|
|
364
|
|
|
|
|
|
Consumer
|
|
|
105
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
|
469
|
|
|
|
5
|
|
Renegotiated loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
470
|
|
|
|
5
|
|
Other real estate, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
470
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
Accruing loans past due 90 days or more
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a % of total loans
|
|
|
.26
|
%
|
|
|
.00
|
%
|
Allowance for loan losses as a % of non-performing loans
|
|
|
369
|
%
|
|
|
24,120
|
%
|
Funding Sources
MVB considers a number of alternatives, including but not limited to deposits, short-term borrowings, and long-term borrowings when evaluating funding sources. Traditional deposits continue to be the most significant source of funds for
MVB, totaling $157.4 million, or 78.4% of MVBs funding sources at December 31, 2007. This same information at December 31, 2006 reflected $134.6 million in deposits representing 79.8% of such funding sources. Cash management
accounts, which are available to large corporate customers represented 9.9% and 12.0% of MVBs funding sources at December 31, 2007 and 2006, respectively. Borrowings from the Federal Home Loan Bank of Pittsburgh for specific purposes
represented the remainder of such funding sources.
Management continues to emphasize the development of additional non-interest-bearing deposits as a core
funding source for MVB. At December 31, 2007, non-interest-bearing balances totaled $19.1 million compared to $19.8 million at December 31, 2006 or 12.1% and 14.7% of total deposits respectively.
Interest-bearing deposits totaled $138.3 million at December 31, 2007, compared to $114.8 million at December 31, 2006. On a percentage basis, Certificates of
Deposits compose the largest component of MVBs deposits. Average interest-bearing liabilities totaled $161.9 million during 2007 compared to $131.4 million during 2006. Average non-interest bearing liabilities totaled $21.4 million during 2007
compared to $17.5 million during 2006. Management will continue to emphasize deposit gathering in 2008 by offering outstanding customer service and competitively priced products.
24
Maturities of Certificates of Deposit $100,000 or more:
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
Under 3 months
|
|
$
|
4,060
|
Over 3-6 months
|
|
|
23,005
|
Over 6 to 12 months
|
|
|
4,584
|
Over 12 months
|
|
|
2,931
|
|
|
|
|
Total
|
|
$
|
34,580
|
|
|
|
|
There are no other time deposits of $100,000 or more.
Federal Home Loan Bank borrowings and repurchase agreements:
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2007
|
|
|
2006
|
|
Ending balance
|
|
$
|
43,400
|
|
|
$
|
33,999
|
|
Average balance
|
|
|
29,669
|
|
|
|
28,254
|
|
Highest month-end balance
|
|
|
44,064
|
|
|
|
35,946
|
|
Interest expense
|
|
|
1,294
|
|
|
|
1,157
|
|
Weighted average interest rate:
|
|
|
|
|
|
|
|
|
End of Year
|
|
|
4.09
|
%
|
|
|
4.36
|
%
|
During the Year
|
|
|
4.36
|
%
|
|
|
4.09
|
%
|
Along with traditional deposits, MVB has access to both overnight repurchase agreements and Federal Home Loan Bank
borrowings to fund its operations and investments. MVBs repurchase agreements totaled $19.8 million at December 31, 2007, compared to $20.2 million in 2006. Federal Home Loan Bank borrowings totaled $23.6 million at December 31,
2007, compared to $13.8 million at year-end 2006.
Capital/Stockholders Equity
During the year ended December 31, 2007, stockholders equity increased approximately $1.9 million to $23.5 million. This increase consists of $587,000 raised through the beginning of a public stock offering
begun in 2007 and MVBs net income for the year of $1.3 million. MVB paid no dividends during 2007 or 2006.
At December 31, 2007, accumulated
other comprehensive income (loss) totaled ($405,000), an increase in the loss of $32,000 from December 31, 2006. This principally represents net unrealized loss on available-for-sale securities, net of income taxes, and the adjustment to apply
FASB statement No. 158, net of income taxes, at December 31, 2007. Because the vast majority of all the investment securities in MVBs portfolio are classified as available-for-sale, both the investment and equity sections of
MVBs balance sheet are more sensitive to the changing market values of investments than those institutions that classify more of their investment portfolio as held to maturity. Interest rate fluctuations between year-end 2007 and
2006 resulted in the change in market value of the portfolio.
MVB has also complied with the standards of capital adequacy mandated by the banking
industry. Bank regulators have established risk-based capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of
either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning MVBs risk-based capital ratios can be found in Note 14 of the Notes to the Audited
Financial Statements. At December 31, 2007, MVBs risk-based capital ratios were above the minimum standards for a well-capitalized institution. MVBs risk-based capital ratio of 14.5% at December 31, 2007, is above the
well-capitalized standard of 10%. MVBs Tier 1 capital ratio of 13.6% also exceeded the
25
well-capitalized minimum of 6%. The leverage ratio at December 31, 2007, was 11.5% and was also above the well-capitalized standard of 5%. Management
believes MVBs capital continues to provide a strong base for profitable growth.
Liquidity and Interest Rate Sensitivity
The objective of MVBs asset/liability management function is to maintain consistent growth in net interest income within its policy guidelines. This objective is
accomplished through management of MVBs balance sheet liquidity and interest rate risk exposure based on changes in economic conditions, interest rate levels, and customer preferences.
Interest Rate Risk
The most significant market risk resulting from
MVBs normal course of business, extending loans and accepting deposits, is interest rate risk. Interest rate risk is the potential for economic loss due to future interest rate changes which can impact both the earnings stream as well as
market values of financial assets and liabilities. MVBs Investment/ Asset/ Liability Committee (IALC) is responsible for the overall review and management of the Banks balance sheets related to the management of interest rate risk. The
IALC strives to keep MVB focused on the future, anticipating and exploring alternatives, rather than simply reacting to change after the fact.
To this
end, the IALC has established an interest risk management policy that sets the minimum requirements and guidelines for monitoring and controlling the level and amount of interest rate risk. The objective of the interest rate risk policy is to
encourage management to adhere to sound fundamentals of banking while allowing sufficient flexibility to exercise the creativity and innovations necessary to meet the challenges of changing markets. The ultimate goal of these policies is to optimize
net interest income within the constraints of prudent capital adequacy, liquidity, and safety.
The IALC relies on different methods of assessing interest
rate risk including simulating net interest income, monitoring the sensitivity of the net present market value of equity or economic value of equity, and monitoring the difference or gap between maturing or rate-sensitive assets and liabilities over
various time periods. The IALC places emphasis on simulation modeling as the most beneficial measurement of interest rate risk due to its dynamic measure. By employing a simulation process that measures the impact of potential changes in interest
rates and balance sheet structures, and by establishing limits on changes in net income and net market value, the IALC is better able to evaluate the possible risks associated with alternative strategies.
The simulation process starts with a base case simulation which represents projections of current balance sheet growth trends. Base case simulation results are prepared
under a flat interest rate forecast and what is perceived to be the most likely alternative interest rate forecast. Comparisons showing the earnings variance from the flat rate forecast illustrate the risks associated with the current balance sheet
strategy. If necessary, additional balance sheet strategies are developed and simulations prepared. The results from model simulations are reviewed for indications of whether current interest rate risk strategies are accomplishing their goal and, if
not, what alternative strategies should be considered. The policy calls for periodic review by the IALC of assumptions used in the modeling.
The IALC
believes that it is beneficial to monitor interest rate risk for both the short-and long-term. Therefore, to effectively evaluate results from model simulations, limits on changes in net interest income and the value of the balance sheet have been
established. The IALC has determined that the earnings at risk of the Bank shall not change more than 10 % from the base case for a 1% shift in interest rates, nor more than 15 % from the base case for a 2% shift in interest rates. MVB is
in compliance with this policy as of December 31, 2007.
26
The following table is provided to show the earnings at risk of MVB as of December 31, 2007.
(Dollars in Thousands)
|
|
|
|
|
|
|
Immediate Interest Rate Change (one year time frame) (in Basis Points)
|
|
Estimated Increase
|
|
|
(Decrease) in Net
Interest Income
|
|
|
December 31, 2007
|
|
|
Amount
|
|
Percent
|
|
+200
|
|
$
|
8,945
|
|
3.5
|
%
|
+100
|
|
|
8,800
|
|
1.8
|
%
|
Base rate
|
|
|
8,641
|
|
|
|
-100
|
|
|
8,470
|
|
-0.7
|
%
|
-200*
|
|
$
|
8,163
|
|
-5.5
|
%
|
Liquidity
Maintenance of a sufficient level of liquidity is a primary objective of the IALC. Liquidity, as defined by the IALC, 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 MVBs policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions.
The main source of liquidity for MVB comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from
loans, and income from loans and investment securities. During the year ended December 31, 2007, cash provided by financing activities totaled $37.0 million, while outflows from investing activity totaled $41.1 million. When appropriate, MVB
has the ability to take advantage of external sources of funds such as advances from the Federal Home Loan Bank (FHLB) and national market certificate of deposit issuance programs. These external sources often provide attractive interest rates and
flexible maturity dates that enable MVB to match funding with contractual maturity dates of assets. Securities in the investment portfolio are primarily classified as available-for-sale and can be utilized as an additional source of liquidity.
Off-Balance Sheet Commitments
MVB has entered into
certain agreements that represent off-balance sheet arrangements that could have a significant impact on MVBs financial statements and could have a significant impact in future periods. Specifically, MVB has entered into agreements to extend
credit or provide conditional payments pursuant to standby and commercial letters of credit. Further discussion of these agreements, including the amounts outstanding at December 31, 2007, is included in Note 7 to the financial statements.
The following table details the amounts and expected maturities of significant commitments as of December 31, 2007.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
One Year
Or Less
|
|
One
To Three
Years
|
|
Three To
Five
Years
|
|
Over
Five
Years
|
|
Total
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
13,421
|
|
$
|
4,371
|
|
$
|
3,852
|
|
$
|
3,481
|
|
$
|
25,125
|
Residential real estate
|
|
|
1,611
|
|
|
|
|
|
|
|
|
52
|
|
|
1,663
|
Revolving home equity lines
|
|
|
80
|
|
|
326
|
|
|
1,269
|
|
|
13,065
|
|
|
14,740
|
Standby letters of credit
|
|
|
121
|
|
|
748
|
|
|
131
|
|
|
|
|
|
1,000
|
Other commitments
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
589
|
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.
Fourth Quarter
MVBs fourth quarter net income was $328,000 in 2007 compared to $325,000 in the fourth quarter of 2006. This equated to basic earnings per share,
on a quarterly basis, of $.22 in 2007 and $.23 in 2006. Diluted earnings per share for the fourth quarter of 2007 and 2006 was $.22 and $.22, respectively. Net interest income increased in each quarter during 2007 and was $1.87 million in the fourth
quarter of 2007 compared to $1.54 million in 2006. Non-interest income was $455,000 in the fourth quarter of 2007 compared to $357,000 in 2006. Non-interest expense increased to $1.65 million for the fourth quarter of 2007 from $1.30 million in
2006.
Future Outlook
The Banks net income in
2007 exceeded the levels prior to the opening of a new office in Harrison County and the purchase of an existing office in Jefferson County during 2005. These results support managements belief that the new markets will make more opportunities
available to MVB in the future years. Due to continued customer acceptance of our customer service commitment, MVB has become a strong competitor in the Marion, Harrison, Jefferson and Berkeley County markets. MVB will strive to continue penetrating
its markets with an emphasis on customer service with the highest quality products and technology.
Future plans for the Bank involve the Bank taking
advantage of both technology and personal customer contact. The Bank continues to expand delivery channels to better serve both retail and business banking customers. In addition to top of the line technology, the Bank is committed to
providing individual and personal banking services. MVB will continue to search for quality banking locations as well as exploring alternative delivery systems.
28
ITEM 7.
FINANCIAL STATEMENTS
MVB Financial Corp.
Consolidated Balance Sheets
(Dollars in thousands, except number of shares)
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,926
|
|
|
$
|
6,417
|
|
Interest bearing balances with banks
|
|
|
490
|
|
|
|
53
|
|
Investment Securities:
|
|
|
|
|
|
|
|
|
Securities held-to-maturity, at cost
|
|
|
1,814
|
|
|
|
2,326
|
|
Securities available-for-sale, at approximate market value
|
|
|
26,029
|
|
|
|
26,413
|
|
|
|
|
Loans:
|
|
|
181,537
|
|
|
|
142,599
|
|
Less: Allowance for loan losses
|
|
|
(1,733
|
)
|
|
|
(1,206
|
)
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
|
179,804
|
|
|
|
141,393
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
217
|
|
|
|
1,293
|
|
Bank premises, furniture and equipment
|
|
|
8,244
|
|
|
|
6,493
|
|
Accrued interest receivable and other assets
|
|
|
8,574
|
|
|
|
6,896
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
230,098
|
|
|
$
|
191,284
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
19,129
|
|
|
$
|
19,758
|
|
Interest bearing
|
|
|
138,319
|
|
|
|
114,835
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
157,448
|
|
|
|
134,593
|
|
Accrued interest, taxes, and other liabilities
|
|
|
1,601
|
|
|
|
1,037
|
|
Repurchase agreements
|
|
|
19,817
|
|
|
|
20,209
|
|
Federal Home Loan Bank borrowings
|
|
|
23,583
|
|
|
|
13,790
|
|
Long-term debt
|
|
|
4,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
206,573
|
|
|
|
169,629
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1,000; 5,000 shares authorized, none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $1; 4,000,000 shares authorized; 1,508,081 and 1,467,849 shares issued respectively
|
|
|
1,508
|
|
|
|
1,468
|
|
Additional paid-in capital
|
|
|
18,450
|
|
|
|
17,720
|
|
Treasury Stock, 8,919 and 1,234 shares, respectively
|
|
|
(168
|
)
|
|
|
(18
|
)
|
Retained earnings
|
|
|
4,140
|
|
|
|
2,858
|
|
Accumulated other comprehensive loss
|
|
|
(405
|
)
|
|
|
(373
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
23,525
|
|
|
|
21,655
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
230,098
|
|
|
$
|
191,284
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
29
MVB Financial Corp.
Consolidated Statements of Income
(Dollars in thousands except Share and Per Share Data)
Years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
INTEREST INCOME
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
11,631
|
|
$
|
8,500
|
Interest on deposits with other banks
|
|
|
102
|
|
|
30
|
Interest on investment securitiestaxable
|
|
|
1,207
|
|
|
1,151
|
Interest on tax exempt loans and securities
|
|
|
334
|
|
|
330
|
|
|
|
|
|
|
|
Total interest income
|
|
|
13,274
|
|
|
10,011
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
Interest on deposits
|
|
|
4,859
|
|
|
3,203
|
Interest on repurchase agreements
|
|
|
725
|
|
|
698
|
Interest on Federal Home Loan Bank borrowings
|
|
|
568
|
|
|
459
|
Interest on long-term debt
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,377
|
|
|
4,360
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
|
6,897
|
|
|
5,651
|
Provision for loan losses
|
|
|
584
|
|
|
445
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
6,313
|
|
|
5,206
|
|
|
|
|
|
|
|
OTHER INCOME
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
647
|
|
|
591
|
Income on bank owned life insurance
|
|
|
167
|
|
|
149
|
Visa debit card income
|
|
|
212
|
|
|
170
|
Income on loans held for sale
|
|
|
377
|
|
|
246
|
Other operating income
|
|
|
220
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
1,623
|
|
|
1,240
|
|
|
|
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
3,485
|
|
|
2,897
|
Occupancy expense
|
|
|
406
|
|
|
379
|
Equipment depreciation and maintenance
|
|
|
351
|
|
|
310
|
Data processing
|
|
|
593
|
|
|
517
|
Visa debit card expense
|
|
|
152
|
|
|
116
|
Advertising
|
|
|
266
|
|
|
112
|
Legal and accounting fees
|
|
|
85
|
|
|
88
|
Printing, stationery and supplies
|
|
|
115
|
|
|
85
|
Other taxes
|
|
|
127
|
|
|
97
|
Other operating expenses
|
|
|
660
|
|
|
531
|
|
|
|
|
|
|
|
|
|
|
6,240
|
|
|
5,132
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,696
|
|
|
1,314
|
|
|
|
Income tax expense
|
|
|
414
|
|
|
341
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,282
|
|
$
|
973
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.87
|
|
$
|
0.68
|
Diluted net income per share
|
|
$
|
0.85
|
|
$
|
0.67
|
Basic weighted average shares outstanding
|
|
|
1,470,167
|
|
|
1,427,985
|
Diluted weighted average shares outstanding
|
|
|
1,509,404
|
|
|
1,442,910
|
See Notes to Consolidated Financial Statements
30
MVB Financial Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,282
|
|
|
$
|
973
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
584
|
|
|
|
445
|
|
Deferred income tax (benefit)/expense
|
|
|
(117
|
)
|
|
|
(61
|
)
|
Depreciation
|
|
|
364
|
|
|
|
310
|
|
Stock based compensation
|
|
|
13
|
|
|
|
|
|
Loans originated for sale
|
|
|
(27,887
|
)
|
|
|
(14,924
|
)
|
Proceeds of loans sold
|
|
|
28,963
|
|
|
|
13,631
|
|
Amortization, net of accretion
|
|
|
23
|
|
|
|
31
|
|
(Increase) in interest receivable and other assets
|
|
|
(1,205
|
)
|
|
|
(984
|
)
|
Increase in accrued interest, taxes, and other liabilities
|
|
|
564
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
|
|
|
2,584
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
(Increase) in loans made to customers
|
|
|
(38,995
|
)
|
|
|
(37,497
|
)
|
Purchases of premises and equipment
|
|
|
(2,115
|
)
|
|
|
(1,177
|
)
|
Purchases of investment securities available-for-sale
|
|
|
(6,625
|
)
|
|
|
(8,386
|
)
|
Purchases of investment securities held-to-maturity
|
|
|
(1,000
|
)
|
|
|
|
|
(Increase)/decrease in deposits with Federal Home Loan Bank, net
|
|
|
(437
|
)
|
|
|
2,670
|
|
Purchases of certificates of deposit with other banks
|
|
|
|
|
|
|
(594
|
)
|
Proceeds from maturity of certificates of deposit with other banks
|
|
|
|
|
|
|
1,485
|
|
Proceeds from sales, maturities and calls of securities available-for-sale
|
|
|
7,110
|
|
|
|
8,251
|
|
Proceeds from maturities and calls of securities held-to-maturity
|
|
|
1,500
|
|
|
|
209
|
|
Purchase of bank owned life insurance
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) INVESTING ACTIVITIES
|
|
|
(41,062
|
)
|
|
|
(35,039
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
22,855
|
|
|
|
20,640
|
|
Net (decrease)/increase in repurchase agreements
|
|
|
(392
|
)
|
|
|
4,900
|
|
Proceeds from Federal Home Loan Bank borrowings
|
|
|
100,455
|
|
|
|
10,880
|
|
Principal payments on Federal Home Loan Bank borrowings
|
|
|
(90,662
|
)
|
|
|
(92
|
)
|
Proceeds from long-term borrowings
|
|
|
4,124
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(150
|
)
|
|
|
(8
|
)
|
Net proceeds of stock offering
|
|
|
586
|
|
|
|
2,102
|
|
Common stock options exercised
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
36,987
|
|
|
|
38,422
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents
|
|
|
(1,491
|
)
|
|
|
3,287
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
6,417
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
4,926
|
|
|
$
|
6,417
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for:
|
|
|
|
|
|
|
|
|
Interest on deposits, repurchase agreements and FHLB borrowings
|
|
$
|
6,034
|
|
|
$
|
4,249
|
|
Income taxes
|
|
$
|
500
|
|
|
$
|
340
|
|
See Notes to Consolidated Financial Statements
31
MVB Financial Corp.
Consolidated Statements of Changes in Stockholders Equity
Years ended December 31, 2007 and 2006
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income/(loss)
|
|
|
Treasury
Stock
|
|
|
Total
Stockholders
Equity
|
|
Balance, December 31, 2005
|
|
$
|
1,336
|
|
$
|
15,750
|
|
$
|
1,885
|
|
$
|
(443
|
)
|
|
$
|
(10
|
)
|
|
$
|
18,518
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
973
|
|
|
|
|
|
|
|
|
|
|
973
|
|
|
|
|
|
|
|
|
Other comprehensive income(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fair value adjustment on securities available for sale, less reclassification adjustment for realized gains - net of tax effect of $123
|
|
|
|
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
185
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,158
|
|
Adjustment to initially apply FASB Statement No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
Stock offering
|
|
|
132
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,102
|
|
|
|
|
|
|
|
|
Treasury stock, acquired at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
1,468
|
|
$
|
17,720
|
|
$
|
2,858
|
|
$
|
(373
|
)
|
|
$
|
(18
|
)
|
|
$
|
21,655
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
|
|
1,282
|
|
|
|
|
|
|
|
|
Other comprehensive income(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fair value adjustment on securities available for sale, less reclassification adjustment for realized gains - net of tax effect of $45
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,349
|
|
Minimum pension liability adjustment - net of tax effect
|
|
|
|
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
Stock offering
|
|
|
29
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
586
|
|
Stock based compensation
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Treasury stock, acquired at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150
|
)
|
|
|
(150
|
)
|
Common stock options execised
|
|
|
11
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
1,508
|
|
$
|
18,450
|
|
$
|
4,140
|
|
$
|
(405
|
)
|
|
$
|
(168
|
)
|
|
$
|
23,525
|
|
See Notes to Consolidated Financial Statements
32
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
MVB Financial Corp., the
Company, provides banking services to the domestic market with the primary market areas being the Marion, Harrison, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio
management and deposit growth, are directly affected by the market area economies.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MVB
Financial Corp. Inc., and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Estimates, such as the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from these estimates.
Investment Securities
Debt
securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premium and accretion of discounts computed by the interest method from purchase date to
maturity. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale, net of the deferred income tax effect, are recognized as direct increases or
decreases in stockholders equity. Cost of securities sold is recognized using the specific identification method.
Loans Held for
Sale
Through Taylor, Bean and Whitaker, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without
holding these instruments in the banks loan portfolio. After thorough review of the contract with Taylor, Bean and Whitaker, the Company has concluded that no material derivative instruments exist.
Loans and Allowance for Loan Losses
Loans
are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled principal or interest payments are 31 days past due. Interest income on loans is recognized on an accrual basis. The
allowance for loan losses is maintained at a level deemed adequate to absorb probable losses inherent in the loan portfolio. The Company consistently applies a quarterly loan review process to continually evaluate loans for changes in credit risk.
This process serves as the primary means by which the Company evaluates the adequacy of the allowance for loan losses, and is based upon periodic review of the collectibility of loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The
specific component relates to loans that are impaired. The general component covers non-classified loans and is based upon historical loss experience adjusted for qualitative factors.
A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and shortages generally are not classified as impaired. Generally the Company considers impaired loans to include loans classified as non-accrual loans and
loans past due for longer than 90 days.
33
Loan Origination Fees and Costs
Loan origination fees and costs are accounted for according to Statement of Financial Accounting Standards No. 91, which requires that loan origination and commitment fees and direct loan origination costs be
deferred and the net amount amortized as an adjustment of the related loans yield.
Bank Premises, Furniture and Equipment
Bank premises, furniture and equipment are carried at cost less accumulated depreciation. The provision for depreciation is computed for financial
reporting by the straight-line-method based on the estimated useful lives of assets, which range from 7 to 40 years on buildings and leasehold improvements and 3 to 10 years on furniture, fixtures and equipment.
Intangible Assets
The excess of the cost of an acquired
company over the fair value of the net assets and identified intangibles acquired is recorded as goodwill. The net carrying amount of intangible assets was $975 at December 31, 2007.
Other Investments
Federal Home Loan Bank (FHLB) stock is
recorded at cost and considered to be restricted as the Company is required by the FHLB to hold this investment, and the only market for this stock is the issuing agency. FHLB stock totaled $1,181 and $851 at December 31, 2007 and 2006,
respectively, and is included in other assets in the accompanying balance sheet. The Company also holds $187 in Silverton Bank, N.A. stock at December 31, 2007.
Income Taxes
Deferred income taxes are reported for timing differences between items of income or expense
reported in the financial statements and those reported for income tax purposes. The differences relate principally to accretion of discounts on investment securities, provision for loan losses, minimum pension liability, and differences between
book and tax methods of depreciation.
Stock Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment, (SFAS No. 123R) which was issued by the Financial Accounting
Standards Board (FASB) in December 2004. SFAS No. 123R revises SFAS 123 Accounting for Stock Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and its related
interpretations. Under SFAS No. 123R, the Company is required to record compensation expense for all awards granted after the date of adoption and for any unvested options previously granted.
Foreclosed Assets Held for Resale
Foreclosed assets held
for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are recorded at the lower of cost or fair value less estimated selling costs at the time of foreclosure, with any valuation adjustments charged to the
allowance for loan losses. Any unrealized gains or losses on sale are then recorded in other non-interest expense. At December 31, 2007 and 2006, the Company held other real estate of $55 and $0.
Net Income Per Common Share
Diluted net income per common
share includes any dilutive effects of stock options, and is computed by dividing net income by the average number of common shares outstanding during the period, adjusted for the dilutive effect of options under The Companys 2003 Stock
Incentive Plan.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities
and minimum pension liability, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.
Reclassifications
Certain amounts in the 2006 financial statements have been reclassified to conform to the
2007 financial statement presentation.
34
NOTE 2. INVESTMENT SECURITIES
Amortized cost and approximate market values of investment securities held-to-maturity at December 31, 2007, including gross unrealized gains and losses, are summarized as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
|
Approximate
Market
Value
|
Mortgage-backed securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
Municipal securities
|
|
|
816
|
|
|
5
|
|
|
(2
|
)
|
|
|
819
|
U. S. Agency securities
|
|
|
998
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,814
|
|
$
|
5
|
|
$
|
(2
|
)
|
|
$
|
1,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost and approximate market values of investment securities held-to-maturity at
December 31, 2006, including gross unrealized gains and losses, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
|
Approximate
Market
Value
|
Mortgage-backed securities
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
$
|
|
Municipal securities
|
|
|
826
|
|
|
2
|
|
|
(5
|
)
|
|
|
823
|
U. S. Agency securities
|
|
|
1,500
|
|
|
|
|
|
(7
|
)
|
|
|
1,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,326
|
|
$
|
2
|
|
$
|
(12
|
)
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost and approximate market values of investment securities available-for-sale at
December 31, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
|
Approximate
Market
Value
|
U. S. Agency securities
|
|
$
|
21,793
|
|
$
|
93
|
|
$
|
(32
|
)
|
|
$
|
21,854
|
Mortgage-backed securities
|
|
|
3,678
|
|
|
|
|
|
(56
|
)
|
|
|
3,622
|
Corporate securities
|
|
|
700
|
|
|
|
|
|
(271
|
)
|
|
|
429
|
Other securities
|
|
|
124
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,295
|
|
$
|
93
|
|
$
|
(359
|
)
|
|
$
|
26,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost and approximate market values of investment securities available-for-sale at
December 31, 2006 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
|
Approximate
Market
Value
|
U. S. Agency securities
|
|
$
|
20,869
|
|
$
|
34
|
|
$
|
(145
|
)
|
|
$
|
20,758
|
Mortgage-backed securities
|
|
|
4,667
|
|
|
|
|
|
(159
|
)
|
|
|
4,508
|
Corporate securities
|
|
|
1,255
|
|
|
2
|
|
|
(110
|
)
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,791
|
|
$
|
36
|
|
$
|
(414
|
)
|
|
$
|
26,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize amortized cost and approximate market values of securities by maturity:
|
|
|
|
|
December 31, 2007
|
|
|
Held to Maturity
|
|
Available for Sale
|
|
|
Amortized
Cost
|
|
Approximate
Market
Value
|
|
Amortized
Cost
|
|
|
Approximate
Market
Value
|
Within one year
|
|
$
|
|
|
$
|
|
|
$
|
6,120
|
|
|
$
|
6,098
|
After one year, but within five
|
|
|
282
|
|
|
284
|
|
|
10,847
|
|
|
|
10,856
|
After five years, but within ten
|
|
|
1,430
|
|
|
1,429
|
|
|
7,684
|
|
|
|
7,719
|
After ten Years
|
|
|
102
|
|
|
104
|
|
|
1,644
|
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,814
|
|
$
|
1,817
|
|
$
|
26,295
|
|
|
$
|
26,029
|
35
Investment securities with a carrying value of $20,512 and $20,904 at December 31, 2007 and 2006, respectively, were
pledged to secure public funds and repurchase agreements.
The Companys investment portfolio includes securities that are in an unrealized loss
position as of December 31, 2007, the details of which are included in the following table. Although these securities, if sold at December 31, 2007 would result in a pretax loss of $361, the Company has no intent to sell the applicable
securities at such market values, and maintains the Company has the ability to hold these securities until all principal has been recovered. Declines in the market values of these securities can be traced to general market conditions which reflect
the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers 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, the Companys ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been
downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated.
As of December 31, 2007,
the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in market value.
The following table discloses investments in an unrealized loss position:
At December 31, 2007, total temporary impairment totaled $361.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
Description and number of positions
|
|
Fair Value
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
Unrealized
Loss
|
|
U.S. Agencies (22)
|
|
$
|
8,984
|
|
$
|
(13
|
)
|
|
$
|
3,231
|
|
$
|
(19
|
)
|
Mortgage-backed securities (27)
|
|
|
|
|
|
|
|
|
|
3,622
|
|
|
(56
|
)
|
Corporate securities (2)
|
|
|
|
|
|
|
|
|
|
430
|
|
|
(271
|
)
|
Municipal securities (1)
|
|
|
|
|
|
|
|
|
|
228
|
|
|
(2
|
)
|
|
|
$
|
8,984
|
|
$
|
(13
|
)
|
|
$
|
7,511
|
|
$
|
(348
|
)
|
NOTE 3. LOANS
The components of loans in the balance sheet at December 31, were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Commercial and non-residential real estate
|
|
$
|
128,535
|
|
$
|
83,124
|
Residential real estate
|
|
|
42,030
|
|
|
48,065
|
Consumer and other
|
|
|
10,972
|
|
|
11,410
|
|
|
|
|
|
|
|
|
|
$
|
181,537
|
|
$
|
142,599
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses were as follows for the years ended December 31:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Balance at beginning of period
|
|
$
|
1,206
|
|
|
$
|
873
|
|
Losses charged to allowance
|
|
|
(68
|
)
|
|
|
(119
|
)
|
Recoveries credited to allowance
|
|
|
11
|
|
|
|
7
|
|
Provision for loan losses
|
|
|
584
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,733
|
|
|
$
|
1,206
|
|
|
|
|
|
|
|
|
|
|
Impaired loans are accounted for in accordance with Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of Loans, as amended by Statement of Financial Accounting Standards No. 118. The Company considers a loan impaired when, based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan agreement.
As of December 31, 2007 and 2006, the Company had
impaired loans totaling $470 and $5, respectively, with an allocated reserve for such loans sufficient to cover possible losses. Included in these totals were non-accrual loans totaling $469 and $5, respectively.
36
NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT
Bank premises, furniture and equipment at December 31, were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Bank Premises
|
|
$
|
7,368
|
|
|
$
|
5,853
|
|
Equipment, furniture and fixtures
|
|
|
2,391
|
|
|
|
1,791
|
|
|
|
|
9,759
|
|
|
|
7,644
|
|
Allowance for depreciation
|
|
|
(1,515
|
)
|
|
|
(1,151
|
)
|
|
|
$
|
8,244
|
|
|
$
|
6,493
|
|
|
|
|
|
|
|
|
|
|
NOTE 5. DEPOSITS
Deposits at December 31, were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Demand deposits of individuals, partnerships, and corporations
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
13,640
|
|
$
|
12,667
|
Non-interest bearing
|
|
|
18,557
|
|
|
18,783
|
Time and savings deposits of individuals, partnerships and corporations
|
|
|
120,683
|
|
|
97,624
|
Deposits of states and political subdivisions
|
|
|
3,996
|
|
|
4,544
|
Official checks
|
|
|
572
|
|
|
975
|
Total Domestic Deposits
|
|
$
|
157,448
|
|
$
|
134,593
|
|
|
|
|
|
|
|
Time deposits of over $100 included above
|
|
$
|
34,580
|
|
$
|
28,666
|
|
|
|
|
|
|
|
Maturities of certificates of deposit at December 31, 2007 were as follows:
|
|
|
|
2008
|
|
$
|
59,899
|
2009
|
|
|
9,212
|
2010
|
|
|
4,744
|
2011
|
|
|
2,099
|
2012
|
|
|
3,706
|
|
|
|
|
Total
|
|
$
|
79,660
|
|
|
|
|
NOTE 6. BORROWED FUNDS
The Company is a party to repurchase agreements with certain customers. As of December 31, 2007 and 2006, the company held repurchase agreements of $19,817 and $20,209. Information related to repurchase
agreements is summarized below:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
Balance at end of year
|
|
$
|
19,817
|
|
|
$
|
20,209
|
|
Average balance during the year
|
|
|
18,360
|
|
|
|
19,581
|
|
Maximum month-end balance
|
|
|
20,481
|
|
|
|
22,705
|
|
Weighted-average rate during the year
|
|
|
3.95
|
%
|
|
|
3.56
|
%
|
Rate at December 31
|
|
|
3.41
|
%
|
|
|
3.94
|
%
|
MVB Bank, Inc. (the Bank) is a member of the Federal Home Loan Bank (FHLB) of
Pittsburgh, Pennsylvania. The remaining maximum borrowing capacity with the FHLB at December 31, 2007 was approximately $29,979. At December 31, 2007 and 2006 the Bank had borrowed $23,583 and $13,790.
37
Borrowings from the FHLB as of December 31 were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Fixed interest rate note, originating April 1999, due April 2014, interest of 5.405% is payable monthly
|
|
$
|
1,000
|
|
$
|
1,000
|
|
|
|
Fixed interest rate note, originating January 2005, due January 2020, payable in monthly installments of $11, including interest of 5.140%
|
|
|
1,158
|
|
|
1,225
|
|
|
|
Fixed interest rate note, originating April 2002, due May 2017, payable in monthly installments of $4, including interest of
5.90%
|
|
|
689
|
|
|
701
|
|
|
|
Floating interest rate note, originating March 2003, due December 2011, interest payable monthly, including interest of 3.31%
|
|
|
10,296
|
|
|
8,216
|
|
|
|
Fixed interest rate note, originating July 2006, due July 2016, payable in monthly installments of $8, including interest of
4.50%
|
|
|
1,452
|
|
|
1,487
|
|
|
|
Fixed interest rate note, originating October 2006, due October 2021, payable in monthly installments of $6, including interest of
5.20%
|
|
|
1,145
|
|
|
1,161
|
|
|
|
Fixed interest rate note, originating April 2007, due April 2022, payable in monthly installments of $6, including interest of
5.18%
|
|
|
1,085
|
|
|
|
|
|
|
Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly installments of $5, including interest
of 5.22%
|
|
|
958
|
|
|
|
|
|
|
Fixed interest rate note, originating September 2007, due September 2008, interest of 4.53% payable quarterly
|
|
|
700
|
|
|
|
|
|
|
Fixed interest rate note, originating November 2007, due April 2008, interest of 4.80% payable quarterly
|
|
|
2,700
|
|
|
|
|
|
|
Fixed interest rate note, originating November 2007, due April 2008, interest of 4.60% payable quarterly
|
|
|
1,300
|
|
|
|
|
|
|
Fixed interest rate note, originating December 2007, due December 2017, payable in monthly installments of $7, including interest of 5.25%
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,583
|
|
$
|
13,790
|
|
|
|
|
|
|
|
In March 2007 the Company completed the private placement of $4 million Floating Rate, Trust
Preferred Securities through its MVB Financial Statutory Trust I subsidiary (the Trust). The Company established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of
Trust. The proceeds from the sale of the Trust Preferred Securities will be loaned to the Company under subordinated Debentures (the Debentures) issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the
Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes
as a component of the Companys Tier I capital.
The Trust Preferred Securities and the Debentures mature in 30 years and are
redeemable by the Company after five years. 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 Company reflects borrowed funds in the
amount of $4.1 million as of December 31, 2007 and interest expense of $225 for the year ended December 31, 2007.
38
A summary of maturities of these borrowings over the next five years is as follows:
|
|
|
|
Year
|
|
Amount
|
2008
|
|
$
|
4,890
|
2009
|
|
|
199
|
2010
|
|
|
210
|
2011
|
|
|
10,517
|
2012
|
|
|
232
|
Thereafter
|
|
|
11,659
|
|
|
|
|
|
|
$
|
27,707
|
|
|
|
|
Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage
loans, mortgage-backed securities and certain investment securities.
Additionally the Bank has a line of credit of $4,500 available from
Silverton Bank, N.A. There were no borrowings against this line of credit at December 31, 2007 or 2006.
NOTE 7. FINANCIAL INSTRUMENTS
Financial Instruments with Off-Balance-Sheet Risk
The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its 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.
The Companys 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. The Company uses 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. The Company evaluates each customers credit worthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on
managements credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Company 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. The Companys policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.
Total contractual amounts of the commitments as of December 31 were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Available on lines of credit
|
|
$
|
41,528
|
|
$
|
20,939
|
Stand-by letters of credit
|
|
|
1,000
|
|
|
400
|
Other loan commitments
|
|
|
608
|
|
|
594
|
|
|
|
|
|
|
|
|
|
$
|
43,136
|
|
$
|
21,933
|
|
|
|
|
|
|
|
Concentration of Credit Risk
The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers throughout the Marion, Harrison,
Jefferson and Berkeley County areas of West Virginia and adjacent counties. Collateral for loans is primarily residential and commercial real estate, personal property, and business equipment. The Company evaluates the credit worthiness of each of
its customers on a case-by-case basis, and the amount of collateral it obtains is based upon managements credit evaluation.
39
NOTE 8. INCOME TAXES
The Company records income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes. FASB 109 is an asset and liability approach that requires the recognition of deferred
income tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities.
The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain items of income and expense,
primarily the provision for possible loan losses, allowance for losses on foreclosed assets held for resale, depreciation, and accretion of discounts on investment securities are reported in different accounting periods for income tax purposes.
The provisions for income taxes for the years ended December 31, were as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Current:
|
|
2007
|
|
|
2006
|
|
Federal
|
|
$
|
451
|
|
|
$
|
342
|
|
State
|
|
|
80
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
531
|
|
|
$
|
402
|
|
|
|
|
|
|
|
|
|
|
Deferred expense (benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(99
|
)
|
|
$
|
(52
|
)
|
State
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(117
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax expense
|
|
$
|
414
|
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes
for the year ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Tax at Federal tax rate
|
|
$
|
577
|
|
|
34.0
|
%
|
|
$
|
447
|
|
|
34.0
|
%
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax
|
|
|
42
|
|
|
2.5
|
%
|
|
|
40
|
|
|
3.0
|
%
|
Tax exempt earnings
|
|
|
(173
|
)
|
|
-10.2
|
%
|
|
|
(147
|
)
|
|
-11.2
|
%
|
Other
|
|
|
(32
|
)
|
|
-2.0
|
%
|
|
|
1
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
414
|
|
|
24.3
|
%
|
|
$
|
341
|
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are the result of timing differences in recognition of revenue
and expense for income tax and financial statement purposes.
Deferred income tax liabilities and (assets) were comprised of the following
at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Depreciation
|
|
$
|
279
|
|
|
$
|
176
|
|
Pension
|
|
|
19
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
298
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities available-for-sale
|
|
|
(106
|
)
|
|
|
(151
|
)
|
Allowance for loan losses
|
|
|
(636
|
)
|
|
|
(415
|
)
|
Minimum pension liability
|
|
|
(164
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax (assets)
|
|
|
(906
|
)
|
|
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (asset)
|
|
$
|
(608
|
)
|
|
$
|
(469
|
)
|
|
|
|
|
|
|
|
|
|
No deferred income tax valuation allowance is provided since it is more likely than not that
realization of the deferred income tax asset will occur in future years.
40
NOTE 9. RELATED PARTY TRANSACTIONS
The Company has granted loans to officers and directors of the Company and to their associates. Related party loans are made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated parties and do not involve more than normal risk of collectibility. Set forth below is a summary of the related loan activity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Balance at
Beginning
of Year
|
|
Borrowings
|
|
Repayments
|
|
|
Balance
at end
of Year
|
December 31, 2007
|
|
$
|
6,882
|
|
$
|
1,013
|
|
$
|
(1,832
|
)
|
|
$
|
6,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
$
|
3,941
|
|
$
|
3,674
|
|
$
|
(733
|
)
|
|
$
|
6,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company held related party deposits of $7,358 and $4,483 at December 31, 2007 and
December 31, 2006, respectively.
The Company held related party repurchase agreements of $5,051 and $1,890 at December 31, 2007
and December 31, 2006, respectively.
NOTE 10. PENSION PLAN
The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all full-time employees. Benefits are based on years of service and the employees compensation.
The Companys funding policy is to fund normal costs of the plan as accrued. Contributions are intended to provide not only for benefits attributed to service to date, but also for those benefits expected to be earned in the future. The Company
participated in the pension plan beginning January 1, 1999. The Company has recognized estimated pension expense of $300 and $139 for the years ended December 31, 2007 and 2006.
Information pertaining to the activity in the Companys defined benefit plan, using the latest available actuarial valuations with a measurement date
of December 31, 2007 and 2006 is as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
836
|
|
|
$
|
661
|
|
Service cost
|
|
|
250
|
|
|
|
122
|
|
Interest cost
|
|
|
69
|
|
|
|
40
|
|
Actuarial loss
|
|
|
265
|
|
|
|
13
|
|
Benefits paid
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,396
|
|
|
$
|
836
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
664
|
|
|
$
|
455
|
|
Actual return on plan assets
|
|
|
118
|
|
|
|
59
|
|
Employer contribution
|
|
|
300
|
|
|
|
150
|
|
Benefits paid
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
1,058
|
|
|
$
|
664
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(338
|
)
|
|
$
|
(172
|
)
|
Unrecognized net actuarial loss
|
|
|
395
|
|
|
|
226
|
|
Unrecognized prior service cost
|
|
|
14
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Prepaid pension cost recognized
|
|
$
|
71
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
1,089
|
|
|
$
|
682
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, the weighted average assumptions used to determine the benefit
obligation are as follows:
|
|
|
|
|
|
|
Discount rate
|
|
6.25
|
%
|
|
6.00
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
41
The components of net periodic pension cost are as follows:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
250
|
|
|
$
|
122
|
|
Interest cost
|
|
|
69
|
|
|
|
40
|
|
Expected return on plan assets
|
|
|
(57
|
)
|
|
|
(42
|
)
|
Amortization of prior service costs
|
|
|
3
|
|
|
|
3
|
|
Amortization of loss
|
|
|
35
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
300
|
|
|
$
|
139
|
|
At December 31, 2007 and 2006, the weighted average assumptions used to determine net periodic
pension cost are as follows:
|
|
|
|
|
|
|
Discount rate
|
|
6.00
|
%
|
|
5.75
|
%
|
Expected long-term rate of return on plan assets
|
|
8.50
|
%
|
|
8.50
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
The Companys pension plan asset allocations at October 31, 2007 and 2006, as well as
target allocations for 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
2008 Target
|
|
|
10/31/2007
|
|
|
10/31/2006
|
|
Equity securities
|
|
70
|
%
|
|
68
|
%
|
|
74
|
%
|
Balanced fund
|
|
25
|
%
|
|
27
|
%
|
|
20
|
%
|
Other
|
|
5
|
%
|
|
5
|
%
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
The net transition obligation (asset), prior service cost (credit), and estimated net loss (gain)
for the plan that are expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are shown in the table below.
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
Expected amortization of transition obligation (asset)
|
|
$
|
|
|
$
|
|
Expected amortization of prior service cost (credit)
|
|
|
2
|
|
|
2
|
Expected amortization of net loss (gain)
|
|
|
26
|
|
|
12
|
Below we show the best estimate of the plan contribution for next fiscal year. We also show the
benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter.
|
|
|
|
|
|
Cash Flow
|
Contributions for the period of 1/1/2008 through 12/31/2008
|
|
$
|
284,120
|
Estimated future benefit payments reflecting expected future service
|
|
|
|
|
|
1/1/2008 through 12/31/2008
|
|
$
|
14,991
|
1/1/2009 through 12/31/2009
|
|
|
39,665
|
1/1/2010 through 12/31/2010
|
|
|
46,583
|
1/1/2011 through 12/31/2011
|
|
|
52,593
|
1/1/2012 through 12/31/2012
|
|
|
70,147
|
1/1/2013 through 12/31/2017
|
|
|
419,328
|
NOTE 11. INTANGIBLE ASSETS
On October 7, 2005, the Company purchased a full service office in the Charles Town area of Jefferson County West Virginia. This office held assets of $1.8 million and total deposits of $17.1 million. As a result
of this transaction, the Company recorded intangible assets. As of December 31, 2007 the Company has allocated $79 to core deposit intangibles, which are being amortized using the double-declining balance method over 10 years. The remaining
$896 has been recorded as goodwill, and is evaluated for impairment on October 1st each year by the Company.
42
NOTE 12. STOCK OFFERING
During 2007 the Company began a public stock offering of 200,000 shares of common stock, which when completed will total slightly less than $4.0 million. The proceeds of this offering will be used to support the
growth of the bank and to increase the legal lending limit to one borrower. In 2006 the Company completed a public stock offering of 725,000 shares of common stock, which increased capital by more than $11 million. This offering was done to support
expansion into bordering Harrison County and the growing Jefferson County area in West Virginias eastern panhandle. At December 31, 2006, issued shares totaled 1,467,849. During 2007, the Company issued 40,232 shares, concluding 2007 with
issued shares of 1,508,081.
NOTE 13. STOCK OPTIONS
The MVB Financial Corp. Incentive Stock Plan provides for the issuance of stock options to selected employees. Under the provisions of the plan, the option price per share shall not be less than the fair market value of the common stock on
the date of the grant. All options granted prior to 2004 vest in 4 years, and expire 10 years from the date of grant. For options granted in 2004 and 2005 the vesting period has been accelerated to fully vest at December 31, 2005. These options
also expire 10 years from the date of the grant. Options granted in 2006 and 2007 vest in 5 years and expire 10 years from the date of the grant.
The following summarizes MVBs stock options as of December 31, and the changes for the year then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Number
of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
Number
of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
Outstanding at beginning of year
|
|
176,812
|
|
|
$
|
14.63
|
|
175,312
|
|
|
$
|
14.63
|
Granted
|
|
15,000
|
|
|
|
16.00
|
|
2,500
|
|
|
|
16.00
|
Adjust for 5% stock dividend
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
Exercised
|
|
(14,482
|
)
|
|
|
|
|
|
|
|
|
|
Forfeited/expired
|
|
(10,000
|
)
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
167,330
|
|
|
$
|
14.91
|
|
176,812
|
|
|
$
|
14.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
150,330
|
|
|
$
|
14.78
|
|
174,312
|
|
|
$
|
14.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.52
|
|
|
|
|
$
|
6.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value for the options was estimated at the date of grant using a Black-Scholes
option-pricing model with an average risk-free interest rate of 4.65% and 4.62% for 2007 and 2006, respectively, and a weighted-average expected life of the options of 7 years for 2007 and 2006. The expected volatility of MVBs stock price used
for 2007 and 2006 options was 12.5% and the expected dividend yield used was .500%.
The following summarizes information concerning
MVBs stock options outstanding at December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Exercise Price
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$
|
9.98
|
|
27,672
|
|
3.00
|
|
$
|
9.98
|
|
27,672
|
|
$
|
9.98
|
$
|
10.48
|
|
1,575
|
|
4.00
|
|
$
|
10.48
|
|
1,575
|
|
$
|
10.48
|
$
|
12.38
|
|
2,100
|
|
7.00
|
|
$
|
12.38
|
|
2,100
|
|
$
|
12.38
|
$
|
16.00
|
|
135,983
|
|
9.00
|
|
$
|
16.00
|
|
118,983
|
|
$
|
16.00
|
43
NOTE 14. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Companys financial statements. Under capital adequacy guidelines the Bank must meet
specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures
established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as defined. As of December 31, 2007 and
2006, the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. Both the Companys and the Banks actual capital amounts and ratios are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACTUAL
|
|
|
MINIMUM
TO BE WELL
CAPITALIZED
|
|
|
MINIMUM FOR
CAPITAL
ADEQUACY PURPOSES
|
|
(Dollars in thousands)
|
|
AMOUNT
|
|
RATIO
|
|
|
AMOUNT
|
|
RATIO
|
|
|
AMOUNT
|
|
RATIO
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
24,117
|
|
12.8
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
15,132
|
|
8.0
|
%
|
Subsidiary Bank
|
|
$
|
27,329
|
|
14.5
|
%
|
|
$
|
18,823
|
|
10.0
|
%
|
|
$
|
15,058
|
|
8.0
|
%
|
|
|
|
|
|
|
|
Tier I Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
22,384
|
|
11.8
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
7,566
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
25,596
|
|
13.6
|
%
|
|
$
|
11,294
|
|
6.0
|
%
|
|
$
|
7,529
|
|
4.0
|
%
|
|
|
|
|
|
|
|
Tier I Capital
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
22,384
|
|
10.1
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
8,893
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
25,596
|
|
11.5
|
%
|
|
$
|
11,103
|
|
5.0
|
%
|
|
$
|
8,882
|
|
4.0
|
%
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
22,972
|
|
15.9
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
11,545
|
|
8.0
|
%
|
Subsidiary Bank
|
|
$
|
21,923
|
|
15.2
|
%
|
|
$
|
14,419
|
|
10.0
|
%
|
|
$
|
11,535
|
|
8.0
|
%
|
|
|
|
|
|
|
|
Tier I Capital
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
21,766
|
|
15.1
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
5,772
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
20,720
|
|
14.4
|
%
|
|
$
|
8,651
|
|
6.0
|
%
|
|
$
|
5,767
|
|
4.0
|
%
|
|
|
|
|
|
|
|
Tier I Capital
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
21,766
|
|
11.9
|
%
|
|
|
N/A
|
|
N/A
|
|
|
$
|
7,307
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
20,720
|
|
11.4
|
%
|
|
$
|
9,127
|
|
5.0
|
%
|
|
$
|
7,302
|
|
4.0
|
%
|
44
NOTE 15. REGULATORY RESTRICTION ON DIVIDEND
The approval of the regulatory agencies is required if the total of all dividends declared by the Bank in any calendar year exceeds the Banks net profits, as defined, for that year combined with its retained net
profits for the preceding two calendar years.
NOTE 16. LEASES
The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases. Following is a schedule by year of future minimum lease payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2007:
|
|
|
|
|
|
(Dollars in thousands)
|
Years ended December 31:
|
|
|
|
2008
|
|
$
|
54
|
2009
|
|
|
55
|
2010
|
|
|
55
|
2011
|
|
|
55
|
2012
|
|
|
55
|
Thereafter
|
|
|
430
|
Total minimum payments required:
|
|
$
|
704
|
Total lease expense for the years ended December 31, 2007 and 2006 was $54 and $54,
respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments.
Short-term financial instruments:
The carrying values of short-term financial instruments including cash and due from banks, interest bearing
balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments.
Securities:
Estimated
fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.
Loans:
The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest
rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed.
Accrued interest receivable and payable:
The carrying values of accrued interest receivable and payable approximate their estimated fair values.
Repurchase agreements:
The fair values of repurchase agreements approximate their estimated fair values.
Deposits:
The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts and other variable rate deposits approximate their carrying values. Fair values of fixed maturity
deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair
values disclosed.
Off-balance sheet instruments:
The fair values of commitments to extend credit and standby letters of credit are
estimated using the fees currently charged to enter into similar agreements, taking into
45
account the remaining terms of agreements and the present credit standing of the counterparties. The amounts of fees currently charged on commitments and
standby letters of credit are deemed insignificant, and therefore, the estimated fair values and carrying values are not shown.
The
carrying values and estimated fair values of the Companys financial instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
|
|
(Dollars in thousands)
|
Financial assets:
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
4,926
|
|
$
|
4,926
|
Interest bearing balances - FHLB
|
|
|
490
|
|
|
490
|
Securities available-for-sale
|
|
|
26,029
|
|
|
26,029
|
Securities held-to-maturity
|
|
|
1,814
|
|
|
1,812
|
Loans
|
|
|
181,537
|
|
|
179,903
|
Accrued interest receivable
|
|
|
1,182
|
|
|
1,182
|
|
|
$
|
215,978
|
|
$
|
214,342
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
Deposits
|
|
$
|
157,448
|
|
$
|
152,725
|
Repurchase agreements
|
|
|
19,817
|
|
|
19,777
|
Federal Home Loan Bank Borrowings
|
|
|
23,583
|
|
|
23,819
|
Accrued interest payable
|
|
|
523
|
|
|
523
|
Long-term debt
|
|
|
4,124
|
|
|
4,124
|
|
|
$
|
205,495
|
|
$
|
200,968
|
|
|
|
|
December 31, 2006
|
|
|
Carrying
Value
|
|
Estimated
Fair
Value
|
Financial assets:
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
6,417
|
|
$
|
6,417
|
Interest bearing balances - FHLB
|
|
|
53
|
|
|
53
|
Securities available-for-sale
|
|
|
26,413
|
|
|
26,413
|
Securities held-to-maturity
|
|
|
2,326
|
|
|
2,316
|
Loans
|
|
|
142,599
|
|
|
139,747
|
Accrued interest receivable
|
|
|
844
|
|
|
844
|
|
|
$
|
178,652
|
|
$
|
175,790
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
Deposits
|
|
$
|
134,593
|
|
$
|
134,272
|
Repurchase agreements
|
|
|
20,209
|
|
|
20,209
|
Federal Home Loan Bank Borrowings
|
|
|
13,790
|
|
|
13,859
|
Accrued interest payable
|
|
|
405
|
|
|
405
|
|
|
$
|
168,997
|
|
$
|
168,745
|
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 the Companys entire holdings of a particular financial instrument. Because no market exists for a
significant portion of the Companys financial instruments, fair value estimates are
46
based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates
are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
NOTE 18. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The investment of the Company in its second tier subsidiaries is presented on the equity method of accounting. Information relative to the parent companys balance sheets at December 31, 2007 and 2006, and
the related statements of income and cash flows for each of those years are presented below:
(Dollars in thousands, except share data)
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
675
|
|
|
$
|
110
|
|
Investment in bank subsidiary, eliminated in consolidation
|
|
|
26,737
|
|
|
|
21,541
|
|
Other assets
|
|
|
248
|
|
|
|
4
|
|
Total assets
|
|
$
|
27,660
|
|
|
$
|
21,655
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
11
|
|
|
$
|
|
|
Long-term debt
|
|
|
4,124
|
|
|
|
|
|
Total liabilities
|
|
|
4,135
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1,000; 5,000 shares authorized, none issued
|
|
$
|
|
|
|
$
|
|
|
Common stock, par value $1; 4,000,000 shares authorized; 1,508,081 and 1,467,849 shares issued and outstanding, respectively
|
|
|
1,508
|
|
|
|
1,468
|
|
Additional paid in capital
|
|
|
18,437
|
|
|
|
17,720
|
|
Treasury stock
|
|
|
(168
|
)
|
|
|
(18
|
)
|
Retained earnings
|
|
|
4,153
|
|
|
|
2,858
|
|
Accumulated other comprehensive income
|
|
|
(405
|
)
|
|
|
(373
|
)
|
Total stockholders equity
|
|
|
23,525
|
|
|
|
21,655
|
|
Total liabilities and stockholders equity
|
|
$
|
27,660
|
|
|
$
|
21,655
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Income - dividends from bank subsidiary
|
|
$
|
|
|
|
$
|
|
|
Expenses operating
|
|
|
232
|
|
|
|
50
|
|
Income/(Loss) before income taxes and undistributed income
|
|
|
(232
|
)
|
|
|
(50
|
)
|
Income tax (benefit)
|
|
|
(72
|
)
|
|
|
(20
|
)
|
Income after tax
|
|
|
(160
|
)
|
|
|
(30
|
)
|
Equity in undistributed income of bank subsidiary
|
|
|
1,442
|
|
|
|
1,003
|
|
Net income
|
|
$
|
1,282
|
|
|
$
|
973
|
|
47
(Dollars in thousands)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,282
|
|
|
$
|
973
|
|
Equity in undistributed income of bank subsidiary
|
|
|
(1,442
|
)
|
|
|
(1,003
|
)
|
(Increase)/decrease in other assets
|
|
|
(244
|
)
|
|
|
1
|
|
Increase in other liabilities
|
|
|
11
|
|
|
|
|
|
Stock option expense
|
|
|
13
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(380
|
)
|
|
|
(29
|
)
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
(3,787
|
)
|
|
|
(2,400
|
)
|
|
|
|
Net cash (used in) investing activities
|
|
|
(3,787
|
)
|
|
|
(2,400
|
)
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds of stock offering
|
|
|
587
|
|
|
|
2,102
|
|
Proceeds from long-term borrowings
|
|
|
4,124
|
|
|
|
|
|
Common stock options exercised
|
|
|
171
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(150
|
)
|
|
|
(8
|
)
|
|
|
|
Net cash provided by financing activities
|
|
|
4,732
|
|
|
|
2,094
|
|
|
|
|
Increase/(decrease) in cash
|
|
|
565
|
|
|
|
(335
|
)
|
|
|
|
Cash at beginning of period
|
|
|
110
|
|
|
|
445
|
|
|
|
|
Cash at end of period
|
|
$
|
675
|
|
|
$
|
110
|
|
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
MVB Financial Corp.
Fairmont, West Virginia
We have audited the accompanying consolidated
balance sheet of MVB Financial Corp. and subsidiaries as of December 31. 2007, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the companys management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. The financial statements of MVB Financial Corp. and subsidiaries for the
year ended December 31, 2006, were audited by other auditors whose report, dated February 13, 2007, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management as well as the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects the consolidated financial position of MVB Financial Corp. and subsidiaries as of December 31,
2007, and the consolidated results of its operations and cash flows for the year then ended, in corformity with U.S. generally accepted accounting principles.
We were not engaged to examine managements assertion about the effectiveness of MVB Financial Corp.s internal control over financial reporting as of December 31, 2007, which is included in Form 10-K and, accordingly, we do
not express an opinion thereon.
|
|
Wheeling, West Virginia
|
February 22, 2008
|
S.K. Snodgrass, A.C. 980 National Road Wheeling, West Virginia 26003-6400 Phone: (304) 233-5030 Facsimile: (304)
233-3062
49