NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
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, Monongalia, 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
with original maturities of ninety days or less.
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 Crescent Mortgage Company, Franklin American Mortgage
and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without holding these
instruments in the bank's loan portfolio. MVB values loans held for sale at fair value.
Derivative Financial Instruments
The Company enters into commitments to originate mortgage
loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage
loans that are intended to be sold are considered to be derivatives. The period of time between issuance of a loan commitment and
closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through
the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits
to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not
exposed to losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates.
The correlation between the rate lock commitments and the best efforts contracts is very high due to their similarity.
The market value of rate lock commitments and best efforts
contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively
traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring
the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments
will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on
the rate lock commitments.
The Company utilizes interest rate swaps to manage interest
rate risk. Interest rate swaps are recognized on the balance sheet at fair value. On the date the derivative contract is entered
into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to current accounting
guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated
as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses
both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The Company has not designated any derivatives as fair
value hedges as of December 31, 2011. For designated cash flow hedges, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.
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 collectability of loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components.
The specific component relates to loans that are impaired. The general component covers 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.
Loan Origination Fees and Costs
Accounting standards require that loan origination and
commitment fees and direct loan origination costs be deferred and the net amount amortized as an adjustment of the related loan's
yield.
Troubled Debt Restructurings (TDRs)
A restructuring of debt constitutes a TDR if the creditor
for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not
otherwise consider. The determination of whether a concession has been granted includes an evaluation of the debtor's ability to
access funds at a market rate for debt with similar risk characteristics and among other things, the significance of the modification
relative to unpaid principal or collateral value of the debt, and/or the significance of a delay in the timing of payments relative
to the frequency of payments, original maturity date or the expected duration of the loan. The most common concessions granted
generally include one or more modifications to the terms of the debt such as a reduction in the interest rate for the remaining
life of the debt, an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar
risk, or reduction of the unpaid principal or interest. All TDRs are considered impaired loans.
Mortgage Servicing Assets
Mortgage servicing assets (MSAs) are recorded when MVB
sells mortgage loans and retains the servicing on those loans. On a monthly basis, MVB tracks the amount of mortgage loans that
are sold with servicing retained. A valuation is done to determine the MSA's value, which is then recorded as an asset and amortized
over the period of estimated net servicing revenues. Servicing loans for others generally consists of collecting mortgage payments
from borrowers, maintaining escrow accounts, remitting payments to third party investors and when necessary, foreclosure processing.
Serviced loans are not included in the Consolidated Balance Sheets. The amortization taken on the servicing asset for the year-ended
December 31, 2012 was $47. At December 31, 2012, MVB had total loans serviced for others of $89,295.
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.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
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 $17.6 million and $917 at December 31, 2012 and 2011, respectively.
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 $2,798 and $1,973 at December 31, 2012 and 2011, respectively, and is included in accrued
interest receivable and other assets in the accompanying Consolidated Balance Sheets.
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
The Company accounts for stock-based compensation in accordance
with generally accepted accounting standards. Under these standards 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 gains or losses on sale
are then recorded in other non-interest expense. At December 31, 2012 and 2011, the Company held other real estate of $207 and
$176.
Net Operating 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 less the preferred stock dividend, adjusted for the dilutive effect of options under the Company's 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.
Bank-owned life insurance
Bank-owned life insurance ("BOLI") represents
life insurance on the lives of certain Company employees who have provided positive consent allowing the Company to be the beneficiary
of such policies. These policies are recorded at their cash surrender value, or the amount that can be realized upon surrender
of the policy. Income from these policies is not subject to income taxes and is recorded as other income.
Advertising Costs
Advertising costs are expensed as incurred.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales
when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets
have been isolated from the company, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.
Reclassifications
Certain amounts in the 2011 financial statements have
been reclassified to conform to the 2012 financial statement presentation.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
NOTE 2. INVESTMENT SECURITIES
Amortized cost and approximate fair values of investment
securities held-to-maturity at December 31, 2012, including gross unrealized gains and losses, are summarized as follows:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
35,370
|
|
|
|
988
|
|
|
|
(140
|
)
|
|
|
36,218
|
|
|
|
$
|
35,370
|
|
|
$
|
988
|
|
|
$
|
(140
|
)
|
|
$
|
36,218
|
|
Amortized cost and approximate fair values of investment
securities held-to-maturity at December 31, 2011, including gross unrealized gains and losses, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
13,568
|
|
|
|
587
|
|
|
|
(11
|
)
|
|
|
14,144
|
|
|
|
$
|
13,568
|
|
|
$
|
587
|
|
|
$
|
(11
|
)
|
|
$
|
14,144
|
|
Amortized cost and approximate fair values of investment
securities available-for-sale at December 31, 2012 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Agency securities
|
|
$
|
21,951
|
|
|
$
|
247
|
|
|
$
|
(6
|
)
|
|
$
|
22,192
|
|
U.S. Sponsored Mortgage-backed securities
|
|
|
56,217
|
|
|
|
328
|
|
|
|
(169
|
)
|
|
|
56,376
|
|
Other securities
|
|
|
934
|
|
|
|
—
|
|
|
|
—
|
|
|
|
934
|
|
|
|
$
|
79,102
|
|
|
$
|
575
|
|
|
$
|
(175
|
)
|
|
$
|
79,502
|
|
Amortized cost and approximate fair values of investment
securities available-for-sale at December 31, 2011 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Agency securities
|
|
$
|
51,165
|
|
|
$
|
710
|
|
|
$
|
(1
|
)
|
|
$
|
51,874
|
|
U.S. Sponsored Mortgage-backed securities
|
|
|
47,319
|
|
|
|
198
|
|
|
|
(149
|
)
|
|
|
47,368
|
|
Other securities
|
|
|
124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
|
|
$
|
98,608
|
|
|
$
|
908
|
|
|
$
|
(150
|
)
|
|
$
|
99,366
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following tables summarize amortized cost and approximate
fair values of securities by maturity:
|
|
December 31, 2012
|
|
|
|
Held to Maturity
|
|
|
Available for sale
|
|
|
|
|
|
|
Approximate
|
|
|
|
|
|
Approximate
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
After one year, but within five
|
|
|
1,746
|
|
|
|
1,761
|
|
|
|
9,962
|
|
|
|
10,118
|
|
After five years, but within ten
|
|
|
9,311
|
|
|
|
9,757
|
|
|
|
23,886
|
|
|
|
24,069
|
|
After ten Years
|
|
|
24,313
|
|
|
|
24,700
|
|
|
|
45,254
|
|
|
|
45,315
|
|
Total
|
|
$
|
35,370
|
|
|
$
|
36,218
|
|
|
$
|
79,102
|
|
|
$
|
79,502
|
|
Investment securities with a carrying value of $98,209
and $94,866 at December 31, 2012 and 2011, respectively, were pledged to secure public funds, repurchase agreements and potential
borrowings at the Federal Reserve discount window.
The Company's investment portfolio includes
securities that are in an unrealized loss position as of December 31, 2012, the details of which are included in the following
table. Although these securities, if sold at December 31, 2012 would result in a pretax loss of $315, 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 Company's 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,
2012, 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, 2011, total temporary impairment totaled
$161.
|
|
Less than 12 months
|
|
|
12 months or more
|
|
Description and number
of positions
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies (1)
|
|
$
|
4,999
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Sponsored Mortgage-backed securities (16)
|
|
|
31,073
|
|
|
|
(128
|
)
|
|
|
3,124
|
|
|
|
(21
|
)
|
Municipal securities (3)
|
|
|
936
|
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
37,008
|
|
|
$
|
(140
|
)
|
|
$
|
3,124
|
|
|
$
|
(21
|
)
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following table discloses investments in an unrealized loss
position:
At December 31, 2012, total temporary impairment totaled $315.
|
|
Less than 12 months
|
|
|
12 months or more
|
|
Description and number
of positions
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
Fair Value
|
|
|
Unrealized
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agencies (3)
|
|
$
|
9,676
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Sponsored Mortgage-backed securities (11)
|
|
|
28,688
|
|
|
|
(169
|
)
|
|
|
—
|
|
|
|
—
|
|
Municipal securities (28)
|
|
|
11,216
|
|
|
|
(140
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
49,580
|
|
|
$
|
(315
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 3. LOANS
The components of loans in the balance sheet at December 31, were
as follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Commercial and non-residential real estate
|
|
$
|
298,854
|
|
|
$
|
238,177
|
|
Residential real estate
|
|
|
130,012
|
|
|
|
121,536
|
|
Consumer and other
|
|
|
16,792
|
|
|
|
13,782
|
|
Net deferred fees and costs
|
|
|
785
|
|
|
|
327
|
|
|
|
$
|
446,443
|
|
|
$
|
373,822
|
|
Changes in the allowance for loan losses were as follows for the
years ended December 31:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
3,045
|
|
|
$
|
2,478
|
|
Losses charged to allowance
|
|
|
(1,791
|
)
|
|
|
(1,189
|
)
|
Recoveries credited to allowance
|
|
|
22
|
|
|
|
33
|
|
Provision for loan losses
|
|
|
2,800
|
|
|
|
1,723
|
|
Balance at end of period
|
|
$
|
4,076
|
|
|
$
|
3,045
|
|
The following table summarizes the primary
segments of the loan portfolio as of December 31, 2012 and 2011 (in thousands):
|
|
Commercial
|
|
|
Residential
|
|
|
Home
Equity
|
|
|
Installment
|
|
|
Credit
Cards
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
238,504
|
|
|
$
|
105,606
|
|
|
$
|
15,930
|
|
|
$
|
13,217
|
|
|
$
|
565
|
|
|
$
|
373,822
|
|
Individually evaluated for impairment
|
|
$
|
96,152
|
|
|
$
|
6,870
|
|
|
$
|
1,665
|
|
|
$
|
193
|
|
|
$
|
0
|
|
|
$
|
104,880
|
|
Collectively evaluated for impairment
|
|
$
|
142,352
|
|
|
$
|
98,736
|
|
|
$
|
14,265
|
|
|
$
|
13,024
|
|
|
$
|
565
|
|
|
$
|
268,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
299,639
|
|
|
$
|
113,212
|
|
|
$
|
16,800
|
|
|
$
|
16,174
|
|
|
$
|
618
|
|
|
$
|
446,443
|
|
Individually evaluated for impairment
|
|
$
|
203,060
|
|
|
$
|
16,407
|
|
|
$
|
1,824
|
|
|
$
|
101
|
|
|
$
|
0
|
|
|
$
|
221,392
|
|
Collectively evaluated for impairment
|
|
$
|
96,579
|
|
|
$
|
96,805
|
|
|
$
|
14,976
|
|
|
$
|
16,073
|
|
|
$
|
618
|
|
|
$
|
225,051
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Management evaluates individual loans in all of the commercial segments
for possible impairment. Loans are considered to be impaired when, based on 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 evaluating impairment include payment status, collateral value, and
the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount
of the shortfall in relation to the principal and interest owed. The Company also separately evaluates individual consumer and
residential mortgage loans for impairment.
Once the determination has been made that a loan is impaired, the
determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in
the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted
at the loan's effective interest rate; (b) the loan's observable market price; or (c) the fair value of the collateral less selling
costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method.
The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment
status is made on a quarterly basis.
The following table presents impaired loans by class, segregated
by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December
31, 2012 and 2011 (in thousands):
|
|
|
|
|
Impaired
|
|
|
|
|
|
|
|
|
|
Loans with
|
|
|
|
|
|
|
|
|
|
No
|
|
|
|
|
|
|
Impaired Loans with
|
|
|
Specific
|
|
|
|
|
|
|
Specific Allowance
|
|
|
Allowance
|
|
|
Total Impaired Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
|
Related
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Principal
|
|
|
|
Investment
|
|
|
Allowance
|
|
|
Investment
|
|
|
Investment
|
|
|
Balance
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,597
|
|
|
$
|
758
|
|
|
$
|
0
|
|
|
$
|
2,597
|
|
|
$
|
2,597
|
|
Residential
|
|
|
76
|
|
|
|
10
|
|
|
|
0
|
|
|
|
76
|
|
|
|
76
|
|
Home Equity
|
|
|
9
|
|
|
|
9
|
|
|
|
0
|
|
|
|
9
|
|
|
|
9
|
|
Installment
|
|
|
140
|
|
|
|
100
|
|
|
|
0
|
|
|
|
140
|
|
|
|
140
|
|
Credit Card
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total impaired loans
|
|
$
|
2,822
|
|
|
$
|
877
|
|
|
$
|
0
|
|
|
$
|
2,822
|
|
|
$
|
2,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
3,074
|
|
|
$
|
684
|
|
|
$
|
0
|
|
|
$
|
3,074
|
|
|
$
|
3,074
|
|
Residential
|
|
|
43
|
|
|
|
35
|
|
|
|
0
|
|
|
|
43
|
|
|
|
43
|
|
Home Equity
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Installment
|
|
|
1
|
|
|
|
1
|
|
|
|
0
|
|
|
|
1
|
|
|
|
1
|
|
Credit Card
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total impaired loans
|
|
$
|
3,118
|
|
|
$
|
720
|
|
|
$
|
0
|
|
|
$
|
3,118
|
|
|
$
|
3,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following table presents the average recorded investment in
impaired loans and related interest income recognized for the periods indicated (in thousands):
|
|
December
|
|
|
|
2012
|
|
|
2011
|
|
Average investment in impaired loans
|
|
$
|
2,970
|
|
|
$
|
2,091
|
|
Interest income recognized on an accrual basis on impaired loans
|
|
$
|
112
|
|
|
$
|
84
|
|
Management uses a nine point internal risk
rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized,
and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory
definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an
undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category
have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be
sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion
of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion
of a loan that has been charged off is placed in the Loss category.
To help ensure that risk ratings are accurate
and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process
with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the
Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit
event. The Bank's Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at
origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships $750,000 or
greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank has an experienced
Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to
conduct loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or
criticized relationships. The Credit Department compiles detailed reviews, including plans for resolution, on loans classified
as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for
impairment are given separate consideration in the determination of the allowance.
The following table represents the classes
of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful
within the internal risk rating system as of December 31, 2011 and 2012 (in thousands):
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
225,500
|
|
|
$
|
7,752
|
|
|
$
|
2,655
|
|
|
$
|
2,597
|
|
|
$
|
238,504
|
|
Residential
|
|
|
103,958
|
|
|
|
1,157
|
|
|
|
491
|
|
|
|
—
|
|
|
|
105,606
|
|
Home Equity
|
|
|
15,750
|
|
|
|
96
|
|
|
|
75
|
|
|
|
9
|
|
|
|
15,930
|
|
Installment
|
|
|
12,806
|
|
|
|
242
|
|
|
|
29
|
|
|
|
140
|
|
|
|
13,217
|
|
Credit Card
|
|
|
565
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
565
|
|
Total
|
|
$
|
358,579
|
|
|
$
|
9,247
|
|
|
$
|
3,250
|
|
|
$
|
2,746
|
|
|
$
|
373,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
286,472
|
|
|
$
|
8,646
|
|
|
$
|
1,770
|
|
|
$
|
2,751
|
|
|
$
|
299,639
|
|
Residential
|
|
|
110,663
|
|
|
|
2,260
|
|
|
|
289
|
|
|
|
—
|
|
|
|
113,212
|
|
Home Equity
|
|
|
16,540
|
|
|
|
260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,800
|
|
Installment
|
|
|
15,806
|
|
|
|
354
|
|
|
|
13
|
|
|
|
1
|
|
|
|
16,174
|
|
Credit Card
|
|
|
589
|
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
618
|
|
Total
|
|
$
|
430,070
|
|
|
$
|
11,549
|
|
|
$
|
2,072
|
|
|
$
|
2,752
|
|
|
$
|
446,443
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Management further monitors the performance and credit quality of
the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The
following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual
loans as of December 31, 2011 and 2012 (in thousands):
|
|
Current
|
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
90 Days +
Past Due
|
|
|
Total
Past Due
|
|
|
Non-
Accrual
|
|
|
Total
Loans
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
232,765
|
|
|
$
|
448
|
|
|
$
|
2,836
|
|
|
$
|
2
|
|
|
$
|
3,286
|
|
|
$
|
2,453
|
|
|
$
|
238,504
|
|
Residential
|
|
|
103,875
|
|
|
|
1,593
|
|
|
|
—
|
|
|
|
62
|
|
|
|
1,655
|
|
|
|
76
|
|
|
|
105,606
|
|
Home Equity
|
|
|
15,846
|
|
|
|
—
|
|
|
|
84
|
|
|
|
—
|
|
|
|
84
|
|
|
|
—
|
|
|
|
15,930
|
|
Installment
|
|
|
12,888
|
|
|
|
138
|
|
|
|
26
|
|
|
|
2
|
|
|
|
166
|
|
|
|
163
|
|
|
|
13,217
|
|
Credit Card
|
|
|
565
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
565
|
|
Total
|
|
$
|
365,939
|
|
|
$
|
2,179
|
|
|
$
|
2,946
|
|
|
$
|
66
|
|
|
$
|
5,191
|
|
|
$
|
2,692
|
|
|
$
|
373,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
295,295
|
|
|
|
767
|
|
|
|
221
|
|
|
$
|
275
|
|
|
$
|
1,263
|
|
|
$
|
3,081
|
|
|
$
|
299,639
|
|
Residential
|
|
|
111,053
|
|
|
|
1,772
|
|
|
|
293
|
|
|
|
51
|
|
|
|
2,116
|
|
|
|
43
|
|
|
|
113,212
|
|
Home Equity
|
|
|
16,772
|
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
—
|
|
|
|
16,800
|
|
Installment
|
|
|
15,991
|
|
|
|
179
|
|
|
|
—
|
|
|
|
3
|
|
|
|
182
|
|
|
|
1
|
|
|
|
16,174
|
|
Credit Card
|
|
|
589
|
|
|
|
24
|
|
|
|
5
|
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
618
|
|
Total
|
|
$
|
288,634
|
|
|
$
|
2,770
|
|
|
$
|
519
|
|
|
$
|
329
|
|
|
$
|
3,618
|
|
|
$
|
3,125
|
|
|
$
|
446,443
|
|
An allowance for loan losses ("ALL") is maintained to
absorb losses from the loan portfolio. The ALL is based on management's continuing evaluation of the risk characteristics and credit
quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of
collateral, past and anticipated loss experience, and the amount of non-performing loans.
The Bank's methodology for determining the ALL is based on the requirements
of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively
evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank
regulatory guidance. The total of the two components represents the Bank's ALL.
Loans that are collectively evaluated for impairment are analyzed
with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of
losses in the current portfolio. These historical loss amounts are modified by other qualified factors.
The classes described above, which are based on the Federal call
code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity
at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters.
Commercial, Mortgage and Consumer pools currently utilize a rolling 12 quarters.
"Pass" rated credits are segregated from "Criticized"
credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics
that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.
Management has identified a number of additional qualitative factors
which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses
associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly
and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends
and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volume and terms of loans; effects of
changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations
of credit from a loan type, industry and/or geographic standpoint.
Loans that are 90 days past due and still accruing are both adequately
secured and in the process of collection.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Management reviews the loan portfolio on a quarterly basis using
a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms
all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.
Historically, management has utilized an internally developed spreadsheet
to track and apply the various components of the allowance.
The following table summarizes the primary segments of the ALL,
segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively
evaluated for impairment as of December 31, 2011 and 2012. Activity in the allowance is presented for the year ended December 31,
2012 (in thousands):
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
Credit
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
Equity
|
|
|
Installment
|
|
|
Card
|
|
|
Total
|
|
ALL balance at December 31, 2010
|
|
$
|
1,517
|
|
|
$
|
460
|
|
|
$
|
207
|
|
|
$
|
274
|
|
|
$
|
20
|
|
|
$
|
2,478
|
|
Charge-offs
|
|
|
(522
|
)
|
|
|
(349
|
)
|
|
|
(177
|
)
|
|
|
(105
|
)
|
|
|
(6
|
)
|
|
|
(1,189
|
)
|
Recoveries
|
|
|
4
|
|
|
|
—
|
|
|
|
10
|
|
|
|
19
|
|
|
|
—
|
|
|
|
33
|
|
Provision
|
|
|
1,195
|
|
|
|
255
|
|
|
|
209
|
|
|
|
67
|
|
|
|
(3
|
)
|
|
|
1,723
|
|
ALL balance at December 31, 2011
|
|
$
|
2,164
|
|
|
$
|
366
|
|
|
$
|
249
|
|
|
$
|
255
|
|
|
$
|
11
|
|
|
$
|
3,045
|
|
Individually
evaluated for impairment
|
|
$
|
758
|
|
|
$
|
356
|
|
|
$
|
240
|
|
|
$
|
155
|
|
|
$
|
0
|
|
|
$
|
1,509
|
|
Collectively evaluatedfor impairment
|
|
$
|
1,406
|
|
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
100
|
|
|
$
|
11
|
|
|
$
|
1,536
|
|
|
|
|
|
|
|
|
|
Home
|
|
|
|
|
|
Credit
|
|
|
|
|
|
|
Commercial
|
|
|
Residential
|
|
|
Equity
|
|
|
Installment
|
|
|
Card
|
|
|
Total
|
|
ALL balance at December 31, 2011
|
|
$
|
2,164
|
|
|
$
|
366
|
|
|
$
|
249
|
|
|
$
|
255
|
|
|
$
|
11
|
|
|
$
|
3,045
|
|
Charge-offs
|
|
|
(1,731
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
(1,791
|
)
|
Recoveries
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
|
12
|
|
|
|
—
|
|
|
|
22
|
|
Provision
|
|
|
2,669
|
|
|
|
148
|
|
|
|
(3
|
)
|
|
|
(16
|
)
|
|
|
2
|
|
|
|
2,800
|
|
ALL balance at December 31, 2012
|
|
$
|
3,107
|
|
|
$
|
514
|
|
|
$
|
242
|
|
|
$
|
200
|
|
|
$
|
13
|
|
|
$
|
4,076
|
|
Individually
evaluated for impairment
|
|
$
|
373
|
|
|
$
|
432
|
|
|
$
|
215
|
|
|
$
|
198
|
|
|
$
|
0
|
|
|
$
|
1,218
|
|
Collectively
evaluated for impairment
|
|
$
|
2,734
|
|
|
$
|
82
|
|
|
$
|
27
|
|
|
$
|
2
|
|
|
$
|
13
|
|
|
$
|
2,858
|
|
The allowance for loan losses is based on estimates, and actual
losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical
loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that
is representative of the risk found in the components of the portfolio at any given date.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Troubled Debt Restructurings
The restructuring of a loan is considered a "troubled debt
restructuring" if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.
Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization
schedules and other actions intended to minimize potential losses. Troubled debt restructurings during 2012 and 2011 are set forth
in the following table. No TDR’s have defaulted.
The following table presents details related to loans identified
as Troubled Debt Restructurings (TDRs) at December 31, 2012 and 2011.
|
|
New TDRs (1)
|
|
|
December 31, 2012
|
|
December 31, 2011
|
(Unaudited, dollars in thousands)
|
|
Number
of
Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Contracts
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded Investment
|
|
Commercial real estate:
|
|
1
|
|
|
886
|
|
|
|
886
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Land and construction
|
|
2
|
|
|
349
|
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
|
103
|
|
|
|
103
|
|
Total commercial real estate
|
|
3
|
|
|
1,235
|
|
|
|
1,235
|
|
|
1
1
|
|
|
103
|
|
|
|
103
|
|
Commercial and industrial
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Residential real estate
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
1
|
|
|
415
|
|
|
|
415
|
|
Home equity
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
3
|
|
|
13
|
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
6
|
|
|
1,248
|
|
|
|
1,248
|
|
|
2
|
|
|
518
|
|
|
|
518
|
|
(1)
Excludes loans that were either
paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the
period. The post-modification balance represents the outstanding balance at period end.
NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT
Bank premises, furniture and equipment at December 31, were as
follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Bank Premises
|
|
$
|
10,533
|
|
|
$
|
7,647
|
|
Equipment, furniture and fixtures
|
|
|
5,054
|
|
|
|
3,445
|
|
|
|
|
15,587
|
|
|
|
11,092
|
|
Allowance for depreciation
|
|
|
(4,233
|
)
|
|
|
(3,310
|
)
|
|
|
$
|
11,354
|
|
|
$
|
7,782
|
|
NOTE 5. DEPOSITS
Deposits at December 31, were as follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Demand deposits of individuals, partnerships, and corporations
|
|
|
|
|
|
|
|
|
Interest bearing
|
|
$
|
175,442
|
|
|
$
|
113,515
|
|
Non-interest bearing
|
|
|
51,821
|
|
|
|
37,744
|
|
Time and savings deposits of individuals, partnerships and corporations
|
|
|
206,263
|
|
|
|
184,993
|
|
Deposits of states and political subdivisions
|
|
|
50,036
|
|
|
|
53,237
|
|
Official checks
|
|
|
2,957
|
|
|
|
1,056
|
|
Total Domestic Deposits
|
|
$
|
486,519
|
|
|
$
|
390,545
|
|
|
|
|
|
|
|
|
|
|
Time deposits of over $100 included above
|
|
$
|
86,872
|
|
|
$
|
65,316
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Maturities of certificates of deposit at December 31, 2012 were
as follows:
2013
|
|
$
|
120,299
|
|
2014
|
|
|
9,827
|
|
2015
|
|
|
8,157
|
|
2016
|
|
|
5,703
|
|
2017
|
|
|
3,864
|
|
Total
|
|
$
|
147,850
|
|
NOTE 6. BORROWED FUNDS
The Company is a party to repurchase agreements with certain customers.
As of December 31, 2012 and 2011, the company held repurchase agreements of $70,234 and $77,835. Information related to repurchase
agreements is summarized below:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
70,234
|
|
|
$
|
77,835
|
|
Average balance during the year
|
|
|
67,709
|
|
|
|
61,855
|
|
Maximum month-end balance
|
|
|
77,852
|
|
|
|
86,507
|
|
Weighted-average rate during the year
|
|
|
0.76
|
%
|
|
|
0.81
|
%
|
Rate at December 31
|
|
|
0.80
|
%
|
|
|
0.66
|
%
|
|
|
|
|
|
|
|
|
|
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, 2012 was
approximately $146,393. At December 31, 2012 and 2011 the Bank had borrowed $32,600 and $9,767.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Borrowings from the FHLB as of December 31 were as follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
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%
|
|
|
763
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating April 2002, due May 2017, payable in monthly installments of $4, including interest of 5.90%
|
|
|
615
|
|
|
|
631
|
|
|
|
|
|
|
|
|
|
|
Floating interest rate note, originating March 2003, interest payable monthly of 0.25%
|
|
|
23,065
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating July 2006, due July 2016, payable in monthly installments of $8, including interest of 4.50%
|
|
|
1,258
|
|
|
|
1,301
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating October 2006, due October 2021, payable in monthly installments of $6, including interest of 5.20%
|
|
|
1,047
|
|
|
|
1,068
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating April 2007, due April 2022, payable in monthly installments of $6, including interest of 5.18%
|
|
|
995
|
|
|
|
1,015
|
|
|
|
|
|
|
|
|
|
|
Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly installments of $5, including interest of 5.22%
|
|
|
879
|
|
|
|
896
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating December 2007, due December 2017, payable in monthly installments of $7, including interest of 5.25%
|
|
|
978
|
|
|
|
1,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate note, originating March 2008, due March 2013, interest of 2.37% payable quarterly
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,600
|
|
|
$
|
9,767
|
|
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 Company's Tier I capital.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The Trust Preferred Securities and the Debentures mature in 2037
and are redeemable by the Company in 2012. Interest payments are due in March, June, September and December and are adjusted at
the interest due dates at a rate of 1.62% over the three month LIBOR Rate. The Company reflects borrowed funds in the amount of
$4.1 million as of December 31, 2012 and 2011 and interest expense of $87 and $81 for the years ended December 31, 2012 and 2011.
Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh,
qualifying first mortgage loans, mortgage-backed securities and certain investment securities.
PMG had borrowings of $59.0 million at December 31, 2012, which
were comprised of three lines. A floating rate line at BB&T which originated January 26, 2012, with a rate of 3.50% and a balance
of $18.8 million at December 31, 2012, a floating rate line with Comerica, originated February 27, 2012, with a rate of 3.50% and
a balance of $17.6 million at December 31, 2012 and a floating rate line with United Bank, originating September 15, 2011, with
a rate of 3.00% and a balance of $22.5 million.
A summary of maturities of these borrowings over the next five years
is as follows:
Year
|
|
Amount
|
|
2013
|
|
$
|
61,261
|
|
2014
|
|
|
1,257
|
|
2015
|
|
|
271
|
|
2016
|
|
|
1,353
|
|
2017
|
|
|
1,582
|
|
Thereafter
|
|
|
30,017
|
|
|
|
$
|
95,741
|
|
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
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 Company's 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 customer’s
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 management's 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 Company's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to extend credit.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Total contractual amounts of the commitments as of December 31 were
as follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Available on lines of credit
|
|
$
|
60,357
|
|
|
$
|
45,627
|
|
Stand-by letters of credit
|
|
|
458
|
|
|
|
346
|
|
Other loan commitments
|
|
|
1,616
|
|
|
|
1,423
|
|
|
|
$
|
62,431
|
|
|
$
|
47,396
|
|
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, Monongalia, 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 management's credit evaluation.
Litigation
The subsidiary bank is involved in various legal actions
arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have
a significant adverse effect on the consolidated financial statements.
NOTE 8. INCOME TAXES
Accounting standards require that the Company use 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:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,479
|
|
|
$
|
658
|
|
State
|
|
|
331
|
|
|
|
207
|
|
|
|
$
|
1,810
|
|
|
$
|
865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred expense(benefit)
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(115
|
)
|
|
$
|
112
|
|
State
|
|
|
(29
|
)
|
|
|
35
|
|
|
|
|
(144
|
)
|
|
|
147
|
|
Income Tax expense
|
|
$
|
1,666
|
|
|
$
|
1,012
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
Following is a reconciliation of income taxes at federal statutory
rates to recorded income taxes for the year ended December 31:
|
|
2012
|
|
|
2011
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at Federal tax rate
|
|
$
|
1,984
|
|
|
|
34.0
|
%
|
|
$
|
1,263
|
|
|
|
34.0
|
%
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income tax
|
|
|
146
|
|
|
|
2.5
|
%
|
|
|
93
|
|
|
|
2.5
|
%
|
Tax exempt earnings
|
|
|
(465
|
)
|
|
|
-8.0
|
%
|
|
|
(345
|
)
|
|
|
-9.3
|
%
|
Other
|
|
|
1
|
|
|
|
0.0
|
%
|
|
|
1
|
|
|
|
0.0
|
%
|
|
|
$
|
1,666
|
|
|
|
28.5
|
%
|
|
$
|
1,012
|
|
|
|
27.2
|
%
|
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:
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
477
|
|
|
$
|
482
|
|
Unrealized loss on securities available-for-sale
|
|
|
160
|
|
|
|
303
|
|
Pension
|
|
|
184
|
|
|
|
(9
|
)
|
Gross deferred tax liabilities
|
|
|
821
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(1,203
|
)
|
|
|
(871
|
)
|
Minimum pension liability
|
|
|
(1,157
|
)
|
|
|
(798
|
)
|
Gross deferred tax (assets)
|
|
|
(2,360
|
)
|
|
|
(1,669
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (asset)
|
|
$
|
(1,539
|
)
|
|
$
|
(893
|
)
|
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.
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
collectability. Set forth below is a summary of the related loan activity.
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
at end
|
|
(Dollars in thousands)
|
|
of Year
|
|
|
Borrowings
|
|
|
Repayments
|
|
|
of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
$
|
13,300
|
|
|
$
|
12,978
|
|
|
$
|
(2,707
|
)
|
|
$
|
23,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
$
|
13,995
|
|
|
$
|
2,004
|
|
|
$
|
(2,699
|
)
|
|
$
|
13,300
|
|
The Company held related party deposits of $11,483 and $14,973 at
December 31, 2012 and December 31, 2011, respectively.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The Company held related party repurchase agreements of $361 and
$1,313 at December 31, 2012 and December 31, 2011, 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 employee's
compensation. The Company's 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 $502 and $410
for the years ended December 31, 2012 and 2011.
Information pertaining to the activity in the Company's defined
benefit plan, using the latest available actuarial valuations with a measurement date of December 31, 2012 and 2011 is as follows:
(Dollars in thousands)
|
|
2012
|
|
|
2011
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
4,214
|
|
|
$
|
3,059
|
|
Service cost
|
|
|
424
|
|
|
|
356
|
|
Interest cost
|
|
|
210
|
|
|
|
166
|
|
Actuarial loss
|
|
|
998
|
|
|
|
669
|
|
Benefits paid
|
|
|
(48
|
)
|
|
|
(36
|
)
|
Benefit obligation at end of year
|
|
$
|
5,798
|
|
|
$
|
4,214
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
2,198
|
|
|
$
|
1,794
|
|
Actual return on plan assets
|
|
|
232
|
|
|
|
(113
|
)
|
Employer contribution
|
|
|
984
|
|
|
|
553
|
|
Benefits paid
|
|
|
(48
|
)
|
|
|
(36
|
)
|
Fair value of plan assets at end of year
|
|
$
|
3,366
|
|
|
$
|
2,198
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(2,432
|
)
|
|
$
|
(2,016
|
)
|
Unrecognized net actuarial loss
|
|
|
2,890
|
|
|
|
1,990
|
|
Unrecognized prior service cost
|
|
|
2
|
|
|
|
4
|
|
Prepaid pension cost recognized
|
|
$
|
460
|
|
|
$
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
4,473
|
|
|
$
|
3,288
|
|
At December 31, 2012 and 2011, the weighted average assumptions
used to determine the benefit obligation are as follows:
Discount rate
|
|
|
4.31
|
%
|
|
|
5.06
|
%
|
Rate of compensation increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
The components of net periodic pension cost are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
424
|
|
|
$
|
356
|
|
Interest cost
|
|
|
210
|
|
|
|
166
|
|
Expected return on plan assets
|
|
|
(251
|
)
|
|
|
(180
|
)
|
Amortization of prior service costs
|
|
|
2
|
|
|
|
2
|
|
Amortization of loss
|
|
|
117
|
|
|
|
66
|
|
Net periodic pension cost
|
|
$
|
502
|
|
|
$
|
410
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
At December 31, 2012 and 2011, the weighted average
assumptions used to determine net periodic pension cost are as follows:
Discount rate
|
|
|
5.06
|
%
|
|
|
5.50
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Rate of compensation increase
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
The Company's pension plan asset allocations at December
31, 2012 and 2011, as well as target allocations for 2013 are as follows:
Asset Category
|
|
2013 Target
|
|
|
12/31/2012
|
|
|
12/31/2011
|
|
Equity securities
|
|
|
60
|
%
|
|
|
54
|
%
|
|
|
72
|
%
|
Balanced fund
|
|
|
30
|
%
|
|
|
25
|
%
|
|
|
24
|
%
|
Other
|
|
|
10
|
%
|
|
|
21
|
%
|
|
|
4
|
%
|
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.
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Expected amortization of transition obligation (asset)
|
|
$
|
—
|
|
|
$
|
—
|
|
Expected amortization of prior service cost (credit)
|
|
|
2
|
|
|
|
2
|
|
Expected amortization of net loss (gain)
|
|
|
186
|
|
|
|
117
|
|
The fair value of MVB's pension plan assets at December 31, 2012
by asset class are as follows:
The following table sets forth by level, within the fair value hierarchy,
as defined in Note 18 - Fair Value Measurements, the Plan's assets at fair value as of December 31, 2012.
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
707
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
707
|
|
Investment in equity securities
|
|
$
|
1,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,818
|
|
Investment in debt securities
|
|
$
|
—
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
2,525
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
3,366
|
|
Investment in government and debt securities and short-term investments
are valued at the closing price reported on the active market on which the individual securities are traded. The methods described
above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use
of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different
fair value measurement at the reporting date.
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its
valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions
to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting
date.
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.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
|
|
Cash Flow
|
|
|
|
|
|
Contributions for the period of 01/01/13 through 12/31/13
|
|
$
|
409,563
|
|
Estimated future benefit payments reflecting expected future service
|
|
|
|
|
|
|
|
|
|
1/1/2013 through 12/31/2013
|
|
$
|
145,222
|
|
1/1/2014 through 12/31/2014
|
|
$
|
150,428
|
|
1/1/2015 through 12/31/2015
|
|
$
|
164,048
|
|
1/1/2016 through 12/31/2016
|
|
$
|
204,050
|
|
1/1/2017 through 12/31/2017
|
|
$
|
210,551
|
|
1/1/2018 through 12/31/2022
|
|
$
|
1,401,378
|
|
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, 2012 the Company has
allocated $12 to core deposit intangibles, which are being amortized using the double-declining balance method over 10 years. The
original amount of the core deposit intangible was $128, with $116 amortized through December 31, 2012 and $12 remaining to be
amortized over the next three years. The remaining $897 has been recorded as goodwill, and is evaluated for impairment on October
1st each year by the Company. In December 2012 the Company purchased Potomac Mortgage Group (PMG), a mortgage company in Northern
Virginia. As a result of this transaction, MVB recorded $16.7 million in goodwill. This goodwill will be evaluated for impairment
on an annual basis each December.
NOTE 12. STOCK OFFERING
During 2012 the Company began a confidential offering
to accredited investors. As of December 31, 2012 the Company had received signed offering memoranda and payment for 573,263 shares
totaling $13.7 million in additional capital at December 31, 2012. The proceeds of this offering are being used to support the
acquisition of PMG as well as continued growth of the Company. During 2011 the Company issued 393,305 shares, concluding 2011 with
outstanding shares of 2,234,767. A 10% stock dividend declared December 21, 2010 with a record date of January 25, 2011, payable
February 15, 2011 resulted in an additional 39,071 shares. In 2012, MVB implemented a dividend reinvestment plan (DRIP) which resulted
in the addition of 41,538 shares totaling $973,000 in additional capital.
On September 8, 2011 MVB received $8.5 million in Small
Business Lending Fund (SBLF) capital. MVB issued 8,500 shares of $1,000 per share preferred stock with dividends payable in arrears
on January 1, April 1, July 1 and October 1 each year. At December 31, 2012 and 2011, MVB's loan production qualified for the lowest
dividend rate possible of 1%. MVB may continue to utilize the SBLF capital for a period of four and one half years at the 1% dividend
rate so long as loan growth continues to support the reduced rate.
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, 2007, 2010,
2011 and 2012 vest in 5 years and expire 10 years from the date of the grant, with the exception of 10,000 shares granted in 2010
that vest in 3 years and expire 10 years from the date of the grant.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following summarizes MVB's stock options as of December
31, and the changes for the year then ended:
|
|
2012
|
|
2011
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
Number
|
|
Average
|
|
Number
|
|
Average
|
|
|
of
|
|
Exercise
|
|
of
|
|
Exercise
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
239,576
|
|
|
$
|
16.46
|
|
|
|
207,297
|
|
|
$
|
17.88
|
|
Granted
|
|
|
79,500
|
|
|
|
24.00
|
|
|
|
10,500
|
|
|
|
20.45
|
|
Adjust for 10% stock dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
21,779
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited/expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
319,076
|
|
|
$
|
18.34
|
|
|
|
239,576
|
|
|
$
|
16.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
172,880
|
|
|
$
|
15.63
|
|
|
|
148,973
|
|
|
$
|
15.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average fair value of options granted
|
|
|
|
|
|
$
|
1.88
|
|
|
|
|
|
|
$
|
3.67
|
|
during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value for the options was estimated at the date of grant
using a Black-Scholes option-pricing model with average risk-free interest rates of 1.67% and 3.29% for 2012 and 2011 and a weighted
average expected life of the options of 7 years for both 2012 and 2011. The expected volatility of MVB's stock price used for 2012
options was 5.60%, while for the 2011 options it was 5.40%. The expected dividend yield used was .50% for both 2012 and 2011.
The following summarizes information concerning MVB's stock options
outstanding at December 31, 2012:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
Exercise
|
|
Options
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
Price
|
|
Outstanding
|
|
Life
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14.55
|
|
|
|
127,376
|
|
|
|
4.00
|
|
|
$
|
14.55
|
|
|
|
172,880
|
|
|
$
|
15.63
|
|
$
|
18.18
|
|
|
|
89,650
|
|
|
|
8.00
|
|
|
$
|
18.18
|
|
|
|
|
|
|
|
|
|
$
|
20.45
|
|
|
|
22,550
|
|
|
|
8.00
|
|
|
$
|
20.45
|
|
|
|
|
|
|
|
|
|
$
|
24.00
|
|
|
|
79,500
|
|
|
|
10.00
|
|
|
$
|
24.00
|
|
|
|
|
|
|
|
|
|
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 Company's
financial statements. Under capital adequacy guidelines the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
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, 2012 and 2011, 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 Company's and the Bank's actual capital amounts and ratios are presented in the table
below.
|
|
|
|
|
|
MINIMUM
|
|
MINIMUM
|
|
|
|
|
|
|
TO BE WELL
|
|
FOR CAPITAL
|
|
|
ACTUAL
|
|
CAPITALIZED
|
|
ADEQUACY PURPOSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT
|
|
RATIO
|
|
AMOUNT
|
|
RATIO
|
|
AMOUNT
|
|
RATIO
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
55,527
|
|
|
|
12.3
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
36,243
|
|
|
|
8.0
|
%
|
Subsidiary Bank
|
|
$
|
59,231
|
|
|
|
13.1
|
%
|
|
$
|
45,303
|
|
|
|
10.0%
|
|
|
$
|
36,243
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
51,451
|
|
|
|
11.4
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
18,121
|
|
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
55,155
|
|
|
|
12.2
|
%
|
|
$
|
27,182
|
|
|
|
6.0%
|
|
|
$
|
18,121
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
51,451
|
|
|
|
8.4
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
25,323
|
|
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
55,155
|
|
|
|
9.0
|
%
|
|
$
|
31,630
|
|
|
|
5.0%
|
|
|
$
|
25,304
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
50,603
|
|
|
|
14.8
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
27,421
|
|
|
|
8.0
|
%
|
Subsidiary Bank
|
|
$
|
54,291
|
|
|
|
15.8
|
%
|
|
$
|
34,276
|
|
|
|
10.0%
|
|
|
$
|
27,421
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
47,558
|
|
|
|
13.9
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13,710
|
|
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
51,246
|
|
|
|
14.9
|
%
|
|
$
|
20,566
|
|
|
|
6.0%
|
|
|
$
|
13,710
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
47,558
|
|
|
|
8.9
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
21,354
|
|
|
|
4.0
|
%
|
Subsidiary Bank
|
|
$
|
51,246
|
|
|
|
9.6
|
%
|
|
$
|
26,686
|
|
|
|
5.0%
|
|
|
$
|
21,349
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Bank's net profits, as defined, for that year
combined with its retained net profits for the preceding two calendar years.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
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, 2012:
|
|
(Dollars in thousands)
|
Years ended December 31:
|
|
|
|
|
2013
|
|
$
|
390
|
|
2014
|
|
|
310
|
|
2015
|
|
|
322
|
|
2016
|
|
|
258
|
|
2017
|
|
|
142
|
|
Thereafter
|
|
|
471
|
|
Total minimum payments required:
|
|
$
|
1,893
|
|
Total lease expense for the years ended December 31, 2012 and 2011
was $251 and $156, 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.
Level I: Quoted prices are available in active markets
for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than quoted prices
in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities
include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial
instruments, the parameters of which can be directly observed.
Level III: Assets and liabilities that have little to
no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best
estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
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.
Loans held for sale:
Estimated fair values of
loans held for sale approximate their carrying values.
Bank Owned Life Insurance:
Estimated fair values
of bank owned life insurance approximate the cash surrender value of the policies.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
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 carrying 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.
FHLB and other borrowings:
The fair values of
FHLB and other borrowings are based upon rates currently available for borrowings with similar terms and maturities.
Subordinated debt:
The fair value of long-term
debt approximates its fair value.
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 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.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The carrying values and estimated fair values of the
Company's financial instruments are summarized as follows:
|
|
|
|
|
|
|
|
Quoted
Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Estimated
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(Dollars in thousands)
|
|
Value
|
|
|
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
21,637
|
|
|
$
|
21,637
|
|
|
$
|
21,637
|
|
|
$
|
—
|
|
|
|
|
|
Interest bearing balances with banks
|
|
|
13,130
|
|
|
|
13,554
|
|
|
|
13,130
|
|
|
|
—
|
|
|
|
|
|
CDs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
79,502
|
|
|
|
80,138
|
|
|
|
—
|
|
|
|
79,502
|
|
|
|
—
|
|
Securities held-to-maturity
|
|
|
35,370
|
|
|
|
36,218
|
|
|
|
—
|
|
|
|
36,218
|
|
|
|
|
|
Loans
|
|
|
446,443
|
|
|
|
457,158
|
|
|
|
—
|
|
|
|
—
|
|
|
|
457,158
|
|
Loans held for sale
|
|
|
85,529
|
|
|
|
85,529
|
|
|
|
—
|
|
|
|
85,529
|
|
|
|
—
|
|
Derivative on loans held for sale
|
|
|
1,261
|
|
|
|
1,261
|
|
|
|
|
|
|
|
1,261
|
|
|
|
—
|
|
Bank owned life insurance
|
|
|
10,524
|
|
|
|
10,524
|
|
|
|
10,524
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
1,778
|
|
|
|
1,778
|
|
|
|
1,778
|
|
|
|
—
|
|
|
|
|
|
|
|
$
|
695,174
|
|
|
$
|
707,797
|
|
|
$
|
47,069
|
|
|
$
|
202,510
|
|
|
$
|
457,158
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
486,519
|
|
|
$
|
498,244
|
|
|
$
|
329,083
|
|
|
$
|
—
|
|
|
$
|
169,161
|
|
Repurchase agreements
|
|
|
70,234
|
|
|
|
70,234
|
|
|
|
70,234
|
|
|
|
—
|
|
|
|
—
|
|
FHLB and other borrowings
|
|
|
91,617
|
|
|
|
94,487
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94,487
|
|
Accrued interest payable
|
|
|
329
|
|
|
|
329
|
|
|
|
329
|
|
|
|
—
|
|
|
|
—
|
|
Subordinated debt
|
|
|
4,124
|
|
|
|
4,664
|
|
|
$
|
4,664
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
652,823
|
|
|
$
|
667,958
|
|
|
$
|
404,310
|
|
|
$
|
—
|
|
|
$
|
263,648
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
|
Estimated
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
9,763
|
|
|
$
|
9,763
|
|
Interest bearing balances with banks
|
|
|
10,196
|
|
|
|
10,216
|
|
Securities available-for-sale
|
|
|
99,366
|
|
|
|
99,366
|
|
Securities held-to-maturity
|
|
|
13,568
|
|
|
|
14,144
|
|
Loans
|
|
|
373,822
|
|
|
|
388,027
|
|
Loans held for sale
|
|
|
7,147
|
|
|
|
7,147
|
|
Accrued interest receivable
|
|
|
1,582
|
|
|
|
1,582
|
|
|
|
$
|
515,444
|
|
|
$
|
530,245
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
390,545
|
|
|
$
|
400,894
|
|
Repurchase agreements
|
|
|
77,835
|
|
|
|
77,861
|
|
FHLB and other borrowings
|
|
|
9,767
|
|
|
|
11,027
|
|
Accrued interest payable
|
|
|
341
|
|
|
|
341
|
|
Subordinated debt
|
|
|
4,124
|
|
|
|
4,124
|
|
|
|
$
|
482,612
|
|
|
$
|
494,247
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
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 Company's entire holdings of a particular financial instrument. Because
no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments
and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and
therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates
are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered financial instruments.
NOTE 18. FAIR VALUE MEASUREMENTS
Accounting standards require that the Company adopt fair
value measurement for financial assets and financial liabilities. This enhanced guidance for using fair value to measure assets
and liabilities applies whenever other standards require or permit assets or liabilities to be measured at fair value. This guidance
does not expand the use of fair value in any new circumstances.
Accounting standards establish a hierarchal disclosure
framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three
broad levels defined by these standards are as follows:
Level I: Quoted prices are available in active markets
for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than quoted prices
in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities
include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial
instruments, the parameters of which can be directly observed.
Level III: Assets and liabilities that have little to
no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best
estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.
The following tables present the assets and liabilities
reported on the consolidated statements of financial condition at their fair value as of December 31, 2012 and 2011 by level within
the fair value hierarchy. As required by accounting standards, financial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement. The Company classified investments in government
securities as Level 2 instruments and valued them using the market approach. All measurements are made on a recurring basis, with
the exception of other real estate and impaired loans, which are measured on a non-recurring basis.
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
(In Thousands)
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
|
|
|
|
|
22,192
|
|
|
|
|
|
|
|
22,192
|
|
|
|
|
|
|
|
51,874
|
|
|
|
|
|
|
|
51,874
|
|
U.S. Sponsored Mortgage backed Securities
|
|
|
|
|
|
|
56,376
|
|
|
|
|
|
|
|
56,376
|
|
|
|
|
|
|
|
47,368
|
|
|
|
|
|
|
|
47,368
|
|
Other Securities
|
|
|
|
|
|
|
934
|
|
|
|
—
|
|
|
|
934
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
Loans held for sale
|
|
|
|
|
|
|
85,529
|
|
|
|
—
|
|
|
|
85,529
|
|
|
|
|
|
|
|
7,147
|
|
|
|
—
|
|
|
|
7,147
|
|
Derivative on loans held for sale
|
|
|
|
|
|
|
1,261
|
|
|
|
—
|
|
|
|
1,261
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Other Real Estate Owned
|
|
|
|
|
|
|
—
|
|
|
|
207
|
|
|
|
207
|
|
|
|
|
|
|
|
—
|
|
|
|
176
|
|
|
|
176
|
|
Impaired Loans
|
|
|
|
|
|
|
—
|
|
|
|
3,118
|
|
|
|
3,118
|
|
|
|
|
|
|
|
—
|
|
|
|
2,822
|
|
|
|
2,822
|
|
Total
|
|
|
|
|
|
|
166,292
|
|
|
|
3,325
|
|
|
|
169,617
|
|
|
|
|
|
|
|
106,513
|
|
|
|
2,998
|
|
|
|
109,511
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following table presents additional quantitative
information about assets measured at fair value on a non-recurring basis and for which MVB has utilized Level 3 inputs to determine
fair value:
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
(in thousands)
|
|
Fair Value
Estimate
|
|
Valuation
Techniques
|
|
Unobservable
Input
|
|
Range
Weighted
Average
|
December 31, 2012
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
|
3,118
|
|
|
Appraisal of collateral (1)
|
|
Appraisal
adjustments (2)
Liquidation expenses (2)
|
|
0%
to -50.0%
(-25.2%)
-1.5% to 8.0%
(-5.5%)
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned and repossessed assets
|
|
|
207
|
|
|
Appraisal of collateral (1),(3)
|
|
|
|
|
(1) Fair value is generally determined through independent appraisals
of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.
NOTE 19. ACQUISITION OF PMG
On December 20, 2012, the Company acquired
Potomac Mortgage Group, LLC (PMG), a mortgage loan company based in Northern Virginia. The acquisition significantly expands MVB's
mortgage production capacity.
PMG operated four offices, with their main
location in Fairfax, VA. Under terms of the agreement, the Company acquired PMG for a total purchase price of $19 million, $17
million in cash and $2 million in MVB Financial Corp. stock. As a result of the acquisition, the Company issued 83,333 common shares,
or 3.7% of the total shares outstanding, to the majority owner of PMG. PMG is now a wholly owned subsidiary of MVB Bank, Inc.
The acquired assets and liabilities were measured
at estimated fair values. Fair values of loans held for sale were based upon the locked in sales price recorded on each individual
loan in the portfolio. Other assets and liabilities were insignificant to the transaction. Outstanding lines of credit were recorded
at their book value. The transaction resulted in MVB recording $16.7 million in goodwill, which will be measured for impairment
each December 1.
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
The following condensed statement reflects the values assigned to
PMG's net assets and liabilities as of the acquisition date:
Total Purchase Price
|
|
|
|
|
|
$
|
19,000
|
|
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
1,354
|
|
|
|
|
|
Loans held for sale
|
|
|
60,233
|
|
|
|
|
|
Other assets
|
|
|
2,907
|
|
|
|
|
|
Lines of credit
|
|
|
(60,355
|
)
|
|
|
|
|
Other liabilities
|
|
|
(1,864
|
)
|
|
|
|
|
Fair value of net assets acquired
|
|
|
|
|
|
|
2,275
|
|
Goodwill resulting from PMG acquisition
|
|
|
|
|
|
$
|
16,725
|
|
The company recorded goodwill with the acquisition of PMG of $16.7
million. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize any impairment
during the year ended December 31, 2012. The carrying amount of the goodwill at December 31, 2012 was $16.7 million.
The following table presents financial information regarding PMG
included in MVB's Consolidated Statements of Income from the date of acquisition through December 31, 2012 under the column "Actual
from acquisition date through December 31, 2012". In addition the following table presents unaudited pro forma information
as if the acquisition of PMG had occurred on January 1, 2011 under the "Pro forma" columns. The proforma information
does not necessarily reflect the results of operations that would have occurred had the Company merged with PMG at the beginning
of 2011.
|
|
Actual from
|
|
|
Proforma
|
|
|
|
acquisition date through
|
|
|
year ended December 31
|
|
|
|
December 31, 2012
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
3
|
|
|
$
|
17,324
|
|
|
$
|
14,396
|
|
Noninterest income
|
|
|
618
|
|
|
|
7,749
|
|
|
|
9,476
|
|
Net income
|
|
|
39
|
|
|
|
4,168
|
|
|
|
4,394
|
|
Pro forma earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
1.84
|
|
|
$
|
1.43
|
|
Diluted
|
|
|
|
|
|
|
1.79
|
|
|
|
1.41
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
NOTE 20. 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 company's balance sheets at December 31, 2012
and 2011, 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
|
|
Assets
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
158
|
|
|
$
|
167
|
|
Investment in bank subsidiary,
|
|
|
|
|
|
|
|
|
eliminated in consolidation
|
|
|
71,253
|
|
|
|
51,421
|
|
Other assets
|
|
|
302
|
|
|
|
293
|
|
Total assets
|
|
$
|
71,713
|
|
|
$
|
51,881
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
$
|
40
|
|
|
$
|
25
|
|
Long-term debt
|
|
|
4,124
|
|
|
|
4,124
|
|
Total liabilities
|
|
|
4,164
|
|
|
|
4,149
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $1,000; 8,500
|
|
|
|
|
|
|
|
|
and 8,500 shares authorized, 8,500 and
|
|
|
|
|
|
|
|
|
8,500 shares issued
|
|
$
|
8,500
|
|
|
$
|
8,500
|
|
Common stock, par value $14,000,000
|
|
|
|
|
|
|
|
|
shares authorized; 2,932,901 and 2,234,767 shares
|
|
|
|
|
|
|
|
|
issued respectively
|
|
|
2,933
|
|
|
|
2,235
|
|
Additional paid in capital
|
|
|
48,750
|
|
|
|
32,603
|
|
Treasury stock
|
|
|
(1,084
|
)
|
|
|
(1,084
|
)
|
Retained earnings
|
|
|
9,945
|
|
|
|
6,220
|
|
Accumulated other comprehensive income
|
|
|
(1,495
|
)
|
|
|
(742
|
)
|
Total stockholders' equity
|
|
|
67,549
|
|
|
|
47,732
|
|
Total liabilities and stockholders' equity
|
|
$
|
71,713
|
|
|
$
|
51,881
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Statements of Income
|
|
2012
|
|
|
2011
|
|
Income - dividends from bank subsidiary
|
|
$
|
531
|
|
|
$
|
473
|
|
Expenses - operating
|
|
|
350
|
|
|
|
296
|
|
Income before income taxes and undistributed income
|
|
|
181
|
|
|
|
177
|
|
Income tax (benefit)
|
|
|
(133
|
)
|
|
|
(112
|
)
|
Income after tax (benefit)
|
|
|
314
|
|
|
|
289
|
|
Equity in undistributed income of bank subsidiary
|
|
|
3,854
|
|
|
|
2,413
|
|
Net income
|
|
$
|
4,168
|
|
|
$
|
2,702
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
|
|
|
136
|
|
|
|
44
|
|
Net income available to common shareholders’
|
|
$
|
4,032
|
|
|
$
|
2,658
|
|
Comprehensive income
|
|
$
|
3,415
|
|
|
$
|
2,223
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|
(Dollars in thousands)
|
|
|
|
|
|
|
Statements of Cash Flows
|
|
2012
|
|
|
2011
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,168
|
|
|
$
|
2,702
|
|
Equity in undistributed income of bank subsidiary
|
|
|
(3,854
|
)
|
|
|
(2,413
|
)
|
Decrease/(increase) in other assets
|
|
|
(9
|
)
|
|
|
92
|
|
Increase in other liabilities
|
|
|
15
|
|
|
|
21
|
|
Stock option expense
|
|
|
138
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
|
|
|
|
|
|
|
|
|
operating activities
|
|
|
458
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Investment in subsidiary
|
|
|
(14,731
|
)
|
|
|
(16,754
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by
|
|
|
|
|
|
|
|
|
investing activities
|
|
|
(14,731
|
)
|
|
|
(16,754
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds of stock offering
|
|
|
13,734
|
|
|
|
6,500
|
|
Proceeds from dividend reinvestment plan
|
|
|
973
|
|
|
|
—
|
|
Preferred stock issued
|
|
|
—
|
|
|
|
8,463
|
|
Cash dividend
|
|
|
(307
|
)
|
|
|
(218
|
)
|
Preferred stock dividend
|
|
|
(136
|
)
|
|
|
(44
|
)
|
Purchase of treasury stock
|
|
|
—
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,264
|
|
|
|
14,623
|
|
|
|
|
|
|
|
|
|
|
(Decrease)/increase in cash
|
|
|
(9
|
)
|
|
|
(1,612
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
167
|
|
|
|
1,779
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
158
|
|
|
$
|
167
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock in acquisition
|
|
$
|
2,000
|
|
|
|
—
|
|
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP. AND SUBSIDIARIES
December 31, 2012
|