1
MVB Financial Corp.
Selected Financial Data
Amounts in thousands,
except for share data
Summary of Operations
Interest Income
Interest Expense
Net Interest Income
Provisions for Loan Losses
Non-Interest Income
Non-Interest Expense
Applicable Income Tax
Expenses (Benefit)
Net Income (Loss)
Per Share Data
Basic Net Income (Loss)/Share
Fully Diluted Net Income/Share
Cash Dividends Declared
Book Value
Basic weighted-average shares outstanding
Diluted weighted-average shares outstanding
Average Balance Sheet
Summary
Loans, Gross
Investment Securities
Total Assets
Deposits
Capital
End of Period Balance Sheet
Summary
Loans, Gross
Investment Securities
Total Assets
Deposits
Capital
Selected Ratios
Average Equity to
Average Assets
Return on Average Assets
Net Income (Loss)
Return on Average Equity
Net Income (Loss)
At or for the Year
Ended December 31
2007
2006
2005
2004
2003
2002
2001
2000
1999
$
$
13,274
6,377
6,897
584
1,623
6,240
414
1,282
0.87
0.85
n/a
15.60
1,470
1,509
$ 158,666
26,564
205,463
149,304
22,179
$ 181,537
27,843
230,098
157,448
23,525
10,011
4,360
5,651
445
1,240
5,132
341
973
0.68
0.61
n/a
14.82
1,428
1,588
124,794
27,335
168,950
119,949
20,015
142,599
28,739
191,233
134,593
21,758
6,651
2,326
4,325
160
876
4,284
195
562
0.57
0.49
n/a
13.52
993
1,153
87,145
22,466
123,668
95,349
12,957
105,214
28,534
151,334
113,953
18,518
5,536
1,570
3,966
269
677
2,689
627
1,058
1.46
1.41
n/a
11.80
726
752
70,252
23,012
101,887
81,414
8,342
78,844
20,791
106,206
85,486
8,843
4,852
1,702
3,150
223
598
2,348
396
781
1.10
1.07
n/a
11.04
708
730
55,301
25,219
91,981
71,657
7,575
62,615
25,073
94,936
75,338
7,818
4,227
1,852
2,375
225
458
2,033
175
400
0.70
0.68
n/a
10.37
571
586
42,153
18,794
74,597
58,294
5,379
48,032
22,335
80,977
64,904
7,340
3,893
2,195
1,698
166
391
1,712
64
147
0.28
0.27
n/a
8.75
533
541
30,560
14,773
59,425
44,924
4,761
35,075
18,121
65,325
49,710
4,798
2,977
1,820
1,157
138
207
1,397
(50)
(121)
(0.23)
(0.23)
n/a
8.48
517
517
20,429
8,400
42,764
31,646
4,500
26,117
10,093
50,358
38,110
4,622
1,188
643
545
104
127
944
(118)
(258)
(0.57)
(0.57)
n/a
9.14
517
517
5,591
5,553
19,461
12,336
4,058
13,899
8,139
34,087
24,006
4,572
10.79%
11.85%
10.48%
8.19%
8.24%
7.21%
8.01%
10.52%
20.85%
0.62%
0.58%
0.45%
1.04%
0.85%
0.54%
0.25%
-0.28%
-6.36%
5.78%
4.86%
4.34%
12.68%
10.31%
7.44%
3.09%
-2.69%
-1.33%
Leverage Ratio
11.53%
11.35%
11.82%
8.35%
8.21%
8.95%
7.14%
9.40%
24.20%
Risk-Based Capital Ratios
Tier I Capital
Total Capital
Common Stock Price Per Share
at Year End
* adjusted for 5% stock dividends,
effective June 1, 2001 & August 15, 2004
13.60%
14.52%
14.37%
15.21%
15.66%
16.45%
11.27%
12.40%
11.98%
13.03%
13.98%
14.96%
12.31%
13.25%
16.20%
17.00%
27.00%
27.60%
$
20.00
16.00
16.00
14.00
12.38 *
11.90 *
10.48 *
10.00
*
10.00
*
2
Dear Shareholder,
It is with a heavy heart that I begin this letter to you. Our MVB family has lost a great
friend and valuable Board member. MVB-East, Inc, Board of Director member Robert R. Kessel
died in an airplane accident returning home from a business trip. While Rob was a member of
our family for only a few years, he quickly became an integral part of our organization. He
served on the Board of Directors of MVB-East, Inc and the Loan Review Committee of MVB
Bank, Inc. where his financial knowledge, his business experience and his inquisitive personality
made him an extremely important contributor to our success. We will miss Rob Kessel greatly.
We wish to extend our deepest condolences to his family.
The area of banking that is receiving the greatest press coverage currently is that of sub
prime mortgage lending (“sub prime”). FIRST, I want to assure you that MVB was not an
originator of sub prime mortgage loans. SECOND, MVB will not be an originator of sub prime
mortgage loans in the future.
Community Banks, such as MVB, are not the source of the sub prime loan problems.
Generally, the source of the sub prime problems were mortgage loan brokers whose only concern
was to close a loan and receive the income generated when closed. This is a very different
business model from that of community banks. Our approach is to build a relationship with our
customers. We want our customers to continue to use MVB for all of their financial needs. We
want to grow with our customers.
In spite of the bad press mortgage lending has received during 2007, MVB had a very
good mortgage lending year. We added two mortgage lenders to the staff in March. They closed
their first loans in April. Our mortgage originations increased 24% during 2007, from 282 to 350
loans. We expect this trend to continue in 2008 provided the WV economy remains stable. The
mix of our mortgage loans originated in 2007 changed significantly, as was planned. Nearly 90%
of the loans originated in 2007 were fixed-rate, fixed-term loans. This is a loan that is very good
for our customer and MVB; we originate it and then sell to the secondary mortgage loan market.
The interest rates on these loans are fixed for 30 years. Since no one will provide MVB a 30-year
fixed rate deposit, we cannot keep the loans, but we certainly provide a great service to our
customers.
In an effort to improve earnings for MVB and enhance service and pricing to our
mortgage loan customers, MVB has established MVB Insurance, LLC. This is an insurance
agency that may provide title insurance to real estate borrowers. As a result, this agency earns
commissions for the sale of title insurance while providing such insurance at a lower cost to our
borrowers who choose to use MVB Insurance. It seems to be a win for both MVB and our
borrowers.
3
In early July 2007, we opened our newest office in Martinsburg, WV. It is located at 651
Foxcroft Avenue, in the very retail business area of Berkeley County. We own the bottom floor.
We use about two thirds of it and lease the other third. The facility is very well done. Please stop
by if you are in the area, I’m sure the staff would be happy to provide a short tour.
More important than the facility is the staff assembled to lead MVB forward in the
Eastern Panhandle. Tim Procita came to us in March 2007 as MVB-East, Inc. (East) President
and CEO. He has assembled a very high quality banking team. In the few months they have
been opened, the staff has moved us forward quickly. We expect great progress from East in
future years.
To further enhance the performance of East, we completed the expansion and remodeling
of our Charles Town office. Before the expansion, there was a shortage of office, meeting and
storage space. Now, we have a small conference room and two spacious offices. This greatly
increases our ability to provide high quality service. We now have badly needed storage space
and a workroom. The facility will permit us to continue to grow in Jefferson County.
Technological advancement is both a blessing and a curse. The curse is the need to
continually enhance software and hardware. Technology is one of the most important on-going
expenditures required of MVB. The technology blessings results in more efficient processes and
enhanced customer services.
Recently, we needed to upgrade our data communications lines in order to improve
customer service in the form of data processing response time. As a result of this enhancement,
we have been able to implement video conferencing among our offices. This meeting method has
improved our efficiency and reduced our highway travel exposure.
Internet banking continues to expand. Our commercial customers are great users of the
service. Their use includes such areas as funds transfers, both internal and external, payroll
processing, tax deposit processing, e-mail statements, current account balances and historical
records research. Both commercial and personal users are aggressive in the use of our electronic
bill payment feature.
Remote capture of deposits by commercial customers provides the ability for the
customers to make deposits with MVB without leaving their office. The customer scans the
checks and transmits an electronic file to us. We process the electronic file just like any other
deposit. In addition, it provides MVB with the opportunity to provide deposit services to
customers without geographical limitations.
A similar process is also being used by MVB in the majority of our offices. This allows
us to capture information electronically for forwarding to our data processor. This eliminates
ground or air couriers moving paper from one location to another. Courier expense continues to
increase, which encourages us to convert our remaining offices to the electronic transmission of
data for processing, including the clearing of our foreign checks, as soon as possible.
An area that concerns all of us at MVB is the issue of privacy and identity theft. We take
our responsibility in this area very seriously. We provide training in this area frequently and
constantly update our staff with new scams as they arise. There is a never ending stream of
attempts to obtain personal information. Most of these attempts are designed to get the
4
information from the individual themselves. When it comes to your banking information,
remember that MVB will not call you asking for your information. When you call us, we will ask
numerous questions about you or your account to establish that we are talking to you. Please do
not be offended. We do this for our protection and yours.
From a financial standpoint, MVB enjoyed a very positive year. All balance sheet
categories reflected increases. Earnings growth continued. Our net income exceeded $1
million for the second time in our history.
During 2007 our loan demand continued to be strong in both the commercial and
mortgage loan areas. We originated $145 million in loans during 2007. The vast majority of
these loans were in the commercial and mortgage loan categories. Commercial loan originations
were nearly $88 million while new mortgage loans exceeded $42 million.
The commercial loan growth was originated by East and MVB-Harrison, Inc. (Harrison).
Mortgage loan activity was centered in Marion and Harrison Counties. We are searching for a
mortgage lender for East to improve our performance in that market. Most commercial loans are
made on a floating rate basis while most mortgage loans are a fixed-rate. The commercial loans
remain on our books while the fixed-rate loans are sold as previously described.
The mix of loans originated in 2007 is likely to be the mix of loans made by MVB in the
future. Consumer loans, except for home equity loans, are generally provided by the seller of the
product, especially new autos, where the manufacturer or retailer subsidizes the interest rate to
facilitate the sale of the product.
While our loan portfolio grew over 27% in 2007 and 36% in 2006, the growth was not at
the expense of loan quality. Our level of delinquency at year-end 2007 is better than at year-end
2006 and is well below the level of our peers.
While asset quality is good, MVB is in the credit business and as such, there is a risk of
loss. As loans increase, it is prudent to provide for possible loan losses in advance. Providing for
such losses is a subjective process. We evaluate our position quarterly and determine that our
Allowance for Loan Losses is adequate to absorb future loan losses or is inadequate. Our
evaluation has always been that the Allowance for Loan Losses is adequate.
With the current debate being about “will the U.S. economy sink into a recession?”
historical loan losses may not be representative of future losses. This is an area where, in my
opinion, we are blessed to be in West Virginia. I do not believe that the West Virginia economy
ever soars like many states, nor do I believe that our economy dives like others. Accordingly, if
we do experience a recession, I do not believe that West Virginia or MVB will suffer to the extent
of those institutions in the volatile economy states.
The funding of asset growth is a very important process to all community banks including
MVB. During 2007, many individuals looked to the stock market and other alternatives to
increase their investment return which has slowed the growth of consumer deposits. We continue
to fund our asset growth with deposits and borrowings. Our deposit growth of nearly $23 million
primarily occurred in Harrison, Jefferson and Berkeley Counties. The Marion County MVB
market is one that now grows more slowly because we have been a participant in the market for a
much longer time.
5
Our borrowings are generally through the Federal Home Loan Bank of Pittsburgh
(FHLB). The FHLB is similar to a bank for banks. In most instances, funding from the FHLB is
less expensive than retail deposits, providing an increase in our net interest income versus
consumer deposit funding.
Net income for MVB is a function of our net interest income, other income and other
expenses. Other income in 2007 increased nearly $400,000 over that for 2006. The majority of
this increase related to our mortgage loan activity during 2007.
Other expenses increased primarily in the categories of salaries and employee benefits,
advertising and data processing. The increase in salaries related principally to the opening of our
Martinsburg Office. Staff began to come on board in March 2007; the entire new office staff was
in place by June for the July opening. Advertising increased as a result of additional emphasis in
establishing the presence of East and Harrison. The data processing increase is a function of
activity, new services received from the provider and expenses associated with the Martinsburg
office. Nearly one-half of the increase in other operating expenses is the result of increased FDIC
insurance premiums. This is an increase that is regulatorily driven and one which we cannot
control.
Our goal is not to be the largest bank in any particular region, but rather to be an
organization that our shareholders can be proud of and provide high quality products and great
service to our customers. All banks have essentially the same products. The only thing that
differentiates one from another is the staff. I am extremely proud of our staff and believe that we
provide the best in banking. I believe that our growth supports my assumption.
As I close this letter, I wish to advise you that I have submitted my notice of retirement
from the active management of MVB to the Board of Directors. My retirement will be as of
April 30, 2009. This is the end of the month following my 62nd birthday. The reason for my
retirement is very simple. My wife, Shirley, and I would like to have some time together, while
our health is good, to enjoy life without being tied to a job or a schedule.
I have certainly enjoyed my time with MVB. It has been extremely rewarding seeing
MVB come to life from only an idea. Our success is the result of having a great staff, an
encouraging Board of Directors and wonderful support from our many shareholders.
We appreciate your support over the years. The time has gone by very quickly. Next
year, we will celebrate our tenth anniversary. Please contact me or any of our staff if we can be
of assistance to you. We appreciate the opportunity to serve you.
Best wishes,
6
Personal or Business, MVB Bank is Your
Personal or Business, MVB Bank is Your
BestBestBest
Value!
Value!
Value!
MORTGAGELoans
CASH Management
ONLINE Banking
WITH BILLPAY
VISA Check Cards
VISA Credit Cards
HOME EQUITY Loans
OVERDRAFT Protection
DIRECT Deposits
BUSINESS Checking
REMOTE Check Deposit
ONLINE Banking
WITH BILLPAY
BUSINESS Loans
MVB
MVB BANK
EQUAL HOUSING
EQUAL HOUSING
LENDER
LENDER
Shop n Save
Shop n Save
Shop n Save
Shop n Save
FOOD LION
Contact us at any of our five locations or visit www.mvbbanking.com
Contact us at any of our five locations or visit www.mvbbanking.com
7
S.R. Snodgrass, A.C. • 980 National Road • Wheeling, West Virginia 26003-6400 • Phone: (304) 233-5030 • Facsimile: (304) 233-3062
8
MVB Financial Corp.
Consolidated Balance Sheets
(Dollars in thousands, except number of shares)
December 31, 2007 and 2006
ASSETS
Cash and due from banks
Interest bearing balances with banks
Investment Securities:
Securities held-to-maturity, at cost
Securities available-for-sale, at approximate market value
Loans:
Less: Allowance for loan losses
Net Loans
Loans held for sale
Bank premises, furniture and equipment
Accrued interest receivable and other assets
2007
2006
$
4,926
490
$
6,417
53
1,814
26,029
181,537
(1,733)
179,804
217
8,244
8,574
2,326
26,413
142,599
(1,206)
141,393
1,293
6,493
6,896
TOTAL ASSETS
$
230,098
$
191,284
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing
Interest bearing
Total Deposits
Accrued interest, taxes, and other liabilities
Repurchase agreements
Federal Home Loan Bank borrowings
Long-term debt
Total Liabilities
STOCKHOLDERS' EQUITY
$
19,129
138,319
157,448
$
19,758
114,835
134,593
1,601
19,817
23,583
4,124
206,573
1,037
20,209
13,790
-
169,629
Preferred stock, par value $1,000; 5,000 shares authorized, none issued
Common stock, par value $1; 4,000,000 shares authorized;
1,508,081 and 1,467,849 shares issued and outstanding, respectively
Additional paid-in capital
Treasury Stock, 8,919 and 1,234 shares, respectively
Retained earnings
Accumulated other comprehensive loss
Total Stockholders' Equity
1,508
18,450
(168)
4,140
(405)
23,525
1,468
17,720
(18)
2,858
(373)
21,655
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
230,098
$
191,284
See Notes to Consolidated Financial Statements
9
MVB Financial Corp.
Consolidated Statements of Income
(Dollars in thousands except Share and Per Share Data)
Years ended December 31, 2007 and 2006
INTEREST INCOME
Interest and fees on loans
Interest on deposits with other banks
Interest on investment securities - taxable
Interest on tax exempt loans and securities
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on repurchase agreements
Interest on Federal Home Loan Bank borrowings
Interest on long-term debt
Total interest expense
NET INTEREST INCOME
Provision for loan losses
Net interest income after provision for loan losses
OTHER INCOME
Service charges on deposit accounts
Income on bank owned life insurance
Visa debit card income
Income on loans held for sale
Other operating income
OTHER EXPENSES
Salaries and employee benefits
Occupancy expense
Equipment depreciation and maintenance
Data processing
Visa debit card expense
Advertising
Legal and accounting fees
Printing, stationery and supplies
Other taxes
Other operating expenses
Income before income taxes
Income tax expense
Net Income
Basic net income per share
Diluted net income per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
2007
2006
$
11,631
102
1,207
334
13,274
$
8,500
30
1,151
330
10,011
4,859
725
568
225
6,377
6,897
584
6,313
647
167
212
377
220
1,623
3,485
406
351
593
152
266
85
115
127
660
6,240
1,696
414
3,203
698
459
-
4,360
5,651
445
5,206
591
149
170
246
84
1,240
2,897
379
310
517
116
112
88
85
97
531
5,132
1,314
341
$
1,282
$
973
$0.87
$0.85
1,470,167
1,509,404
$0.68
$0.67
1,427,985
1,442,910
See Notes to Consolidated Financial Statements
10
MVB Financial Corp.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31, 2007 and 2006
OPERATING ACTIVITIES
Net Income
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses
Deferred income tax (benefit)/expense
Depreciation
Stock based compensation
Loans originated for sale
Proceeds of loans sold
Amortization, net of accretion
(Increase) in interest receivable and other assets
Increase in accrued interest, taxes, and other liabilities
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES
(Increase) in loans made to customers
Purchases of premises and equipment
Purchases of investment securities available-for-sale
Purchases of investment securities held-to-maturity
(Increase)/decrease in deposits with Federal Home Loan Bank, net
Purchases of certificates of deposit with other banks
Proceeds from maturity of certificates of deposit with other banks
Proceeds from sales, maturities and calls of securities available-for-sale
Proceeds from maturities and calls of securities held-to-maturity
Purchase of bank owned life insurance
NET CASH (USED IN) INVESTING ACTIVITIES
FINANCING ACTIVITIES
Net increase in deposits
Net (decrease)/increase in repurchase agreements
Proceeds from Federal Home Loan Bank borrowings
Principal payments on Federal Home Loan Bank borrowings
Proceeds from long-term borrowings
Purchase of treasury stock
Net proceeds of stock offering
Common stock options exercised
NET CASH PROVIDED BY FINANCING ACTIVITIES
(Decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
2007
2006
$
1,282
$
973
584
(117)
364
13
(27,887)
28,963
23
(1,205)
564
2,584
(38,995)
(2,115)
(6,625)
(1,000)
(437)
-
-
7,110
1,500
(500)
(41,062)
22,855
(392)
100,455
(90,662)
4,124
(150)
586
171
36,987
(1,491)
6,417
445
(61)
310
-
(14,924)
13,631
31
(984)
483
(96)
(37,497)
(1,177)
(8,386)
-
2,670
(594)
1,485
8,251
209
-
(35,039)
20,640
4,900
10,880
(92)
-
(8)
2,102
-
38,422
3,287
3,130
Cash and cash equivalents at end of period
$
4,926
$
6,417
Supplemental disclosure of cash flow information
Cash payments for:
Interest on deposits, repurchase agreements and FHLB borrowings
Income taxes
$
$
6,034
500
$
$
4,249
340
See Notes to Consolidated Financial Statements
11
MVB Financial Corp.
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2007 and 2006
(Dollars in thousands)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Treasury
Stock
Total
Stockholders'
Equity
$
1,336
$
15,750
$
1,885
$
(443)
$
(10)
$
18,518
Stock offering
132
1,970
Treasury stock, acquired at cost
(8)
$
1,468
$
17,720
$
2,858
$
(373)
$
(18)
$
21,655
Balance, December 31, 2005
Comprehensive income:
Net Income
Other comprehensive income(loss)
Net fair value adjustment on
securities available for sale, less
reclassification adjustment for realized
gains - net of tax effect of $123
Total Comprehensive Income
Adjustment to initially apply FASB
Statement No. 158, net of tax
Balance, December 31, 2006
Comprehensive income:
Net Income
Other comprehensive income(loss)
Net fair value adjustment on
securities available for sale, less
reclassification adjustment for realized
gains - net of tax effect of $45
Total Comprehensive Income
Minimum pension liability adjustment -
net of tax effect
973
185
(115)
973
185
1,158
(115)
2,102
(8)
1,282
1,282
67
1,349
(99)
586
13
(150)
171
67
(99)
(150)
Stock offering
Stock based compensation
Treasury stock, acquired at cost
Common stock options execised
29
11
557
13
160
Balance, December 31, 2007
$
1,508
$
18,450
$
4,140
$
(405)
$
(168)
$
23,525
See Notes to Consolidated Financial Statements
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas
being the Marion, Harrison, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the
Company, such as loan portfolio management and deposit growth, are directly affected by the market area economies.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Management Estimates
The preparation of
financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates, such as
the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in
the period such facts and circumstances change. Actual results could differ from these estimates.
Investment Securities
Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried
at cost, adjusted for amortization of premium and accretion of discounts computed by the interest method from purchase
date to maturity. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized
gains and losses on securities available-for-sale, net of the deferred income tax effect, are recognized as direct increases or
decreases in stockholders' equity. Cost of securities sold is recognized using the specific identification method.
Loans Held for Sale
Through Taylor, Bean and Whitaker, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage
products without holding these instruments in the bank's loan portfolio. After thorough review of the contract with Taylor,
Bean and Whitaker, the Company has concluded that no material derivative instruments exist.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered
delinquent when scheduled principal or interest payments are 31 days past due.
Interest income on loans is recognized on
an accrual basis. The allowance for loan losses is maintained at a level deemed adequate to absorb probable losses
inherent in the loan portfolio. The Company consistently applies a quarterly loan review process to continually evaluate
loans for changes in credit risk. This process serves as the primary means by which the Company evaluates the adequacy
of the allowance for loan losses, and is based upon periodic review of the collectibility of loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect the 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.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
Loan Origination Fees and Costs
Loan origination fees and costs are accounted for according to Statement of Financial Accounting Standards No. 91, which
requires that loan origination and commitment fees and direct loan origination costs be deferred and the net amount
amortized as an adjustment of the related loan's yield.
Bank Premises, Furniture and Equipment
Bank premises, furniture and equipment are carried at cost less accumulated depreciation. The provision for depreciation is
computed for financial reporting by the straight-line-method based on the estimated useful lives of assets, which range from
7 to 40 years on buildings and leasehold improvements and 3 to 10 years on furniture, fixtures and equipment.
Intangible Assets
The excess of the cost of an acquired company over the fair value of the net assets and identified intangibles acquired is
recorded as goodwill. The net carrying amount of intangible assets was $975 at December 31, 2007.
Other Investments
Federal Home Loan Bank (FHLB) stock is recorded at cost and considered to be restricted as the Company is required by
the FHLB to hold this investment, and the only market for this stock is the issuing agency. FHLB stock totaled $1,181 and
$851 at December 31, 2007 and 2006, respectively, and is included in other assets in the accompanying balance sheet.
The Company also holds $187 in Silverton Bank, N.A. stock at December 31, 2007.
Income Taxes
Deferred income taxes are reported for timing differences between items of income or expense reported in the financial
statements and those reported for income tax purposes. The differences relate principally to accretion of discounts on
investment securities, provision for loan losses, minimum pension liability, and differences between book and tax methods
of depreciation.
Stock Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, "Share-Based
Payment," (SFAS No. 123R) which was issued by the Financial Accounting Standards Board (FASB) in December 2004.
SFAS No. 123R revises SFAS 123 "Accounting for Stock Based Compensation," and supersedes APB No. 25, Accounting
for Stock Issued to Employees," (APB No. 25) and its related interpretations. Under SFAS No. 123R, the Company is
required to record compensation expense for all awards granted after the date of adoption and for any unvested options
previously granted.
Foreclosed Assets Held for Resale
Foreclosed assets held for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are
recorded at the lower of cost or fair value less estimated selling costs at the time of foreclosure, with any valuation
adjustments charged to the allowance for loan losses. Any unrealized gains or losses on sale are then recorded in other
non-interest expense. At December 31, 2007 and 2006, the Company held other real estate of $55 and $0.
Net Income Per Common Share
Diluted net income per common share includes any dilutive effects of stock options, and is computed by dividing net income
by the average number of common shares outstanding during the period, adjusted for the dilutive effect of options under
The 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.
Reclassifications
Certain amounts in the 2006 financial statements have been reclassified to conform to the 2007 financial statement
presentation.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
NOTE 2. INVESTMENT SECURITIES
Amortized cost and approximate market values of investment securities held-to-maturity at December 31, 2007, including
gross unrealized gains and losses, are summarized as follows:
(Dollars in thousands)
Mortgage-backed securities
Municipal securities
U. S. Agency securities
Amortized
Cost
Unrealized
Gain
-
$
816
998
1,814
$
-
$
5
-
5
$
Unrealized
Loss
$
-
(2)
-
(2)
$
Approximate
Market
Value
$
$
-
819
998
1,817
Amortized cost and approximate market values of investment securities held-to-maturity at December 31, 2006, including
gross unrealized gains and losses, are summarized as follows:
Mortgage-backed securities
Municipal securities
U. S. Agency securities
Amortized
Cost
Unrealized
Gain
-
$
826
1,500
2,326
$
-
$
2
-
2
$
Unrealized
Loss
$
-
(5)
(7)
(12)
$
Approximate
Market
Value
$
$
-
823
1,493
2,316
Amortized cost and approximate market values of investment securities available-for-sale at December 31, 2007 are
summarized as follows:
93
-
-
-
93
34
-
2
36
Approximate
Market
Value
$
$
21,854
3,622
429
124
26,029
Approximate
Market
Value
$
$
20,758
4,508
1,147
26,413
(32)
(56)
(271)
-
(359)
(145)
(159)
(110)
(414)
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
$
$
U. S. Agency securities
Mortgage-backed securities
Corporate securities
Other securities
$
$
21,793
3,678
700
124
26,295
$
$
Amortized cost and approximate market values of investment securities available-for-sale at December 31, 2006 are
summarized as follows:
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
$
$
U. S. Agency securities
Mortgage-backed securities
Corporate securities
$
$
20,869
4,667
1,255
26,791
$
$
The following tables summarize amortized cost and approximate market values of securities by maturity:
Held to Maturity
Available for sale
December 31, 2007
Within one year
After one year, but within five
After five years, but within ten
After ten Years
Total
Amortized
Cost
$
-
282
1,430
102
1,814
$
Approximate
Market
Value
$
-
284
1,429
104
1,817
$
15
Amortized
Cost
Approximate
Market
Value
$
$
6,120
10,847
7,684
1,644
26,295
6,098
10,856
7,719
1,356
26,029
$
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
Investment securities with a carrying value of $20,512 and $20,904 at December 31, 2007 and 2006, respectively, were
pledged to secure public funds and repurchase agreements.
The Company's investment portfolio includes securities that are in an unrealized loss position as of December 31, 2007, the
details of which are included in the following table. Although these securities, if sold at December 31, 2007 would result in a
pretax loss of $361, the Company has no intent to sell the applicable securities at such market values, and maintains the
Company has the ability to hold these securities until all principal has been recovered. Declines in the market values of
these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When
determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions
specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities
have been in an unrealized loss position, the 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, 2007, the Company considers all
issuer has severely deteriorated. As of December 31, 2007, the Company considers all securities with unrealized loss
positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized
losses as a result of the current temporary decline in market value.
The following table discloses investments in an unrealized loss position:
At December 31, 2007, total temporary impairment totaled $361.
Description and number
of positions
Less than 12 months
12 months or more
Fair Value
Unrealized Loss
Fair Value
Unrealized Loss
U.S. Agencies (22)
Mortgage-backed securities (27)
Corporate securities (2)
Municipal securities (1)
$
8,984
-
-
-
8,984
$
(13)
-
-
-
$
(13)
3,231
3,622
430
228
7,511
$
$
$
$
$
(19)
(56)
(271)
(2)
(348)
NOTE 3. LOANS
The components of loans in the balance sheet at December 31, were as follows:
(Dollars in thousands)
2007
2006
Commercial and non-residential real estate
Residential real estate
Consumer and other
$
$
128,535
42,030
10,972
181,537
$
$
83,124
48,065
11,410
142,599
Changes in the allowance for loan losses were as follows for the years ended December 31:
(Dollars in thousands)
2007
2006
Balance at beginning of period
Losses charged to allowance
Recoveries credited to allowance
Provision for loan losses
Balance at end of period
$
$
1,206
(68)
11
584
1,733
$
$
873
(119)
7
445
1,206
Impaired loans are accounted for in accordance with Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of Loans, as amended by Statement of Financial Accounting Standards No. 118. The Company
considers a loan impaired when, based on current information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan agreement.
As of December 31, 2007 and 2006, the Company had impaired loans totaling $470 and $5, respectively, with an allocated
reserve for such loans sufficient to cover possible losses. Included in these totals were non-accrual loans totaling $469 and
$5, respectively.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT
Bank premises, furniture and equipment at December 31, were as follows:
(Dollars in thousands)
2007
2006
Bank Premises
Equipment, furniture and fixtures
Allowance for depreciation
NOTE 5. DEPOSITS
Deposits at December 31, were as follows:
(Dollars in thousands)
Demand deposits of individuals, partnerships, and corporations
Interest bearing
Non-interest bearing
Time and savings deposits of individuals, partnerships and corporations
Deposits of states and political subdivisions
Official checks
Total Domestic Deposits
$
$
7,368
2,391
9,759
(1,515)
8,244
5,853
1,791
7,644
(1,151)
6,493
$
$
2007
2006
$
$
13,640
18,557
120,683
3,996
572
157,448
12,667
18,783
97,624
4,544
975
134,593
$
$
Time deposits of over $100 included above
$
34,580
$
28,666
Maturities of certificates of deposit at December 31, 2007 were as follows:
2008
2009
2010
2011
2012
Total
$
$
59,899
9,212
4,744
2,099
3,706
79,660
NOTE 6. BORROWED FUNDS
The Company is a party to repurchase agreements with certain customers. As of December 31, 2007 and 2006, the
Information related to repurchase agreements is
company held repurchase agreements of $19,817 and $20,209.
summarized below:
(Dollars in thousands)
2006
2007
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Rate at December 31
$
19,817
18,360
20,481
3.95%
3.41%
$
20,209
19,581
22,705
3.56%
3.94%
MVB Bank, Inc. (the Bank) is a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh, Pennsylvania.
The
remaining maximum borrowing capacity with the FHLB at December 31, 2007 was approximately $29,979. At December
31, 2007 and 2006 the Bank had borrowed $23,583 and $13,790.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
Borrowings from the FHLB as of December 31 were as follows:
(Dollars in thousands)
Fixed interest rate note, originating April 1999, due April 2014, interest
of 5.405% is payable monthly
$
1,000
$
1,000
2007
2006
Fixed interest rate note, originating January 2005, due January 2020,
payable in monthly installments of $11, including interest of 5.140%
Fixed interest rate note, originating April 2002, due May 2017, payable
in monthly installments of $4, including interest of 5.90%
Floating interest rate note, originating March 2003, due December
2011, interest payable monthly, including interest of 3.31%
Fixed interest rate note, originating July 2006, due July 2016, payable
in monthly installments of $8, including interest of 4.50%
Fixed interest rate note, originating October 2006, due October 2021,
payable in monthly installments of $6, including interest of 5.20%
Fixed interest rate note, originating April 2007, due April 2022, payable
in monthly installments of $6, including interest of 5.18%
Amortizing fixed interest rate note, originating February 2007, due
February 2022, payable in monthly installments of $5, including interest
of 5.22%
Fixed interest rate note, originating September 2007, due September
2008, interest of 4.53% payable quarterly
Fixed interest rate note, originating November 2007, due April 2008,
interest of 4.80% payable quarterly
Fixed interest rate note, originating November 2007, due April 2008,
interest of 4.60% payable quarterly
Fixed interest rate note, originating December 2007, due December
2017, payable in monthly installments of $7, including interest of 5.25%
1,158
689
10,296
1,452
1,145
1,085
958
700
2,700
1,300
1,100
1,225
701
8,216
1,487
1,161
-
-
-
-
-
-
$
23,583
$
13,790
In March 2007 the Company completed the private placement of $4 million Floating Rate, Trust Preferred Securities through
its MVB Financial Statutory Trust I subsidiary (the "Trust"). The Company established the Trust for the sole purpose of
issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The proceeds from the
sale of the Trust Preferred Securities will be loaned to the Company under subordinated Debentures (the "Debentures")
issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred
Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize
note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the
Company's Tier I capital.
The Trust Preferred Securities and the Debentures mature in 30 years and are redeemable by the Company after five
years.
Interest payments are due in March, June, September and December and are adjusted at the interest due dates at a
rate of 1.62% over the three month LIBOR Rate. The Company reflects borrowed funds in the amount of $4.1 million as of
December 31, 2007 and interest expense of $225 for the year ended December 31, 2007.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
A summary of maturities of these borrowings over the next five years is as follows:
Year
2008
2009
2010
2011
2012
Thereafter
Amount
$
$
4,890
199
210
10,517
232
11,659
27,707
Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-
backed securities and certain investment securities.
Additionally the Bank has a line of credit of $4,500 available from Silverton Bank, N.A. There were no borrowings against
this line of credit at December 31, 2007 or 2006.
NOTE 7. FINANCIAL INSTRUMENTS
Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the statements of financial condition.
The 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 customers'
credit worthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the
Company upon extension of credit, varies and is based on 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.
Total contractual amounts of the commitments as of December 31 were as follows:
(Dollars in thousands)
2007
2006
Available on lines of credit
Stand-by letters of credit
Other loan commitments
Concentration of Credit Risk
$
$
41,528
1,000
608
43,136
$
$
20,939
400
594
21,933
The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers
throughout the Marion, Harrison, Jefferson and Berkeley County areas of West Virginia and adjacent counties. Collateral
for loans is primarily residential and commercial real estate, personal property, and business equipment. The Company
evaluates the credit worthiness of each of its customers on a case-by-case basis, and the amount of collateral it obtains is
based upon management's credit evaluation.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
NOTE 8. INCOME TAXES
The Company records income taxes in accordance with Statement of Financial Accounting Standards No. 109 (FAS 109),
Accounting for Income Taxes. FASB 109 is an asset and liability approach that requires the recognition of deferred income
tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts
and the tax basis of other assets and liabilities.
The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain
items of income and expense, primarily the provision for possible loan losses, allowance for losses on foreclosed assets
held for resale, depreciation, and accretion of discounts on investment securities are reported in different accounting
periods for income tax purposes.
The provisions for income taxes for the years ended December 31, were as follows:
(Dollars in thousands)
Current:
2007
2006
Federal
State
Deferred expense(benefit)
Federal
State
Income Tax expense
$
$
451
80
531
$
$
342
60
402
$
$
(99)
(18)
(117)
414
$
$
(52)
(9)
(61)
341
Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended
December 31:
2007
2006
Amount
%
Amount
%
Tax at Federal tax rate
Tax effect of:
State income tax
Tax exempt earnings
Other
$
577
42
(173)
(32)
414
$
34.0%
2.5%
-10.2%
-2.0%
24.3%
$
447
40
(147)
1
341
$
34.0%
3.0%
-11.2%
0.1%
25.9%
Deferred tax assets and liabilities are the result of timing differences in recognition of revenue and expense for income tax
and financial statement purposes.
Deferred income tax liabilities and (assets) were comprised of the following at December 31:
Depreciation
Pension
Gross deferred tax liabilities
Unrealized loss on securities available-for-sale
Allowance for loan losses
Minimum pension liability
Gross deferred tax (assets)
2007
2006
$
279
19
298
$
(106)
(636)
(164)
(906)
176
18
194
(151)
(415)
(97)
(663)
Net deferred tax (asset)
$
(608)
$
(469)
No deferred income tax valuation allowance is provided since it is more likely than not that realization of the deferred
income tax asset will occur in future years.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
NOTE 9. RELATED PARTY TRANSACTIONS
The Company has granted loans to officers and directors of the Company and to their associates. Related party loans are
made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties and do not involve more than normal risk of collectibility. Set forth below is a summary of
the related loan activity.
(Dollars in thousands)
Balance at
Beginning
of Year
Borrowings
Repayments
Balance
at end
of Year
December 31, 2007
$
6,882
$
1,013
$
(1,832)
$
6,063
December 31, 2006
$
3,941
$
3,674
$
(733)
$
6,882
The Company held related party deposits of $7,358 and $4,483 at December 31, 2007 and December 31, 2006,
respectively.
The Company held related party repurchase agreements of $5,051 and $1,890 at December 31, 2007 and December 31,
2006, respectively.
NOTE 10. PENSION PLAN
The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all
full-time employees. Benefits are based on years of service and the 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 $300 and $139 for the years
ended December 31, 2007 and 2006.
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, 2007 and 2006 is as follows:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Unrecognized prior service cost
Prepaid pension cost recognized
Accumulated benefit obligation
2007
2006
$
$
$
$
$
836
250
69
265
(24)
1,396
664
118
300
(24)
1,058
(338)
395
14
71
$
$
$
$
661
122
40
13
-
836
455
59
150
-
664
$
(172)
226
17
71
$
$
$
1,089
$
682
At December 31, 2007 and 2006, the weighted average assumptions used to determine the benefit obligation are as
follows:
Discount rate
Rate of compensation increase
6.25%
3.00%
6.00%
3.00%
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
The components of net periodic pension cost are as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of loss
Net periodic pension cost
$ 250
69
(57)
3
35
$ 300
$ 122
40
(42)
3
16
$ 139
At December 31, 2007 and 2006, the weighted average assumptions used to determine net periodic pension cost are as
follows:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
6.00%
8.50%
3.00%
5.75%
8.50%
3.00%
The Company's pension plan asset allocations at October 31, 2007 and 2006, as well as target allocations for 2008 are as
follows:
Asset Category
Equity securities
Balanced fund
Other
Total
10/31/07
68%
27%
5%
100%
10/31/06
74%
20%
6%
100%
70%
25%
5%
100%
2008 Target
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.
Expected amortization of transition obligation (asset)
Expected amortization of prior service cost (credit)
Expected amortization of net loss (gain)
2008
2007
$ -
2
26
$ -
2
12
Below we show the best estimate of the plan contribution for next fiscal year. We also show the benefits expected to be
paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter.
Contributions for the period of 1/1/2008 through 12/31/2008
Estimated future benefit payments reflecting expected future service
1/1/2008 through 12/31/2008
1/1/2009 through 12/31/2009
1/1/2010 through 12/31/2010
1/1/2011 through 12/31/2011
1/1/2012 through 12/31/2012
1/1/2013 through 12/31/2017
NOTE 11. INTANGIBLE ASSETS
Cash Flow
$ 284,120
$ 14,991
39,665
46,583
52,593
70,147
419,328
On October 7, 2005, the Company purchased a full service office in the Charles Town area of Jefferson County West
Virginia. This office held assets of $1.8 million and total deposits of $17.1 million. As a result of this transaction, the
Company recorded intangible assets. As of December 31, 2007 the Company has allocated $79 to core deposit
intangibles, which are being amortized using the double-declining balance method over 10 years. The remaining $896 has
been recorded as goodwill, and is evaluated for impairment on October 1st each year by the Company.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
NOTE 12. STOCK OFFERING
During 2007 the Company began a public stock offering of 200,000 shares of common stock, which when completed will
total slightly less than $4.0 million. The proceeds of this offering will be used to support the growth of the bank and to
increase the legal lending limit to one borrower. In 2006 the Company completed a public stock offering of 725,000 shares
of common stock, which increased capital by more than $11 million. This offering was done to support expansion into
bordering Harrison County and the growing Jefferson County area in West Virginia's eastern panhandle. At December 31,
2006, outstanding shares totaled 1,467,849. During 2007, the Company issued 40,232 shares, concluding 2007 with
outstanding shares of 1,508,081.
NOTE 13. STOCK OPTIONS
The MVB Financial Corp. Incentive Stock Plan provides for the issuance of stock options to selected employees. Under the
provisions of the plan, the option price per share shall not be less than the fair market value of the common stock on the
date of the grant. All options granted prior to 2004 vest in 4 years, and expire 10 years from the date of grant. For options
granted in 2004 and 2005 the vesting period has been accelerated to fully vest at December 31, 2005. These options also
expire 10 years from the date of the grant. Options granted in 2006 and 2007 vest in 5 years and expire 10 years from the
date of the grant.
The following summarizes MVB's stock options as of December 31, and the changes for the year then ended:
2007
2006
Weighted-
Average
Exercise
Price
Number
of
Shares
Weighted-
Average
Exercise
Price
Number
of
Shares
176,812
15,000
$
14.63
16.00
175,312
2,500
$
14.63
16.00
-
(14,482)
(10,000)
-
$
-
-
-
-
(1,000)
-
$
-
-
167,330
$
14.91
176,812
$
14.64
150,330
$
14.78
174,312
$
14.63
$
3.52
$
6.37
Outstanding at beginning
of year
Granted
Adjust for 5% stock
dividend
Exercised
Forfeited/expired
Outstanding at end of
year
Exercisable at end of
year
Weighted-average fair
value of options granted
during the year
The fair value for the options was estimated at the date of grant using a Black-Scholes option-pricing model
with an average risk-free interest rate of 4.65% and 4.62% for 2007 and 2006, respectively, and a weighted-
average expected life of the options of 7 years for 2007 and 2006. The expected volatility of MVB's stock price
used for 2007 and 2006 options was 12.5% and the expected dividend yield used was .500%.
The following summarizes information concerning MVB's stock options outstanding at December 31, 2007:
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life
3.00
4.00
7.00
9.00
Options
Outstanding
27,672
1,575
2,100
135,983
Weighted
Average
Exercise
Price
$9.98
$10.48
$12.38
$16.00
Exercise Price
$9.98
$10.48
$12.38
$16.00
Weighted
Average
Exercise
Price
Number
Exercisable
27,672
1,575
2,100
118,983
$9.98
$10.48
$12.38
$16.00
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
December 31, 2007
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.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum
amounts and ratios of Total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as defined.
As of December 31, 2007 and 2006, the Bank meets all capital adequacy requirements to which it is subject.
The most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. Both the
Company's and the Bank's actual capital amounts and ratios are presented in the table below.
ACTUAL
MINIMUM
TO BE WELL
CAPITALIZED
MINIMUM
FOR CAPITAL
ADEQUACY PURPOSES
AMOUNT
RATIO
AMOUNT
RATIO
AMOUNT
RATIO
(Dollars in thousands)
As of December 31, 2007
Total Capital
(to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier I Capital
(to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier I Capital
(to average assets)
Consolidated
Subsidiary Bank
As of December 31, 2006
Total Capital
(to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier I Capital
(to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier I Capital
(to average assets)
Consolidated
Subsidiary Bank
$
$
24,117
27,329
12.8%
14.5%
N/A
$
18,823
N/A
10.0%
$
$
15,132
15,058
8.0%
8.0%
$
$
22,384
25,596
11.8%
13.6%
N/A
$
11,294
N/A
6.0%
$
$
7,566
7,529
4.0%
4.0%
$
$
22,384
25,596
10.1%
11.5%
N/A
$
11,103
N/A
5.0%
$
$
8,893
8,882
4.0%
4.0%
$
$
22,972
21,923
15.9%
15.2%
N/A
$
14,419
N/A
10.0%
$
$
11,545
11,535
8.0%
8.0%
$
$
21,766
20,720
15.1%
14.4%
N/A
$
8,651
N/A
6.0%
$
$
5,772
5,767
4.0%
4.0%
$
$
21,766
20,720
11.9%
11.4%
N/A
$
9,127
N/A
5.0%
$
$
7,307
7,302
4.0%
4.0%
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
DECEMBER 31, 2007
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.
NOTE 16. LEASES
The Company leases land and building space for the operation of some banking offices. All such leases qualify as
operating leases. Following is a schedule by year of future minimum lease payments required under operating
leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2007:
Years ended December 31:
(Dollars in thousands)
2008
2009
2010
2011
2012
Thereafter
Total minimum payments required:
$ 54
55
55
55
55
430
$ 704
Total lease expense for the years ended December 31, 2007 and 2006 was $54 and $54, respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the methods and significant assumptions used by the Company in estimating its fair
value disclosures for financial instruments.
Short-term financial instruments: The carrying values of short-term financial instruments including cash and
due from banks, interest bearing balances - FHLB, and certificates of deposit in other banks approximate the fair
value of these instruments.
Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted
market prices are not available, estimated fair values are based on quoted market prices of comparable securities.
Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and
interest, discounted at interest rates currently offered for loans with similar terms of borrowers of similar credit
quality. No prepayments of principal are assumed.
Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable
approximate their estimated fair values.
Repurchase agreements: The fair values of repurchase agreements approximate their estimated fair values.
Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money
market), savings accounts and other variable rate deposits approximate their carrying values. Fair values of fixed
maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits
with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered
in estimating the fair values disclosed.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
DECEMBER 31, 2007
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.
The carrying values and estimated fair values of the Company's financial instruments are summarized as follows:
December 31, 2007
Carrying
Value
Estimated
Fair
Value
(Dollars in thousands)
$
$
Financial assets:
Cash and due from banks
Interest bearing balances - FHLB
Securities available-for-sale
Securities held-to-maturity
Loans
Accrued interest receivable
Financial liabilities:
Deposits
Repurchase agreements
Federal Home Loan Bank Borrowings
Accrued interest payable
Long-term debt
Financial assets:
Cash and due from banks
Interest bearing balances - FHLB
Securities available-for-sale
Securities held-to-maturity
Loans
Accrued interest receivable
4,926
490
26,029
1,812
179,903
1,182
214,342
152,725
19,777
23,819
523
4,124
200,968
6,417
53
26,413
2,316
139,747
844
175,790
$
$
$
$
December 31, 2006
Carrying
Value
Estimated
Fair
Value
$
$
4,926
490
26,029
1,814
181,537
1,182
215,978
157,448
19,817
23,583
523
4,124
205,495
$
$
$
6,417
53
26,413
2,326
142,599
844
178,652
$
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
DECEMBER 31, 2007
Financial liabilities:
Deposits
Repurchase agreements
Federal Home Loan Bank Borrowings
Accrued interest payable
$
$
134,593
20,209
13,790
405
168,997
$
$
134,272
20,209
13,859
405
168,745
Fair value estimates are made at a specific point in time, based on relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one
time the 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. 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, 2007 and 2006, and the related
statements of income and cash flows for each of those years are presented below:
(Dollars in thousands, except share data)
Balance Sheets
Assets
December 31
2007
2006
Cash
Investment in bank subsidiary,
eliminated in consolidation
Other assets
Total assets
Liabilities and shareholders' equity
Liabilities
Other liabilities
Long-term debt
Total liabilities
Stockholders' equity
Preferred stock, par value $1,000; 5,000
shares authorized, none issued
Common stock, par value $1; 4,000,000
shares authorized; 1,508,081 and
1,467,849 shares issued and outstanding,
respectively
Additional paid in capital
Treasury stock
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders' equity
$
675
26,737
248
27,660
$
$
11
4,124
4,135
$
$
110
21,541
4
21,655
-
$
-
-
$
-
$
-
1,468
17,720
(18)
2,858
(373)
21,655
21,655
$
1,508
18,437
(168)
4,153
(405)
23,525
27,660
$
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MVB FINANCIAL CORP.
DECEMBER 31, 2007
(Dollars in thousands)
Statements of Income
Income - dividends from bank subsidiary
Expenses - operating
Income/(Loss) before income taxes and
undistributed income
Income tax (benefit)
Income after tax
Equity in undistributed income of bank
subsidiary
Net income
(Dollars in thousands)
Statements of Cash Flows
OPERATING ACTIVITIES
Net income
Equity in undistributed income of bank
subsidiary
(Increase)/decrease in other assets
Increase in other liabilities
Stock option expense
Net cash (used in)
operating activities
INVESTING ACTIVITIES
Investment in subsidiary
Net cash (used in)
investing activities
FINANCING ACTIVITIES
Proceeds of stock offering
Proceeds from long-term borrowings
Common stock options exercised
Purchase of treasury stock
Net cash provided by
financing activities
Increase/(decrease) in cash
Cash at beginning of period
2007
$
-
232
(232)
(72)
(160)
2006
$
-
50
(50)
(20)
(30)
1,442
1,282
$
1,003
973
$
2007
2006
$
1,282
$
973
(1,442)
(244)
11
13
(380)
(3,787)
(3,787)
587
4,124
171
(150)
4,732
565
110
(1,003)
1
-
-
(29)
(2,400)
(2,400)
2,102
-
-
(8)
2,094
(335)
445
Cash at end of period
$
675
$
110
28
Refinancing
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EQUAL HOUSING
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MVB
MVB BANK
East
Brenda Poston
304.728.9500
Harrison
Mary Beth Aliveto
304.848.5391
Marion
Jarrod Furgason
304.367.8681
Mitchell Bland
304.367.8685
29
Barbara L. Alexander
Robert L. Bell
Stephen R. Brooks
Harvey M. Havlichek
James R. Martin
Dr. Saad Mossallati
Larry F. Mazza
Dr. Kelly R. Nelson
Barbara L. Alexander
Robert L. Bell
Stephen R. Brooks
Harvey M. Havlichek
James R. Martin
Dr. Saad Mossallati
Larry F. Mazza
Dr. Kelly R. Nelson
David B. Alvarez
John W. Ebert
Dr. Carl R. Fischer
Christine B. Ielapi
James R. Martin
Larry F. Mazza
Dr. Joseph Cincinnati
Berniece D. Collis
Dr. Brian D. Gilpin
Robert R. Kessel
Kenneth F. Lowe
James R. Martin
Barbara L. Alexander
Robert L. Bell
Stephen R. Brooks
Harvey M. Havlichek
James R. Martin
Dr. Saad Mossallati
Larry F. Mazza
Dr. Kelly R. Nelson
Leonard W. Nossokoff
J. Christopher Pallotta
Nitesh S. Patel
Louis W. Spatafore
Wayne H. Stanley
Richard L. Toothman
Dr. Michael F. Trent
Samuel J. Warash
Leonard W. Nossokoff
J. Christopher Pallotta
Nitesh S. Patel
Louis W. Spatafore
Wayne H. Stanley
Richard L. Toothman
Dr. Michael F. Trent
Samuel J. Warash
Dr. Saad Mossallati
Dr. Kelly R. Nelson
Roger J. Turner
John B. Spadafore
Wayne H. Stanley
Samuel J. Warash
Larry F. Mazza
G. Warren Mickey
Timothy R. Procita
Christopher B. Shultz
Samuel J. Warash
Leonard W. Nossokoff
J. Christopher Pallotta
Nitesh S. Patel
Louis W. Spatafore
Wayne H. Stanley
Richard L. Toothman
Dr. Michael F. Trent
Samuel J. Warash
30
Summ ary (cid:2) o f (cid:2) Stock (cid:2) Pric es / (cid:2)Tr ans ac tions(cid:2)
July(cid:2)15,(cid:2)1998(cid:2)
October(cid:2)15,(cid:2)1999(cid:2)
December(cid:2)31,(cid:2)1999(cid:2)
December(cid:2)31,(cid:2)2000(cid:2)
June(cid:2)1,(cid:2)2001(cid:2)
December(cid:2)31,(cid:2)2001(cid:2)
November(cid:2)1,(cid:2)2002(cid:2)
December(cid:2)31,(cid:2)2002(cid:2)
December(cid:2)31,(cid:2)2003(cid:2)
August(cid:2)15,(cid:2)2004(cid:2)
December(cid:2)31,(cid:2)2004(cid:2)
July(cid:2)1,(cid:2)2005(cid:2)
December(cid:2)31,(cid:2)2005(cid:2)
December(cid:2)31,(cid:2)2006(cid:2)
July(cid:2)1,(cid:2)2007(cid:2)
December(cid:2)31,(cid:2)2007(cid:2)
(cid:2)
(cid:2)
Original(cid:2)issue(cid:2)
Secondary(cid:2)offering(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Stock(cid:2)dividend(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Secondary(cid:2)offering(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Stock(cid:2)dividend(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Secondary(cid:2)offering(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
Secondary(cid:2)offering(cid:2)
Last(cid:2)price(cid:2)before(cid:2)end(cid:2)of(cid:2)the(cid:2)year(cid:2)
(cid:2)
(cid:2)
(cid:2)
5%(cid:2)
$10.00(cid:2) per(cid:2)share(cid:2)
11.00(cid:2) per(cid:2)share(cid:2)
11.00(cid:2) per(cid:2)share(cid:2)
11.00(cid:2) per(cid:2)share(cid:2)
(cid:2)
11.00(cid:2) per(cid:2)share(cid:2)
12.50(cid:2) per(cid:2)share(cid:2)(cid:2)
12.50(cid:2) per(cid:2)share(cid:2)
13.00(cid:2) Per(cid:2)share(cid:2)
(cid:2)
14.00(cid:2) Per(cid:2)share(cid:2)
16.00(cid:2) Per(cid:2)share(cid:2)
16.00(cid:2) Per(cid:2)share(cid:2)
16.00(cid:2) Per(cid:2)share(cid:2)
20.00(cid:2) Per(cid:2)share(cid:2)
20.00(cid:2) Per(cid:2)share(cid:2)
5%(cid:2)
The(cid:2)above(cid:2)information(cid:2)is(cid:2)provided(cid:2)as(cid:2)a(cid:2)guide(cid:2)to(cid:2)your(cid:2)cost(cid:2)basis(cid:2)in(cid:2)your(cid:2)MVB(cid:2)
(cid:2)
common(cid:2)stock.(cid:2)(cid:2)There(cid:2)have(cid:2)been(cid:2)very(cid:2)few(cid:2)transactions(cid:2)in(cid:2)the(cid:2)MVB(cid:2)common(cid:2)stock(cid:2)and(cid:2)
usually(cid:2)we(cid:2)are(cid:2)aware(cid:2)of(cid:2)the(cid:2)sales(cid:2)price.(cid:2)(cid:2)However,(cid:2)there(cid:2)may(cid:2)be(cid:2)other(cid:2)transactions(cid:2)in(cid:2)
MVB(cid:2)common(cid:2)stock(cid:2)at(cid:2)prices(cid:2)which(cid:2)are(cid:2)not(cid:2)known(cid:2)to(cid:2)MVB.(cid:2)(cid:2)We(cid:2)believe(cid:2)the(cid:2)above(cid:2)
information(cid:2)will(cid:2)help(cid:2)in(cid:2)future(cid:2)years(cid:2)when(cid:2)such(cid:2)information(cid:2)is(cid:2)needed(cid:2)for(cid:2)tax(cid:2)
purposes.(cid:2)
(cid:2)
(cid:2)
She(cid:2)may(cid:2)be(cid:2)reached(cid:2)at(cid:2)(304)(cid:2)367-8697.(cid:2)
(cid:2)
(cid:2)
(cid:2)
Please(cid:2)contact(cid:2)Lisa(cid:2)Wanstreet,(cid:2)Corporate(cid:2)Secretary,(cid:2)if(cid:2)you(cid:2)have(cid:2)any(cid:2)questions.(cid:2)(cid:2)
31
MVB Financial Corp.
301 Virginia Avenue
Fairmont, West Virginia 26554
Phones: 304-363-4800; 1-888-689-1877 • www.mvbbanking.com
32