MVB Financial Corp
Annual Report 2008

Plain-text annual report

2008 ANNUAL REPORT 2008 ANNUAL REPORT TO THE TO THE SHAREHOLDERS SHAREHOLDERS MVB 10 MVB F MVB F INANCIAL ORP. INANCIAL ORP. C C 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) from operations 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 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ 13,687 5,949 7,738 595 1,788 7,840 $ 263 1,260 0.52 0.51 0.10 16.11 1,584 1,621 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 10,011 4,360 5,651 445 1,240 5,132 341 973 0.68 0.67 n/a 14.82 1,428 1,588 6,651 2,326 4,325 160 876 4,284 195 562 0.57 0.49 n/a 13.52 993 1,153 $ 189,070 27,568 238,785 169,946 25,695 158,495 26,658 205,544 147,454 22,259 124,794 27,335 168,950 122,733 20,015 87,145 22,466 123,668 95,349 12,957 $ 203,241 26,591 258,706 173,065 25,836 181,537 27,843 230,098 157,448 23,525 142,599 28,739 191,284 134,593 21,655 105,214 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 1,188 643 545 104 127 944 (50) (121) (118) (258) (0.23) (0.23) n/a 8.48 517 517 (0.57) (0.57) n/a 9.14 517 517 20,429 8,400 42,764 31,646 4,500 26,117 10,093 50,358 38,110 4,622 5,591 5,553 19,461 12,336 4,058 13,899 8,139 34,087 24,006 4,572 10.76% 10.83% 11.85% 10.48% 8.19% 8.24% 7.21% 8.01% 10.52% 20.85% 0.53% 0.62% 0.58% 0.45% 1.04% 0.85% 0.54% 0.25% -0.28% -6.36% 4.90% 5.76% 4.86% 4.34% 12.68% 10.31% 7.44% 3.09% -2.69% -1.33% Leverage Ratio 11.49% 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 13.38% 14.26% 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 20.00 16.00 16.00 14.00 12.38 * 11.90 * 10.48 * 10.00 * 10.00 * 2 Dear Shareholders, As(cid:2)I(cid:2)write(cid:2)this(cid:2)letter,(cid:2)the(cid:2)national(cid:2)economy(cid:2)looks(cid:2)bleak;(cid:2)but(cid:2)I(cid:2)really(cid:2)believe(cid:2)there(cid:2)are(cid:2)positive(cid:2)signs(cid:2) Historically,(cid:2)West(cid:2)Virginia(cid:2)has(cid:2)not(cid:2)experienced(cid:2)the(cid:2)dramatic(cid:2)economic(cid:2)growth(cid:2)that(cid:2)many(cid:2)states(cid:2) Mortgage(cid:2)loan(cid:2)rates(cid:2)are(cid:2)at(cid:2)historic(cid:2)lows.(cid:2)(cid:2)This(cid:2)provides(cid:2)an(cid:2)opportunity(cid:2)for(cid:2)current(cid:2)home(cid:2)owners(cid:2) for(cid:2)our(cid:2)economic(cid:2)future.(cid:2)(cid:2)My(cid:2)thoughts(cid:2)are(cid:2)probably(cid:2)different(cid:2)than(cid:2)most(cid:2)economically(cid:2)knowledgeable(cid:2) professionals.(cid:2) (cid:2) (cid:2) Consumer(cid:2)debt(cid:2)has(cid:2)been(cid:2)lower(cid:2)for(cid:2)the(cid:2)last(cid:2)few(cid:2)months.(cid:2)(cid:2)This(cid:2)is(cid:2)generally(cid:2)perceived(cid:2)as(cid:2)negative.(cid:2)(cid:2) Personally,(cid:2)I(cid:2)believe(cid:2)that(cid:2)it(cid:2)is(cid:2)a(cid:2)positive(cid:2)sign;(cid:2)that(cid:2)consumers(cid:2)are(cid:2)beginning(cid:2)to(cid:2)live(cid:2)within(cid:2)their(cid:2)means(cid:2)and(cid:2) trying(cid:2)to(cid:2)put(cid:2)their(cid:2)financial(cid:2)affairs(cid:2)in(cid:2)order.(cid:2)(cid:2)Cleaning(cid:2)up(cid:2)their(cid:2)financial(cid:2)affairs(cid:2)will(cid:2)provide(cid:2)them(cid:2)with(cid:2)a(cid:2) sound(cid:2)foundation(cid:2)as(cid:2)the(cid:2)overall(cid:2)economy(cid:2)begins(cid:2)to(cid:2)move(cid:2)forward.(cid:2)(cid:2)Continuing(cid:2)to(cid:2)increase(cid:2)credit(cid:2)card(cid:2) debt(cid:2)is(cid:2)irresponsible,(cid:2)especially(cid:2)during(cid:2)difficult(cid:2)economic(cid:2)times.(cid:2)(cid:2)Reality(cid:2)is(cid:2)beginning(cid:2)to(cid:2)set(cid:2)in(cid:2)for(cid:2)those(cid:2) that(cid:2)have(cid:2)lived(cid:2)beyond(cid:2)their(cid:2)means(cid:2)by(cid:2)overuse(cid:2)of(cid:2)credit.(cid:2) (cid:2) (cid:2) have(cid:2)enjoyed.(cid:2)(cid:2)Conversely,(cid:2)West(cid:2)Virginia(cid:2)has(cid:2)not(cid:2)experienced(cid:2)the(cid:2)sharp(cid:2)declines(cid:2)when(cid:2)those(cid:2)states(cid:2)with(cid:2) overheated(cid:2)economies(cid:2)decline.(cid:2)(cid:2)During(cid:2)this(cid:2)period(cid:2)of(cid:2)economic(cid:2)decline,(cid:2)I(cid:2)believe(cid:2)we(cid:2)can(cid:2)be(cid:2)happy(cid:2)that(cid:2) we(cid:2)do(cid:2)business(cid:2)in(cid:2)West(cid:2)Virginia.(cid:2) (cid:2) (cid:2) that(cid:2)have(cid:2)maintained(cid:2)good(cid:2)credit(cid:2)to(cid:2)refinance(cid:2)their(cid:2)existing(cid:2)mortgage(cid:2)at(cid:2)these(cid:2)lower(cid:2)rates.(cid:2)(cid:2)The(cid:2)lower(cid:2) monthly(cid:2)payment(cid:2)will(cid:2)provide(cid:2)additional(cid:2)cash(cid:2)in(cid:2)their(cid:2)pocket.(cid:2)(cid:2)Those(cid:2)who(cid:2)have(cid:2)been(cid:2)renting(cid:2)because(cid:2)they(cid:2) could(cid:2)not(cid:2)afford(cid:2)a(cid:2)mortgage(cid:2)payment(cid:2)now(cid:2)have(cid:2)the(cid:2)opportunity(cid:2)to(cid:2)review(cid:2)the(cid:2)prospects(cid:2)of(cid:2)home(cid:2) ownership(cid:2)again.(cid:2)(cid:2)Low(cid:2)rate(cid:2)mortgage(cid:2)loans(cid:2)with(cid:2)small(cid:2)down(cid:2)payments(cid:2)are(cid:2)still(cid:2)available.(cid:2)(cid:2)Especially(cid:2)in(cid:2) West(cid:2)Virginia,(cid:2)this(cid:2)availability(cid:2)should(cid:2)lend(cid:2)support(cid:2)to(cid:2)the(cid:2)housing(cid:2)markets.(cid:2)(cid:2)Lower(cid:2)rates(cid:2)also(cid:2)provide(cid:2)an(cid:2) opportunity(cid:2)for(cid:2)current(cid:2)homeowners(cid:2)to(cid:2)upgrade(cid:2)their(cid:2)home(cid:2)by(cid:2)buying(cid:2)a(cid:2)different(cid:2)home(cid:2)or(cid:2)remodeling(cid:2)their(cid:2) current(cid:2)home.(cid:2)(cid:2)It(cid:2)is(cid:2)unlikely(cid:2)that(cid:2)there(cid:2)will(cid:2)be(cid:2)a(cid:2)better(cid:2)time(cid:2)to(cid:2)purchase(cid:2)or(cid:2)renovate(cid:2)a(cid:2)home.(cid:2) (cid:2) (cid:2) In(cid:2)the(cid:2)area(cid:2)of(cid:2)mortgage(cid:2)lending,(cid:2)2008(cid:2)was(cid:2)a(cid:2)very(cid:2)good(cid:2)year(cid:2)for(cid:2)MVB.(cid:2)(cid:2)While(cid:2)many(cid:2)institutions(cid:2) have(cid:2)experienced(cid:2)a(cid:2)falling(cid:2)demand(cid:2)for(cid:2)mortgages,(cid:2)MVB’s(cid:2)mortgage(cid:2)originations(cid:2)remain(cid:2)strong.(cid:2)(cid:2)During(cid:2) 2007,(cid:2)we(cid:2)originated(cid:2)350(cid:2)mortgage(cid:2)loans(cid:2)totaling(cid:2)$42.2(cid:2)million.(cid:2)(cid:2)In(cid:2)2008,(cid:2)we(cid:2)originated(cid:2)341(cid:2)loans(cid:2)for(cid:2)$48.2(cid:2) million.(cid:2)(cid:2)This(cid:2)represents(cid:2)a(cid:2)decrease(cid:2)in(cid:2)the(cid:2)number(cid:2)of(cid:2)loans(cid:2)originated(cid:2)by(cid:2)2.6%,(cid:2)but(cid:2)an(cid:2)increase(cid:2)of(cid:2)$6(cid:2) million,(cid:2)or(cid:2)14%(cid:2)increase(cid:2)over(cid:2)2007.(cid:2)(cid:2)As(cid:2)you(cid:2)can(cid:2)see,(cid:2)MVB(cid:2)has(cid:2)not(cid:2)experienced(cid:2)a(cid:2)decrease(cid:2)in(cid:2)mortgage(cid:2) lending(cid:2)activity.(cid:2)(cid:2)With(cid:2)the(cid:2)lower(cid:2)interest(cid:2)rates,(cid:2)we(cid:2)expect(cid:2)our(cid:2)2009(cid:2)loan(cid:2)production(cid:2)to(cid:2)exceed(cid:2)that(cid:2)for(cid:2) 2008.(cid:2)(cid:2)Our(cid:2)current(cid:2)mortgage(cid:2)loans(cid:2)in(cid:2)process(cid:2)are(cid:2)at(cid:2)a(cid:2)historically(cid:2)high(cid:2)level.(cid:2) (cid:2) (cid:2) have(cid:2)expanded(cid:2)our(cid:2)“Remote(cid:2)Deposit”(cid:2)offering,(cid:2)which(cid:2)allows(cid:2)MVB(cid:2)to(cid:2)provide(cid:2)deposit(cid:2)services(cid:2)to(cid:2) commercial(cid:2)customers(cid:2)without(cid:2)regard(cid:2)to(cid:2)location.(cid:2)(cid:2)The(cid:2)customer(cid:2)scans(cid:2)the(cid:2)checks(cid:2)and(cid:2)deposit(cid:2)ticket(cid:2)and(cid:2) then(cid:2)sends(cid:2)them(cid:2)to(cid:2)us(cid:2)electronically(cid:2)for(cid:2)processing.(cid:2)(cid:2)This(cid:2)provides(cid:2)the(cid:2)opportunity(cid:2)for(cid:2)commercial(cid:2) borrowers(cid:2)that(cid:2)do(cid:2)not(cid:2)have(cid:2)a(cid:2)presence(cid:2)in(cid:2)close(cid:2)proximity(cid:2)to(cid:2)one(cid:2)of(cid:2)our(cid:2)offices(cid:2)to(cid:2)be(cid:2)a(cid:2)deposit(cid:2)customer(cid:2)as(cid:2) well.(cid:2)(cid:2)While(cid:2)a(cid:2)relatively(cid:2)new(cid:2)product(cid:2)in(cid:2)West(cid:2)Virginia,(cid:2)this(cid:2)service(cid:2)is(cid:2)heavily(cid:2)used(cid:2)by(cid:2)large(cid:2)commercial(cid:2) organizations(cid:2)very(cid:2)successfully.(cid:2) (cid:2) Technology(cid:2)is(cid:2)an(cid:2)area(cid:2)that(cid:2)is(cid:2)constantly(cid:2)changing(cid:2)related(cid:2)to(cid:2)MVB(cid:2)and(cid:2)banking.(cid:2)(cid:2)This(cid:2)year,(cid:2)we(cid:2) 3 Financially,(cid:2)MVB(cid:2)had(cid:2)a(cid:2)good(cid:2)year(cid:2)during(cid:2)a(cid:2)very(cid:2)difficult(cid:2)economic(cid:2)period.(cid:2)(cid:2)Most(cid:2)of(cid:2)you(cid:2)have(cid:2) Our(cid:2)capital(cid:2)position(cid:2)improved(cid:2)significantly(cid:2)during(cid:2)2008.(cid:2)(cid:2)This(cid:2)is(cid:2)the(cid:2)result(cid:2)of(cid:2)the(cid:2)closing(cid:2)of(cid:2)our(cid:2) The(cid:2)development(cid:2)of(cid:2)this(cid:2)Remote(cid:2)Deposit(cid:2)technology(cid:2)has(cid:2)provided(cid:2)additional(cid:2)benefits(cid:2)to(cid:2)MVB.(cid:2)(cid:2) Several(cid:2)areas(cid:2)of(cid:2)our(cid:2)balance(cid:2)sheet(cid:2)grew(cid:2)well(cid:2)during(cid:2)2008.(cid:2)(cid:2)Loans(cid:2)grew(cid:2)approximately(cid:2)$23(cid:2)million(cid:2) (cid:2) We(cid:2)no(cid:2)longer(cid:2)ship(cid:2)any(cid:2)documents(cid:2)to(cid:2)our(cid:2)data(cid:2)processor(cid:2)or(cid:2)checks(cid:2)to(cid:2)the(cid:2)Federal(cid:2)Reserve(cid:2)for(cid:2)collection.(cid:2)(cid:2) The(cid:2)transportation(cid:2)of(cid:2)documents(cid:2)has(cid:2)been(cid:2)replaced(cid:2)by(cid:2)the(cid:2)transmission(cid:2)of(cid:2)electronic(cid:2)images.(cid:2)(cid:2)This(cid:2) process(cid:2)change(cid:2)has(cid:2)reduced(cid:2)check(cid:2)collection(cid:2)fees(cid:2)and(cid:2)eliminated(cid:2)our(cid:2)courier(cid:2)dependency(cid:2)and(cid:2)expense.(cid:2)(cid:2) Weather(cid:2)transportation(cid:2)delays(cid:2)are(cid:2)no(cid:2)longer(cid:2)an(cid:2)issue(cid:2)for(cid:2)our(cid:2)data(cid:2)processing.(cid:2)(cid:2)The(cid:2)risk(cid:2)of(cid:2)loss(cid:2)during(cid:2) courier(cid:2)transportation(cid:2)has(cid:2)been(cid:2)eliminated.(cid:2)(cid:2)The(cid:2)paper(cid:2)items(cid:2)never(cid:2)leave(cid:2)our(cid:2)office.(cid:2)(cid:2)This(cid:2)evolution(cid:2)began(cid:2) with(cid:2)the(cid:2)adoption(cid:2)of(cid:2)“Check21”(cid:2)legislation(cid:2)in(cid:2)2002.(cid:2) (cid:2) (cid:2) probably(cid:2)seen(cid:2)the(cid:2)Bauer(cid:2)Financial(cid:2)Inc.(cid:2)rating(cid:2)of(cid:2)MVB(cid:2)reproduced(cid:2)in(cid:2)the(cid:2)Third(cid:2)Quarter(cid:2)Report(cid:2)to(cid:2) Shareholders.(cid:2)(cid:2)Their(cid:2)most(cid:2)recent(cid:2)rating(cid:2)is(cid:2)included(cid:2)in(cid:2)this(cid:2)Annual(cid:2)Report.(cid:2)(cid:2)Bauer(cid:2)Financial,(cid:2)Inc.(cid:2)is(cid:2)an(cid:2) independent(cid:2)rating(cid:2)service(cid:2)of(cid:2)financial(cid:2)institutions.(cid:2)(cid:2)We(cid:2)are(cid:2)proud(cid:2)to(cid:2)have(cid:2)received(cid:2)their(cid:2)highest(cid:2)award(cid:2)for(cid:2) seven(cid:2)consecutive(cid:2)quarters.(cid:2)(cid:2)It(cid:2)is(cid:2)important(cid:2)to(cid:2)shareholders(cid:2)to(cid:2)review(cid:2)independent(cid:2)materials(cid:2)related(cid:2)to(cid:2) MVB.(cid:2) (cid:2) (cid:2) or(cid:2)13%.(cid:2)(cid:2)Most(cid:2)of(cid:2)the(cid:2)growth(cid:2)in(cid:2)loans(cid:2)was(cid:2)in(cid:2)commercial(cid:2)loans.(cid:2)(cid:2)As(cid:2)discussed(cid:2)earlier,(cid:2)consumers(cid:2)have(cid:2) been(cid:2)paying(cid:2)debt(cid:2)rather(cid:2)than(cid:2)incurring(cid:2)additional(cid:2)debt.(cid:2)(cid:2)As(cid:2)a(cid:2)result,(cid:2)our(cid:2)consumer(cid:2)loans(cid:2)have(cid:2)decreased.(cid:2)(cid:2) Most(cid:2)mortgage(cid:2)loan(cid:2)customers(cid:2)want(cid:2)a(cid:2)30(cid:2)year(cid:2)fixed-rate(cid:2)loan(cid:2)which(cid:2)we(cid:2)make(cid:2)and(cid:2)sell(cid:2)to(cid:2)the(cid:2)secondary(cid:2) mortgage(cid:2)market.(cid:2)(cid:2)MVB(cid:2)makes(cid:2)a(cid:2)fee(cid:2)for(cid:2)processing(cid:2)and(cid:2)closing(cid:2)such(cid:2)loans.(cid:2)(cid:2)We(cid:2)are(cid:2)pleased(cid:2)to(cid:2)have(cid:2) been(cid:2)able(cid:2)to(cid:2)increase(cid:2)our(cid:2)loan(cid:2)portfolio(cid:2)during(cid:2)2008(cid:2)in(cid:2)spite(cid:2)of(cid:2)the(cid:2)economy.(cid:2)(cid:2)We(cid:2)have(cid:2)found(cid:2)that(cid:2)we(cid:2) have(cid:2)denied(cid:2)many(cid:2)more(cid:2)loans(cid:2)during(cid:2)2008(cid:2)than(cid:2)in(cid:2)past(cid:2)years;(cid:2)quality(cid:2)is(cid:2)our(cid:2)first(cid:2)concern(cid:2)when(cid:2)evaluating(cid:2) a(cid:2)loan(cid:2)for(cid:2)consideration.(cid:2) (cid:2) Our(cid:2)deposits(cid:2)grew(cid:2)nearly(cid:2)$16(cid:2)million(cid:2)or(cid:2)10%(cid:2)during(cid:2)2008.(cid:2)(cid:2)This(cid:2)comes(cid:2)during(cid:2)a(cid:2)time(cid:2)when(cid:2) (cid:2) competition(cid:2)for(cid:2)deposits(cid:2)has(cid:2)become(cid:2)fierce.(cid:2)(cid:2)This(cid:2)is(cid:2)a(cid:2)result(cid:2)of(cid:2)competition(cid:2)for(cid:2)funds(cid:2)from(cid:2)the(cid:2)large(cid:2)banks(cid:2) and(cid:2)brokerage(cid:2)houses.(cid:2)(cid:2)Many(cid:2)of(cid:2)these(cid:2)large(cid:2)organizations(cid:2)are(cid:2)paying(cid:2)rates(cid:2)that(cid:2)exceed(cid:2)normal(cid:2)market(cid:2) rates(cid:2)of(cid:2)interest(cid:2)for(cid:2)deposits(cid:2)because(cid:2)they(cid:2)no(cid:2)longer(cid:2)have(cid:2)access(cid:2)to(cid:2)the(cid:2)wholesale(cid:2)capital(cid:2)markets.(cid:2)(cid:2)I(cid:2) suspect(cid:2)that(cid:2)this(cid:2)competition(cid:2)will(cid:2)remain(cid:2)strong(cid:2)for(cid:2)the(cid:2)foreseeable(cid:2)future.(cid:2) (cid:2) (cid:2) stock(cid:2)offering(cid:2)early(cid:2)in(cid:2)2008(cid:2)and(cid:2)our(cid:2)net(cid:2)income(cid:2)for(cid:2)the(cid:2)year.(cid:2) (cid:2) (cid:2) Mortgage(cid:2)Association(cid:2)(“FNMA”)(cid:2)and(cid:2)the(cid:2)Federal(cid:2)Home(cid:2)Loan(cid:2)Mortgage(cid:2)Corp(cid:2)(“FHLMC”)(cid:2)during(cid:2)2008.(cid:2)(cid:2) One(cid:2)of(cid:2)the(cid:2)actions(cid:2)taken(cid:2)by(cid:2)the(cid:2)US(cid:2)was(cid:2)to(cid:2)eliminate(cid:2)the(cid:2)dividend(cid:2)on(cid:2)all(cid:2)stock(cid:2)of(cid:2)FNMA(cid:2)and(cid:2)FHLMC,(cid:2)both(cid:2) common(cid:2)and(cid:2)preferred.(cid:2)(cid:2)This(cid:2)action(cid:2)reduced(cid:2)the(cid:2)market(cid:2)value(cid:2)of(cid:2)our(cid:2)FHLMC(cid:2)preferred(cid:2)stock(cid:2)to(cid:2)nearly(cid:2) zero.(cid:2)(cid:2)As(cid:2)a(cid:2)result(cid:2)of(cid:2)this(cid:2)action,(cid:2)MVB(cid:2)was(cid:2)required(cid:2)to(cid:2)mark(cid:2)these(cid:2)securities(cid:2)to(cid:2)market.(cid:2)(cid:2)The(cid:2)write(cid:2)down(cid:2) was(cid:2)$432,000,(cid:2)net(cid:2)of(cid:2)the(cid:2)tax(cid:2)benefit(cid:2)of(cid:2)the(cid:2)loss.(cid:2) (cid:2) (cid:2) 2007.(cid:2)(cid:2)While(cid:2)flat(cid:2)net(cid:2)income(cid:2)is(cid:2)normally(cid:2)not(cid:2)encouraging,(cid:2)I(cid:2)believe(cid:2)that(cid:2)it(cid:2)is(cid:2)good(cid:2)performance.(cid:2)(cid:2)This(cid:2)is(cid:2) because(cid:2)of(cid:2)the(cid:2)rapidly(cid:2)decreasing(cid:2)interest(cid:2)rates(cid:2)during(cid:2)late(cid:2)January(cid:2)through(cid:2)March,(cid:2)when(cid:2)the(cid:2)Federal(cid:2) Reserve(cid:2)decreased(cid:2)interest(cid:2)rates(cid:2)2%(cid:2)in(cid:2)60(cid:2)days.(cid:2)(cid:2)This(cid:2)was(cid:2)a(cid:2)shock(cid:2)to(cid:2)everyone’s(cid:2)portfolio:(cid:2)(cid:2)Rates(cid:2)were(cid:2) decreased(cid:2)another(cid:2)¾(cid:2)percent(cid:2)on(cid:2)December(cid:2)26,(cid:2)2008.(cid:2)(cid:2)At(cid:2)the(cid:2)current(cid:2)target(cid:2)for(cid:2)federal(cid:2)funds(cid:2)at(cid:2)0(cid:2)-(cid:2).25%,(cid:2) it(cid:2)would(cid:2)seem(cid:2)like(cid:2)interest(cid:2)rates(cid:2)are(cid:2)at(cid:2)the(cid:2)bottom(cid:2)of(cid:2)their(cid:2)range.(cid:2) (cid:2) (cid:2) MVB.(cid:2)(cid:2)Mrs.(cid:2)Berniece(cid:2)D.(cid:2)Collis(cid:2)and(cid:2)Dr.(cid:2)Joseph(cid:2)P.(cid:2)Cincinnati(cid:2)have(cid:2)been(cid:2)selected(cid:2)to(cid:2)represent(cid:2)the(cid:2)Berkeley(cid:2) and(cid:2)Jefferson(cid:2)County(cid:2)Division.(cid:2)(cid:2)Mrs.(cid:2)Collis(cid:2)was(cid:2)elected(cid:2)at(cid:2)the(cid:2)last(cid:2)Annual(cid:2)Meeting(cid:2)of(cid:2)shareholders(cid:2)and(cid:2) Dr.(cid:2)Cincinnati(cid:2)has(cid:2)been(cid:2)nominated(cid:2)for(cid:2)election(cid:2)at(cid:2)the(cid:2)2009(cid:2)Annual(cid:2)Meeting.(cid:2)(cid:2)Both(cid:2)individuals(cid:2)are(cid:2)highly(cid:2) respected(cid:2)in(cid:2)their(cid:2)profession.(cid:2)(cid:2)Mrs.(cid:2)Collis(cid:2)is(cid:2)Vice(cid:2)President(cid:2)of(cid:2)Minghini’s(cid:2)General(cid:2)Contractors,(cid:2)Inc.(cid:2)and(cid:2)Dr.(cid:2) Cincinnati(cid:2)is(cid:2)an(cid:2)orthopedic(cid:2)surgeon.(cid:2)(cid:2)We(cid:2)welcome(cid:2)these(cid:2)two(cid:2)directors(cid:2)to(cid:2)our(cid:2)Board(cid:2)and(cid:2)look(cid:2)forward(cid:2)to(cid:2) them(cid:2)sharing(cid:2)their(cid:2)knowledge(cid:2)and(cid:2)expertise(cid:2)with(cid:2)us.(cid:2) (cid:2) (cid:2) One(cid:2)of(cid:2)the(cid:2)issues(cid:2)that(cid:2)community(cid:2)banks(cid:2)have(cid:2)been(cid:2)discussing(cid:2)for(cid:2)years(cid:2)is(cid:2)“too(cid:2)big(cid:2)to(cid:2)fail”.(cid:2)(cid:2)This(cid:2) related(cid:2)to(cid:2)the(cid:2)belief(cid:2)by(cid:2)many(cid:2)that(cid:2)the(cid:2)regulatory(cid:2)playing(cid:2)field(cid:2)was(cid:2)not(cid:2)equal.(cid:2)(cid:2)The(cid:2)US(cid:2)Government(cid:2)would(cid:2) protect(cid:2)the(cid:2)very(cid:2)large(cid:2)institutions(cid:2)from(cid:2)failing(cid:2)but(cid:2)treat(cid:2)small(cid:2)institutions(cid:2)much(cid:2)differently.(cid:2)(cid:2)The(cid:2)Federal(cid:2) regulators(cid:2)always(cid:2)stated(cid:2)that(cid:2)there(cid:2)was(cid:2)no(cid:2)such(cid:2)thing(cid:2)as(cid:2)“too(cid:2)big(cid:2)to(cid:2)fail”.(cid:2)(cid:2)I(cid:2)suggest(cid:2)that(cid:2)over(cid:2)the(cid:2)last(cid:2)year,(cid:2) “too(cid:2)big(cid:2)to(cid:2)fail”(cid:2)has(cid:2)become(cid:2)a(cid:2)reality.(cid:2)(cid:2)Look(cid:2)at(cid:2)the(cid:2)very(cid:2)large(cid:2)institutions;(cid:2)our(cid:2)government(cid:2)has(cid:2)indeed(cid:2)made(cid:2) sure(cid:2)they(cid:2)did(cid:2)not(cid:2)fail.(cid:2)(cid:2)I(cid:2)cannot(cid:2)judge(cid:2)whether(cid:2)this(cid:2)is(cid:2)good(cid:2)or(cid:2)not.(cid:2)(cid:2)There(cid:2)is(cid:2)now(cid:2)some(cid:2)whispering(cid:2)that(cid:2) there(cid:2)needs(cid:2)to(cid:2)be(cid:2)some(cid:2)size(cid:2)limitations(cid:2)on(cid:2)financial(cid:2)institutions(cid:2)going(cid:2)forward.(cid:2)(cid:2)I(cid:2)concur(cid:2)with(cid:2)this(cid:2)because(cid:2) I(cid:2)personally(cid:2)believe(cid:2)that(cid:2)many(cid:2)large(cid:2)organizations(cid:2)became(cid:2)too(cid:2)large(cid:2)to(cid:2)effectively(cid:2)manage.(cid:2)(cid:2)This(cid:2)is(cid:2) probably(cid:2)a(cid:2)good(cid:2)idea,(cid:2)but(cid:2)the(cid:2)“horse(cid:2)is(cid:2)already(cid:2)out(cid:2)of(cid:2)the(cid:2)barn”.(cid:2)(cid:2)How(cid:2)would(cid:2)you(cid:2)take(cid:2)the(cid:2)current(cid:2)“Big(cid:2) Four”(cid:2)institutions(cid:2)apart?(cid:2) (cid:2) As(cid:2)most(cid:2)everyone(cid:2)is(cid:2)aware,(cid:2)the(cid:2)United(cid:2)States(cid:2)Government(cid:2)(“US”)(cid:2)took(cid:2)over(cid:2)the(cid:2)Federal(cid:2)National(cid:2) Net(cid:2)income(cid:2)for(cid:2)2008,(cid:2)excluding(cid:2)the(cid:2)FHLMC(cid:2)write-down(cid:2)was(cid:2)$1.26(cid:2)million(cid:2)versus(cid:2)$1.28(cid:2)million(cid:2)in(cid:2) Since(cid:2)the(cid:2)2008(cid:2)Letter(cid:2)to(cid:2)Shareholders,(cid:2)we(cid:2)have(cid:2)added(cid:2)two(cid:2)directors(cid:2)to(cid:2)the(cid:2)Board(cid:2)of(cid:2)Directors(cid:2)of(cid:2) 4 For(cid:2)years,(cid:2)the(cid:2)very(cid:2)large(cid:2)financial(cid:2)institutions,(cid:2)brokerage(cid:2)houses(cid:2)and(cid:2)insurance(cid:2)companies,(cid:2) MVB(cid:2)has(cid:2)tentatively(cid:2)been(cid:2)approved(cid:2)for(cid:2)participation(cid:2)in(cid:2)the(cid:2)Department(cid:2)of(cid:2)the(cid:2)Treasury(cid:2)Troubled(cid:2) (cid:2) wanted(cid:2)to(cid:2)repeal(cid:2)a(cid:2)long(cid:2)standing(cid:2)regulation,(cid:2)the(cid:2)Glass-Steagal(cid:2)Act.(cid:2)(cid:2)This(cid:2)Regulation(cid:2)prohibited(cid:2)the(cid:2)three(cid:2) from(cid:2)becoming(cid:2)involved(cid:2)in(cid:2)each(cid:2)others(cid:2)business.(cid:2)(cid:2)In(cid:2)1999,(cid:2)the(cid:2)“Big(cid:2)Guys”(cid:2)won;(cid:2)Glass-Steagal(cid:2)was(cid:2) repealed.(cid:2)(cid:2)I(cid:2)cannot(cid:2)tell(cid:2)you(cid:2)the(cid:2)current(cid:2)mess(cid:2)would(cid:2)not(cid:2)have(cid:2)happened,(cid:2)but(cid:2)I(cid:2)sincerely(cid:2)believe(cid:2)that(cid:2)the(cid:2) mess(cid:2)would(cid:2)either,(cid:2)not(cid:2)have(cid:2)happened(cid:2)or(cid:2)would(cid:2)have(cid:2)been(cid:2)far(cid:2)less(cid:2)damaging.(cid:2)(cid:2)Again,(cid:2)the(cid:2)“Big(cid:2)Guys”(cid:2) know(cid:2)best.(cid:2) (cid:2) (cid:2) Asset(cid:2)Relief(cid:2)Program(cid:2)Capital(cid:2)Purchase(cid:2)Program(cid:2)(TARP).(cid:2)(cid:2)I(cid:2)previously(cid:2)provided(cid:2)information(cid:2)that(cid:2)MVB(cid:2)has(cid:2) applied(cid:2)for(cid:2)participation(cid:2)in(cid:2)the(cid:2)program.(cid:2)(cid:2)The(cid:2)participation(cid:2)was(cid:2)based(cid:2)on(cid:2)the(cid:2)TARP(cid:2)proceeds(cid:2)being(cid:2)an(cid:2) insurance(cid:2)policy(cid:2)to(cid:2)protect(cid:2)MVB(cid:2)from(cid:2)catastrophic(cid:2)economic(cid:2)problems.(cid:2)(cid:2)MVB(cid:2)is(cid:2)a(cid:2)well(cid:2)capitalized(cid:2) institution(cid:2)currently(cid:2)and(cid:2)expects(cid:2)to(cid:2)be(cid:2)a(cid:2)well(cid:2)capitalized(cid:2)institution(cid:2)in(cid:2)the(cid:2)future.(cid:2)(cid:2)Unfortunately,(cid:2)we(cid:2)are(cid:2) sailing(cid:2)in(cid:2)unchartered(cid:2)economic(cid:2)waters(cid:2)and(cid:2)do(cid:2)not(cid:2)know(cid:2)what(cid:2)the(cid:2)future(cid:2)holds.(cid:2)(cid:2)This(cid:2)is(cid:2)the(cid:2)reason(cid:2)for(cid:2)our(cid:2) participation(cid:2)application.(cid:2) (cid:2) (cid:2) Economic(cid:2)Stimulus(cid:2)Package(cid:2)(ESP).(cid:2)(cid:2)There(cid:2)are(cid:2)a(cid:2)number(cid:2)of(cid:2)provisions(cid:2)in(cid:2)ESP(cid:2)that(cid:2)relate(cid:2)to(cid:2)TARP(cid:2)on(cid:2)a(cid:2) retroactive(cid:2)and(cid:2)a(cid:2)going(cid:2)forward(cid:2)basis.(cid:2)(cid:2)As(cid:2)a(cid:2)result(cid:2)of(cid:2)these(cid:2)provisions,(cid:2)it(cid:2)is(cid:2)no(cid:2)longer(cid:2)clear(cid:2)if(cid:2)it(cid:2)is(cid:2)in(cid:2)the(cid:2) best(cid:2)interest(cid:2)of(cid:2)MVB(cid:2)to(cid:2)participate(cid:2)in(cid:2)TARP.(cid:2)(cid:2)While(cid:2)the(cid:2)ESP(cid:2)is(cid:2)law,(cid:2)there(cid:2)are(cid:2)no(cid:2)rules(cid:2)or(cid:2)guidelines(cid:2)written(cid:2) to(cid:2)implement(cid:2)the(cid:2)ESP.(cid:2)(cid:2)Until(cid:2)these(cid:2)are(cid:2)formalized,(cid:2)we(cid:2)cannot(cid:2)make(cid:2)a(cid:2)decision(cid:2)as(cid:2)to(cid:2)whether(cid:2)MVB(cid:2)should(cid:2) participate(cid:2)in(cid:2)TARP(cid:2)or(cid:2)not.(cid:2)(cid:2)It(cid:2)is(cid:2)unlikely(cid:2)this(cid:2)decision(cid:2)can(cid:2)be(cid:2)made(cid:2)before(cid:2)this(cid:2)Annual(cid:2)Report(cid:2)goes(cid:2)to(cid:2) print.(cid:2)(cid:2)We(cid:2)should(cid:2)be(cid:2)able(cid:2)to(cid:2)update(cid:2)you(cid:2)at(cid:2)our(cid:2)Annual(cid:2)Shareholders(cid:2)Meeting(cid:2)and(cid:2)in(cid:2)the(cid:2)first(cid:2)quarter(cid:2)of(cid:2) 2009(cid:2)Report(cid:2)to(cid:2)Shareholders.(cid:2) (cid:2) The(cid:2)day(cid:2)after(cid:2)we(cid:2)received(cid:2)the(cid:2)preliminary(cid:2)approval,(cid:2)President(cid:2)Obama(cid:2)signed(cid:2)into(cid:2)law(cid:2)the(cid:2) During(cid:2)the(cid:2)past(cid:2)year,(cid:2)there(cid:2)have(cid:2)been(cid:2)many(cid:2)changes(cid:2)to(cid:2)the(cid:2)FDIC(cid:2)Insurance(cid:2)available(cid:2)to(cid:2)insured(cid:2) It(cid:2)is(cid:2)hard(cid:2)to(cid:2)imagine(cid:2)that(cid:2)MVB(cid:2)has(cid:2)been(cid:2)open(cid:2)for(cid:2)10(cid:2)years.(cid:2)The(cid:2)bank(cid:2)opened(cid:2)with(cid:2)a(cid:2)single(cid:2)office(cid:2) institutions(cid:2)and(cid:2)their(cid:2)customers.(cid:2)(cid:2)Coverage(cid:2)is(cid:2)no(cid:2)longer(cid:2)the(cid:2)same(cid:2)at(cid:2)each(cid:2)institution(cid:2)as(cid:2)institutions(cid:2)may(cid:2) now(cid:2)elect(cid:2)to(cid:2)participate(cid:2)in(cid:2)optional(cid:2)additional(cid:2)coverage.(cid:2)(cid:2)MVB(cid:2)has(cid:2)elected(cid:2)to(cid:2)participate(cid:2)in(cid:2)all(cid:2)coverage(cid:2) offered(cid:2)by(cid:2)the(cid:2)FDIC.(cid:2)(cid:2)Please(cid:2)consult(cid:2)with(cid:2)one(cid:2)of(cid:2)us(cid:2)if(cid:2)you(cid:2)have(cid:2)any(cid:2)questions(cid:2)about(cid:2)FDIC(cid:2)Insurance(cid:2) coverage(cid:2)with(cid:2)MVB(cid:2)or(cid:2)other(cid:2)institutions.(cid:2)(cid:2)Account(cid:2)titling(cid:2)is(cid:2)an(cid:2)important(cid:2)consideration(cid:2)in(cid:2)determining(cid:2) coverage.(cid:2)(cid:2)Currently,(cid:2)a(cid:2)husband(cid:2)and(cid:2)wife(cid:2)can(cid:2)have(cid:2)FDIC(cid:2)Insurance(cid:2)of(cid:2)$1(cid:2)million(cid:2)or(cid:2)more(cid:2)very(cid:2)easily(cid:2)in(cid:2) MVB.(cid:2) (cid:2) (cid:2) January(cid:2)4,(cid:2)1999.(cid:2)(cid:2)The(cid:2)time(cid:2)has(cid:2)gone(cid:2)by(cid:2)very(cid:2)quickly.(cid:2)(cid:2)There(cid:2)have(cid:2)been(cid:2)many(cid:2)additions(cid:2)and(cid:2)changes(cid:2) during(cid:2)these(cid:2)years,(cid:2)including(cid:2)four(cid:2)offices(cid:2)and(cid:2)70(cid:2)staff(cid:2)members.(cid:2)(cid:2)There(cid:2)is(cid:2)one(cid:2)thing(cid:2)that(cid:2)I(cid:2)am(cid:2)proud(cid:2)to(cid:2)say(cid:2) has(cid:2)not(cid:2)changed;(cid:2)we(cid:2)have(cid:2)great(cid:2)staff(cid:2)members(cid:2)in(cid:2)each(cid:2)office(cid:2)that(cid:2)are(cid:2)concerned(cid:2)about(cid:2)providing(cid:2)first(cid:2) class(cid:2)customer(cid:2)service(cid:2)to(cid:2)each(cid:2)person(cid:2)they(cid:2)come(cid:2)in(cid:2)contact(cid:2)with.(cid:2)(cid:2)Our(cid:2)approach(cid:2)to(cid:2)Banking(cid:2)is(cid:2)to(cid:2)provide(cid:2) great(cid:2)service,(cid:2)not(cid:2)treat(cid:2)our(cid:2)customers(cid:2)as(cid:2)a(cid:2)number(cid:2)and(cid:2)try(cid:2)to(cid:2)milk(cid:2)them(cid:2)for(cid:2)all(cid:2)they(cid:2)are(cid:2)worth.(cid:2)(cid:2)The(cid:2)big(cid:2) institutions(cid:2)try(cid:2)to(cid:2)fool(cid:2)their(cid:2)customers(cid:2)with(cid:2)complex(cid:2)products(cid:2)that(cid:2)are(cid:2)difficult(cid:2)to(cid:2)understand(cid:2)and(cid:2)not(cid:2)for(cid:2) everyone.(cid:2)(cid:2)MVB(cid:2)provides(cid:2)old(cid:2)fashion(cid:2)products(cid:2)and(cid:2)services(cid:2)that(cid:2)our(cid:2)customers(cid:2)need(cid:2)and(cid:2)understand.(cid:2) (cid:2) (cid:2) MVB.(cid:2)(cid:2)I(cid:2)will(cid:2)remain(cid:2)as(cid:2)a(cid:2)member(cid:2)of(cid:2)the(cid:2)Board(cid:2)of(cid:2)Directors(cid:2)and(cid:2)serve(cid:2)as(cid:2)Chairman(cid:2)of(cid:2)the(cid:2)Board(cid:2)beginning(cid:2) in(cid:2)May,(cid:2)2009.(cid:2)(cid:2)Larry(cid:2)Mazza(cid:2)has(cid:2)become(cid:2)President(cid:2)and(cid:2)CEO(cid:2)of(cid:2)MVB(cid:2)as(cid:2)of(cid:2)January(cid:2)1,(cid:2)2009.(cid:2)(cid:2)Please(cid:2) provide(cid:2)him(cid:2)the(cid:2)same(cid:2)wonderful(cid:2)support(cid:2)that(cid:2)I(cid:2)have(cid:2)received.(cid:2) (cid:2) (cid:2) wonderful(cid:2)time(cid:2)that(cid:2)has(cid:2)gone(cid:2)very(cid:2)quickly.(cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Prior(cid:2)to(cid:2)our(cid:2)Annual(cid:2)Shareholders(cid:2)Meeting,(cid:2)I(cid:2)will(cid:2)have(cid:2)retired(cid:2)from(cid:2)the(cid:2)active(cid:2)management(cid:2)of(cid:2) The(cid:2)future(cid:2)for(cid:2)MVB(cid:2)is(cid:2)bright.(cid:2)(cid:2)Thank(cid:2)you(cid:2)for(cid:2)the(cid:2)opportunity(cid:2)to(cid:2)serve(cid:2)MVB.(cid:2)(cid:2)It(cid:2)has(cid:2)been(cid:2)a(cid:2) Best(cid:2)regards,(cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) 5 10 MVB BANK MVB BANK WV Division of Banking Approves Charter Monongahela Valley Banks Starts Capital Campaign Unveiling of Plans for a New Bank Office Groundbreaking for the New Office on Virginia Avenue in Fairmont, WV Completion of Capital Campaign Monongahela Valley Bank Officially Opens Its Doors Grand Opening Celebration Monongahela Valley Bank Opens a Branch Office in the Middletown Mall Shop ‘n Save in Fairmont, WV MVB Financial Corp. Formed Groundbreaking for the New Bridgeport Office In Harrison County Reached $100,000,000 In Total Assets Monongahela Valley Bank Officially Changed Its Name to MVB Bank, Inc. Harrison County Officially Opens Its Office MVB Financial Corp. Enters into the Eastern Panhandle with the Purchase of Susquehanna Bancshares, Incorporated in Charles Town Reached $200,000,000 In Total Assets MVB Opened an Office in Martinsburg, in Berkeley County 10/97 11/97 03/98 05/98 06/98 01/99 04/99 05/00 01/04 03/04 06/04 03/05 08/05 10/05 01/06 07/07 10 Years of Banking Done Right! 6 S.R. Snodgrass, A.C. • 980 National Road • Wheeling, West Virginia 26003-6400 • Phone: (304) 233-5030 • Facsimile: (304) 233-3062 7 MVB(cid:2)Financial(cid:2)Corp. Consolidated(cid:2)Balance(cid:2)Sheets (Dollars(cid:2)in(cid:2)thousands,(cid:2)except(cid:2)number(cid:2)of(cid:2)shares) December(cid:2)31,(cid:2)2008(cid:2)and(cid:2)2007 ASSETS Cash(cid:2)and(cid:2)due(cid:2)from(cid:2)banks Interest(cid:2)bearing(cid:2)balances(cid:2)with(cid:2)banks Certificates(cid:2)of(cid:2)deposit(cid:2)with(cid:2)other(cid:2)banks Investment(cid:2)Securities: (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Securities(cid:2)held-to-maturity,(cid:2)at(cid:2)cost (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Securities(cid:2)available-for-sale,(cid:2)at(cid:2)approximate(cid:2)market(cid:2)value (cid:2) Loans:(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Less:(cid:2)(cid:2)Allowance(cid:2)for(cid:2)loan(cid:2)losses (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)Loans Loans(cid:2)held(cid:2)for(cid:2)sale Bank(cid:2)premises,(cid:2)furniture(cid:2)and(cid:2)equipment(cid:2) Accrued(cid:2)interest(cid:2)receivable(cid:2)and(cid:2)other(cid:2)assets (cid:2) TOTAL(cid:2)ASSETS (cid:2) LIABILITIES(cid:2)AND(cid:2)STOCKHOLDERS'(cid:2)EQUITY 2008 2007 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,710 40 7,000 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 8,796 17,795 (cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 203,241 (1,860) 201,381 1,115 8,060 9,809 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,926 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 490 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,814 26,029 (cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 181,537 (1,733) 179,804 217 8,244 8,574 $(cid:2) 258,706 $(cid:2) 230,098 Deposits:(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Non-interest(cid:2)bearing (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Interest(cid:2)bearing (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Total(cid:2)Deposits (cid:2) Accrued(cid:2)interest,(cid:2)taxes,(cid:2)and(cid:2)other(cid:2)liabilities Repurchase(cid:2)agreements Federal(cid:2)Home(cid:2)Loan(cid:2)Bank(cid:2)and other borrowings Long-term(cid:2)debt (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Total(cid:2)Liabilities (cid:2) STOCKHOLDERS'(cid:2)EQUITY (cid:2) Preferred(cid:2)stock,(cid:2)par(cid:2)value(cid:2)$1,000;(cid:2)5,000(cid:2)shares(cid:2)authorized,(cid:2)none(cid:2)issued Common(cid:2)stock,(cid:2)par(cid:2)value(cid:2)$1;(cid:2)4,000,000(cid:2)shares(cid:2)authorized; (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)1,603,622(cid:2)and(cid:2)1,508,081(cid:2)shares(cid:2)issued(cid:2)respectively Additional(cid:2)paid-in(cid:2)capital Treasury(cid:2)Stock,(cid:2)15,469(cid:2)and(cid:2)8,919(cid:2)shares,(cid:2)respectively Retained(cid:2)earnings(cid:2) Accumulated(cid:2)other(cid:2)comprehensive(cid:2)loss (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Total(cid:2)Stockholders'(cid:2)Equity (cid:2) TOTAL(cid:2)LIABILITIES(cid:2)AND(cid:2)STOCKHOLDERS'(cid:2)EQUITY $(cid:2)(cid:2)(cid:2) 22,495 150,570 173,065 1,835 21,904 31,942 4,124 232,870 1,604 20,175 (299) 4,671 (315) 25,836 $(cid:2) 258,706 $(cid:2)(cid:2)(cid:2) 19,129 138,319 157,448 1,601 19,817 23,583 4,124 206,573 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,508 18,450 (168) 4,140 (405) 23,525 $(cid:2) 230,098 8 MVB(cid:2)Financial(cid:2)Corp. Consolidated(cid:2)Statements(cid:2)of(cid:2)Income (Dollars(cid:2)in(cid:2)thousands(cid:2)except(cid:2)Share(cid:2)and(cid:2)Per(cid:2)Share(cid:2)Data) Years(cid:2)ended(cid:2)December(cid:2)31,(cid:2)2008(cid:2)and(cid:2)2007 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 Loss on impairment of FHLMC preferred stock 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 9 2008 2007 $ 11,902 34 1,334 417 13,687 $ 11,631 102 1,207 334 13,274 4,765 303 678 203 5,949 7,738 595 7,143 681 180 249 411 267 1,788 4,022 528 399 547 212 235 113 110 162 812 700 7,840 1,091 263 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 $ 828 $ 1,282 $0.52 $0.51 1,584,295 1,621,172 $0.87 $0.85 1,470,167 1,509,404 2008 2007 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 828 (cid:2) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,282 MVB(cid:2)Financial(cid:2)Corp. Consolidated(cid:2)Statements(cid:2)of(cid:2)Cash(cid:2)Flows (Dollars(cid:2)in(cid:2)thousands) Years(cid:2)ended(cid:2)December(cid:2)31,(cid:2)2008(cid:2)and(cid:2)2007 OPERATING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)Income (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Adjustments(cid:2)to(cid:2)reconcile(cid:2)net(cid:2)income(cid:2)to(cid:2)net(cid:2)cash(cid:2)provided(cid:2)by (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)operating(cid:2)activities: (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Provision(cid:2)for(cid:2)loan(cid:2)losses (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Deferred(cid:2)income(cid:2)tax(cid:2)(benefit) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Depreciation (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Stock(cid:2)based(cid:2)compensation (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Loans(cid:2)originated(cid:2)for(cid:2)sale (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)of(cid:2)loans(cid:2)sold (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Amortization,(cid:2)net(cid:2)of(cid:2)accretion (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Loss(cid:2)on(cid:2)impairment(cid:2)of(cid:2)FHLMC(cid:2)preferred(cid:2)stock (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(Increase)(cid:2)in(cid:2)interest(cid:2)receivable(cid:2)and(cid:2)other(cid:2)assets (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Increase(cid:2)in(cid:2)accrued(cid:2)interest,(cid:2)taxes,(cid:2)and(cid:2)other(cid:2)liabilities (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)NET(cid:2)CASH(cid:2)(USED(cid:2)IN)/PROVIDED(cid:2)BY(cid:2)OPERATING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 595 (24) 441 15 (34,570) 33,672 16 700 (1,845) 234 62 INVESTING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(Increase)(cid:2)in(cid:2)loans(cid:2)made(cid:2)to(cid:2)customers (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchases(cid:2)of(cid:2)premises(cid:2)and(cid:2)equipment (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchases(cid:2)of(cid:2)investment(cid:2)securities(cid:2)available-for-sale (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchases(cid:2)of(cid:2)investment(cid:2)securities(cid:2)held-to-maturity (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Decrease/(increase)(cid:2)in(cid:2)deposits(cid:2)with(cid:2)Federal(cid:2)Home(cid:2)Loan(cid:2)Bank,(cid:2)net (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchases(cid:2)of(cid:2)certificates(cid:2)of(cid:2)deposit(cid:2)with(cid:2)other(cid:2)banks (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)from(cid:2)maturity(cid:2)of(cid:2)certificates(cid:2)of(cid:2)deposit(cid:2)with(cid:2)other(cid:2)banks (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)from(cid:2)sales,(cid:2)maturities(cid:2)and(cid:2)calls(cid:2)of(cid:2)securities(cid:2)available-for-s (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)from(cid:2)maturities(cid:2)and(cid:2)calls(cid:2)of(cid:2)securities(cid:2)held-to-maturity (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchase(cid:2)of(cid:2)bank(cid:2)owned(cid:2)life(cid:2)insurance (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)NET(cid:2)CASH(cid:2)(USED(cid:2)IN)(cid:2)INVESTING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2) (22,172) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (257) (cid:2)(cid:2)(cid:2)(cid:2) (14,229) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (7,000) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 450 (7,000) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - 22,351 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2) (27,857) FINANCING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)increase(cid:2)in(cid:2)deposits (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)increase/(decrease)(cid:2)in(cid:2)repurchase(cid:2)agreements (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)from(cid:2)Federal(cid:2)Home(cid:2)Loan(cid:2)Bank(cid:2)borrowings (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Principal(cid:2)payments(cid:2)on(cid:2)Federal(cid:2)Home(cid:2)Loan(cid:2)Bank(cid:2)borrowings (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Proceeds(cid:2)from(cid:2)long-term(cid:2)borrowings (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Purchase(cid:2)of(cid:2)treasury(cid:2)stock (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)proceeds(cid:2)of(cid:2)stock(cid:2)offering (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Cash(cid:2)dividend (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Common(cid:2)stock(cid:2)options(cid:2)exercised (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)NET(cid:2)CASH(cid:2)PROVIDED(cid:2)BY(cid:2)FINANCING(cid:2)ACTIVITIES (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 15,617 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 2,087 (cid:2)(cid:2)(cid:2) 176,550 (168,191) (cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (131) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,735 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (159) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 71 27,579 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 584 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (117) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 364 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 13 (cid:2)(cid:2)(cid:2)(cid:2) (27,887) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 28,963 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 23 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (1,205) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 564 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 2,584 (cid:2)(cid:2)(cid:2)(cid:2) (38,995) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (2,115) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (6,625) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (1,000) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (437) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 7,110 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,500 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (500) (cid:2)(cid:2)(cid:2)(cid:2) (41,062) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 22,855 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (392) (cid:2)(cid:2)(cid:2) 100,455 (cid:2)(cid:2)(cid:2)(cid:2) (90,662) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,124 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (150) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 586 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) - (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 171 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 36,987 (Decrease)(cid:2)in(cid:2)cash(cid:2)and(cid:2)cash(cid:2)equivalents (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (216) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (1,491) Cash(cid:2)and(cid:2)cash(cid:2)equivalents(cid:2)at(cid:2)beginning(cid:2)of(cid:2)period (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,926 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 6,417 Cash(cid:2)and(cid:2)cash(cid:2)equivalents(cid:2)at(cid:2)end(cid:2)of(cid:2)period $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,710 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,926 Supplemental(cid:2)disclosure(cid:2)of(cid:2)cash(cid:2)flow(cid:2)information Cash(cid:2)payments(cid:2)for: (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Interest(cid:2)on(cid:2)deposits,(cid:2)repurchase(cid:2)agreements(cid:2)and(cid:2)FHLB(cid:2)borrowings (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Income(cid:2)taxes $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 5,790 644 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 6,034 500 10 MVB(cid:2)Financial(cid:2)Corp. Consolidated(cid:2)Statements(cid:2)of(cid:2)Changes(cid:2)in(cid:2)Stockholders'(cid:2)Equity Years(cid:2)ended(cid:2)December(cid:2)31,(cid:2)2008(cid:2)and(cid:2)2007 (Dollars(cid:2)in(cid:2)thousands) Balance,(cid:2)December(cid:2)31,(cid:2)2006 Comprehensive(cid:2)income: (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)Income (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Other(cid:2)comprehensive(cid:2)income(loss) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)fair(cid:2)value(cid:2)adjustment(cid:2)on (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)securities(cid:2)available(cid:2)for(cid:2)sale,(cid:2)less (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)reclassification(cid:2)adjustment(cid:2)for(cid:2)realized (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)gains(cid:2)-(cid:2)net(cid:2)of(cid:2)tax(cid:2)effect(cid:2)of(cid:2)$45 Total(cid:2)Comprehensive(cid:2)Income (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Minimum(cid:2)pension(cid:2)liability(cid:2)adjustment (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)net(cid:2)of(cid:2)tax(cid:2)effect Stock(cid:2)offering Stock(cid:2)based(cid:2)compensation Treasury(cid:2)stock,(cid:2)acquired(cid:2)at(cid:2)cost Common(cid:2)stock(cid:2)options(cid:2)exercised (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 29 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 557 13 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 11 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 160 Common(cid:2)(cid:2)(cid:2) Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income/(loss) Treasury Stock Total Stockholders' Equity $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,468 $(cid:2)(cid:2)(cid:2) 17,720 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 2,858 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (373) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (18) $(cid:2)(cid:2)(cid:2) 21,655 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,282 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,282 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 67 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (99) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 67 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,349 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (99) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 586 13 (150) 171 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (150) Balance,(cid:2)December(cid:2)31,(cid:2)2007 Comprehensive(cid:2)income: (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Cumulative(cid:2)effect(cid:2)of(cid:2)change(cid:2)in(cid:2)accounting (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)for(cid:2)split-dollar(cid:2)life(cid:2)insurance(cid:2)arrangements (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)Income (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Other(cid:2)comprehensive(cid:2)income(loss) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Net(cid:2)fair(cid:2)value(cid:2)adjustment(cid:2)on (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)securities(cid:2)available(cid:2)for(cid:2)sale,(cid:2)less (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)reclassification(cid:2)adjustment(cid:2)for(cid:2)realized (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)gains(cid:2)-(cid:2)net(cid:2)of(cid:2)tax(cid:2)effect(cid:2)of(cid:2)$235 Total(cid:2)Comprehensive(cid:2)Income (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)Minimum(cid:2)pension(cid:2)liability(cid:2)adjustment(cid:2)- (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)net(cid:2)of(cid:2)tax(cid:2)effect (cid:2) (cid:2) Stock(cid:2)offering Cash(cid:2)dividends(cid:2)paid(cid:2)($0.10(cid:2)per(cid:2)share) Stock(cid:2)based(cid:2)compensation Treasury(cid:2)stock,(cid:2)acquired(cid:2)at(cid:2)cost Common(cid:2)stock(cid:2)options(cid:2)execised $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,508 $(cid:2)(cid:2)(cid:2) 18,450 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,140 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (405) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (168) $(cid:2)(cid:2)(cid:2) 23,525 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (138) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 828 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 352 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (262) (cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (159) 89 7 1,646 15 64 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (131) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (138) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 828 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 352 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,180 (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (262) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,735 (159) 15 (131) 71 Balance,(cid:2)December(cid:2)31,(cid:2)2008 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 1,604 $(cid:2)(cid:2)(cid:2) 20,175 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) 4,671 $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (315) $(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2) (299) $(cid:2)(cid:2)(cid:2) 25,836 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 intercompany accounts and transactions have been eliminated in wholly owned subsidiaries. All significant 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 include payment status, the loan agreement. Factors considered by management 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. in determining impairment 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 $956 and $975 at December 31, 2008 and 2007, 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 $1,479 and $1,181 at December 31, 2008 and 2007, respectively, and is included in other assets in the accompanying balance sheet. The Company also held $187 in Silverton Bank, N.A. stock at December 31, 2008 and 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 The Company accounts for stock-based compensation in accordance with 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, 2008 and 2007, the Company held other real estate of $818 and $55. 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. Endorsement Split-Dollar Life Insurance Arrangements On January 1, 2008, the Company changed its accounting policy and recognized a cumualtive-effect adjustment to retained earnings totaling $138 related to accounting for certain endorsement split-dollar life insurance arrangements in connection with the adoption of Emerging Issues Task Force Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insuarnce Arrangements . Reclassifications Certain amounts in the 2007 financial statements have been reclassified to conform to the 2008 financial statement presentation. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 NOTE 2. INVESTMENT SECURITIES Amortized cost and approximate market values of investment securities held-to-maturity at December 31, 2008, including gross unrealized gains and losses, are summarized as follows: (Dollars in thousands) Municipal securities U. S. Agency securities Amortized Cost Unrealized Gain 807 7,989 8,796 $ 7 131 138 $ Unrealized Loss (1) - (1) $ Approximate Market Value 813 8,120 8,933 $ 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: 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 available-for-sale at December 31, 2008 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Market Value U. S. Agency securities Mortgage-backed securities Other securities $ $ $ $ $ $ $ $ Amortized cost and approximate market values of investment securities available-for-sale at December 31, 2007 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Market Value $ $ $ $ 15,025 2,325 124 17,474 21,793 3,678 700 124 26,295 327 5 - 332 93 - - - 93 U. S. Agency securities Mortgage-backed securities Corporate securities Other securities - (11) - (11) (32) (56) (271) - (359) $ $ $ $ The following tables summarize amortized cost and approximate market values of securities by maturity: Held to Maturity Available for sale December 31, 2008 15,352 2,319 124 17,795 21,854 3,622 429 124 26,029 103 5,139 7,608 4,945 17,795 Amortized Cost Approximate Market Value $ $ 103 4,991 7,556 4,824 17,474 $ $ Within one year After one year, but within five After five years, but within ten After ten Years Total Amortized Cost - $ 278 5,416 3,102 8,796 $ Approximate Market Value - $ 284 5,481 3,168 8,933 $ 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 Investment securities with a carrying value of $21,904 and $20,512 at December 31, 2008 and 2007, respectively, were pledged to secure public funds and repurchase agreements. for the economy as a whole. When determining other-than-temporary impairment on securities, The Company's investment portfolio includes securities that are in an unrealized loss position as of December 31, 2008, the details of which are included in the following table. Although these securities, if sold at December 31, 2008 would result in a pretax loss of $12, 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 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, 2008, 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, 2008, total temporary impairment totaled $12. Description and number of positions Less than 12 months 12 months or more Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Agencies (0) Mortgage-backed securities (11) Municipal securities (1) $ - 1,343 - 1,343 $ $ - (5) - $ (5) - $ 133 226 359 $ - $ (6) (1) (7) $ NOTE 3. LOANS The components of loans in the balance sheet at December 31, were as follows: (Dollars in thousands) 2008 2007 Commercial and non-residential real estate Residential real estate Consumer and other $ 137,872 52,303 13,066 203,241 $ $ $ 128,535 42,030 10,972 181,537 Changes in the allowance for loan losses were as follows for the years ended December 31: (Dollars in thousands) 2008 2007 Balance at beginning of period Losses charged to allowance Recoveries credited to allowance Provision for loan losses Balance at end of period $ $ 1,733 (483) 14 596 1,860 1,206 (68) 11 584 1,733 $ $ 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. Impaired loan information for the years ended December 31: 2008 2007 Impaired loans with an allocated allowance Impaired loans without an allocated allowance Total impaired loans Allocated allowance on impaired loans Average impaired loans Income recognized on impaired loans $ - 470 470 $ - 590 38 $ $ $ 876 417 1,293 162 725 44 $ 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT Bank premises, furniture and equipment at December 31, were as follows: (Dollars in thousands) 2008 2007 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 $ $ 7,509 2,506 10,015 (1,955) 8,060 7,368 2,391 9,759 (1,515) 8,244 $ $ 2008 2007 $ $ 17,317 20,304 132,924 898 1,622 173,065 13,640 18,557 120,683 3,996 572 157,448 $ $ Time deposits of over $100 included above $ 36,725 $ 34,580 Maturities of certificates of deposit at December 31, 2008 were as follows: 2009 2010 2011 2012 2013 Total NOTE 6. BORROWED FUNDS $ $ 53,824 14,053 3,538 4,662 6,144 82,221 The Company is a party to repurchase agreements with certain customers. As of December 31, 2008 and 2007, the Information related to repurchase agreements is company held repurchase agreements of $21,904 and $19,817. summarized below: (Dollars in thousands) 2007 2008 Balance at end of year Average balance during the year Maximum month-end balance Weighted-average rate during the year Rate at December 31 21,904 $ 19,420 23,783 1.56% 0.69% 19,817 $ 18,360 20,481 3.95% 3.41% 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, 2008 was approximately $22,806. At December 31, 2008 and 2007 the Bank had borrowed $30,942 and $23,583. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 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% 2008 2007 $ 1,000 $ 1,000 1,087 676 1,158 689 Floating interest rate note, originating March 2003, due December 2011, interest payable monthly, including interest of 0.59% 18,545 10,296 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 September 2008, interest of 4.53% payable quarterly rate note, originating September 2007, due 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% Fixed interest rate note, originating March 2008. due March 2013, interest of 2.37% payable quarterly Fixed interest rate note, originating March 2008. due March 2009, interest of 2.26% payable quarterly 1,417 1,452 1,127 1,068 944 - - - 1,078 2,000 2,000 1,145 1,085 958 700 2,700 1,300 1,100 - - $ 30,942 $ 23,583 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, 2008 and 2007 and interest expense of $203 and $225 for the years ended December 31, 2008 and 2007. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 $3,000 available from Silverton Bank, N.A. There were no borrowings against this line of credit at December 31, 2008 or 2007. The bank had borrowed $1,000 at the Federal Reserve discount window for 90 days beginning December 2008, maturing March 2009 at a rate of 1.25% A summary of maturities of these borrowings over the next five years is as follows: Year 2009 2010 2011 2012 2013 Thereafter Amount $ 3,199 210 18,766 232 2,244 11,415 36,066 $ 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 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) 2008 2007 Available on lines of credit Stand-by letters of credit Other loan commitments Concentration of Credit Risk $ $ 44,165 1,814 563 46,542 $ $ 41,528 1,000 608 43,136 The Company grants a majority of 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. financial, agricultural, real estate and installment its commercial, Litigation The subsidiary bank is involved in various legal actions arising in the ordinary course of business. management and counsel, consolidated financial statements. In the opinion of these matters will not have a significant adverse effect on the the outcome of 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 temporary differences deferred income tax liabilities and assets for the expected future tax consequences of 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: 2008 2007 Federal State $ $ $ $ 451 80 531 244 43 287 (20) (4) (24) 263 $ $ $ $ (99) (18) (117) 414 Deferred expense(benefit) Federal State Income Tax expense Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31: 2008 2007 Amount % Amount % Tax at Federal tax rate Tax effect of: State income tax Tax exempt earnings Other $ 371 27 (136) 1 263 $ 34.0% 2.5% -12.5% 0.0% 24.0% $ 577 42 (173) (32) 414 $ 34.0% 2.5% -10.2% -2.0% 24.3% 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) 2008 $ 255 26 281 128 (643) (338) (853) 2007 $ 279 19 298 (106) (636) (164) (906) Net deferred tax (asset) $ (572) $ (608) 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. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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, 2008 $ 6,213 $ 8,832 $ (1,528) $ 13,517 December 31, 2007 $ 6,882 $ 1,038 $ (1,707) $ 6,213 The Company held related party deposits of $5,981 and $7,358 at December 31, 2008 and December 31, 2007, respectively. The Company held related party repurchase agreements of $1,867 and $5,051 at December 31, 2008 and December 31, 2007, 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 $301 and $300 for the years ended December 31, 2008 and 2007. 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, 2008 and 2007 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 2008 2007 $ $ $ $ $ 1,396 271 100 70 (25) 1,812 1,058 (386) 320 (25) 967 (845) 924 12 91 $ 836 250 69 265 (24) 1,396 664 118 300 (24) 1,058 (338) 395 14 71 $ $ $ $ $ $ Accumulated benefit obligation $ 1,471 $ 1,089 At December 31, 2008 and 2007, the weighted average assumptions used to determine the benefit obligation are as follows: Discount rate Rate of compensation increase 6.25% 3.00% 6.25% 3.00% 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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 $ 232 86 (87) 2 25 $ 258 $ 250 69 (57) 3 35 $ 300 At December 31, 2008 and 2007, 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 6.25% 8.00% 3.00% 6.00% 8.50% 3.00% The Company's pension plan asset allocations at December 31, 2008 and 2007, as well as target allocations for 2009 are as follows: Asset Category Equity securities Balanced fund Other Total 2009 Target 70% 25% 5% 100% 12/31/2008 64% 30% 6% 100% 12/31/2007 67% 28% 5% 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. Expected amortization of transition obligation (asset) Expected amortization of prior service cost (credit) Expected amortization of net loss (gain) 2009 2008 $ - 2 33 $ - 2 26 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 1/1/2009 through 12/31/2009 Estimated future benefit payments reflecting expected future service 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 12/31/2013 1/1/2014 through 12/31/2018 NOTE 11. INTANGIBLE ASSETS Cash Flow $ 338,751 $ 41,576 46,760 56,802 85,286 97,032 574,533 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, 2008 the Company has allocated $60 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. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 NOTE 12. STOCK OFFERING During 2008 the Company closed a public stock offering of 200,000 shares of common stock by issuing 89,208 shares, in addition to 29,350 shares issued in 2007. This offering when completed totaled $2.3 million. The proceeds of this offering were used to support the growth of the bank and to increase the legal lending limit to one borrower. At December 31, 2007, outstanding shares totaled 1,508,081. During 2008, the Company issued 95,541 shares, concluding 2008 with outstanding shares of 1,603,622. 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: 2008 2007 Weighted- Average Exercise Price Number of Shares Weighted- Average Exercise Price Number of Shares 167,330 - $ 14.91 - 176,812 15,000 $ 14.63 16.00 - (6,323) - $ - - - - (14,482) (10,000) $ - - - 161,007 $ 15.05 167,330 $ 14.91 147,507 $ 15.00 150,330 $ 14.78 N/A $ 3.52 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% for 2007, and a weighted-average expected life of the options of 7 years for 2007. The expected volatility of MVB's stock price used for 2007 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, 2008: Options Outstanding Options Exercisable Weighted Average Remaining Options Contractual Exercise Price Outstanding Life $9.98 $10.48 $12.38 $16.00 22,490 1,575 2,100 134,842 2.00 3.00 6.00 8.00 Weighted Average Exercise Price $9.98 $10.48 $12.38 $16.00 Weighted Average Exercise Price Number Exercisable 22,490 1,575 2,100 121,342 $9.98 $10.48 $12.38 $16.00 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 NOTE 14. REGULATORY CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies requirements can initiate certain mandatory, and possibly additiona Failure to meet minimum capital 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 to under regulatory accounting practices. The Bank's capital amounts and classifications are also subject 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, 2008 and 2007, 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 wel 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, 2008 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, 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 $ $ 26,547 30,053 12.6% 14.3% N/A $ 21,060 N/A 10.0% $ $ 16,868 16,848 8.0% 8.0% $ $ 24,687 28,193 11.7% 13.4% N/A $ 12,636 N/A 6.0% $ $ 8,434 8,424 4.0% 4.0% $ $ 24,687 28,193 10.1% 11.5% N/A $ 12,268 N/A 5.0% $ $ 9,825 9,815 4.0% 4.0% $ $ 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% 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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, 2008: Years ended December 31: 2009 2010 2011 2012 2013 Thereafter Total minimum payments required: (Dollars in thousands) $ 55 55 55 55 55 375 $ 650 Total lease expense for the years ended December 31, 2008 and 2007 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. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 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, 2008 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 $ 4,710 7,040 17,795 8,796 203,241 1,123 242,705 $ $ 173,065 21,904 31,942 486 4,124 231,521 $ $ 4,710 7,040 17,795 8,629 205,273 1,123 244,570 $ $ 166,142 22,123 32,261 486 4,124 225,136 $ December 31, 2007 Carrying Value Estimated Fair Value $ 4,926 490 26,029 1,812 179,903 1,182 214,342 $ $ 4,926 490 26,029 1,814 181,537 1,182 215,978 $ 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 Financial liabilities: Deposits Repurchase agreements Federal Home Loan Bank Borrowings Accrued interest payable Accrued interest payable Long-term debt $ 157,448 19,817 23,583 523 4,124 205,495 $ $ 152,725 19,777 23,819 523 4,124 200,968 $ 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 Effective january 1, 2008, the Company adopted the provisions of FAS No. 157, Fair Value Measurements , for financial assets and financial liabilities. FAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard applies whenever other standards require or permit assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. The FASB issued Staff Position No. 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 , which removed leasing transactions accounted for under FAS No. 13 and related guidance from the scope of FAS No. 157. The FASB also issued Staff Position No. 157-2, Partial Deferral of the Effective Date of Statement 157 , which deferred the effective date of FAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. FAS No. 157 establishes 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 FAS No. 157 hierarchy 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 table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of September 30, 2008 by level within the fair value hierarchy. As required by FAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. (In Thousands) Assets: Investment securities, available for sale December 31, 2008 Level I Level II Level III Total 17,795 17,795 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 NOTE 19. 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, 2008 and 2007, 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 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; 1,603,622 and 1,508,081 shares issued respectively Additional paid in capital Treasury stock Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity (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 December 31 2008 2007 $ 368 $ 675 29,342 257 29,967 $ $ 7 4,124 4,131 26,737 248 27,660 $ $ 11 4,124 4,135 $ - $ - 1,604 20,175 (299) 4,671 (315) 25,836 29,967 $ 2008 $ - 250 (250) (60) (190) 1,508 18,437 (168) 4,153 (405) 23,525 27,660 $ 2007 - $ 232 (232) (72) (160) 1,018 828 $ 1,442 1,282 $ 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2008 (Dollars in thousands) Statements of Cash Flows OPERATING ACTIVITIES Net income Equity in undistributed income of bank subsidiary (Increase) in other assets (Decrease)/increase in other liabilities Stock option expense Unrealized gain/(loss) 2008 2007 $ 828 $ 1,282 (1,018) (149) (4) 15 90 (1,442) (244) 11 13 (33) 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 Cash dividend Purchase of treasury stock Net cash provided by financing activities (Decrease)/increase in cash Cash at beginning of period (238) (413) (1,585) (3,754) (1,585) (3,754) 1,736 - 70 (159) (131) 1,516 (307) 675 587 4,124 171 - (150) 4,732 565 110 Cash at end of period $ 368 $ 675 28 Media Release CONTACT:(cid:2) TEL:(cid:2) FAX:(cid:2) BAUERFINANCIAL, Inc. 1.800.388.6686(cid:2) 1.800.230.9569(cid:2) www.bauerfinancial.com(cid:2) customerservice@bauerfinancial.com(cid:2) (cid:2) FOR IMMEDIATE RELEASE: To the Editor: New Year, New Banking Concerns, But Not if You Bank at MVB Bank January 2009: MVB Bank, Fairmont, West Virginia proudly announces it has earned BAUERFINANCIAL, Inc.’s highest 5-Star Superior rating for financial strength and stability. BAUERFINANCIAL has been analyzing the nation’s banks for over 25 years and has earned the reputation as “the Nation’s Bank Rating Firm”, so to garner its highest 5-Star rating is a time-honored badge of distinction. Customers of MVB Bank can be proud that their bank still shines, even under the watchful eye of the BAUERFINANCIAL microscope. The rating is based on the overall financial picture of the bank and at 5-Stars indicates that MVB Bank is one of the strongest banks in the nation. This is the seventh consecutive quarter that MVB Bank has earned this highest honor. “ This New Year in particular brings with it a whole new set of worries, but where a consumer banks shouldn’t be one of them”, remarks Karen L. Dorway, president of BAUERFINANCIAL. “Some banks ignored proper loan underwriting standards in recent years and are now paying the price for that decision. But, MVB Bank is a prime example of a bank that has stuck to traditional, conservative banking strategies, which, in this climate, is exactly what the ‘other banks’ are returning to. MVB Bank is a model of banking safety and soundness and its customers can rest assured in that knowledge.” Established in 1999, MVB Bank has been serving the banking needs of its neighbors and friends for 10 years. It currently operates through five conveniently located offices in Bridgeport. Charles Town, Fairmont and Martinsburg and can also be found on the internet at www.mvbbanking.com. MVB Bank: “West Virginia’s Most Valuable Bank.” BAUERFINANCIAL, INC., Coral Gables, Florida, the nation’s leading independent bank rating and research firm, has been reporting on and analyzing the performance of U.S. banks and credit unions since 1983. No institution pays for its rating, nor can it be eluded. Consumers may obtain star-ratings by visiting www.bauerfinancial.com. ### BAUERFINANCIAL, INC. 2655 LeJeune Road, Penthouse One, Coral Gables, FL 33134. 29 Barbara(cid:2)L.(cid:2)Alexander Robert(cid:2)L.(cid:2)Bell Stephen(cid:2)R.(cid:2)Brooks Berniece(cid:2)D.(cid:2)Collis Harvey(cid:2)M.(cid:2)Havlichek James(cid:2)R.(cid:2)Martin Larry(cid:2)F.(cid:2)Mazza Dr.(cid:2)Saad(cid:2)Mossallati Dr.(cid:2)Kelly(cid:2)R.(cid:2)Nelson Barbara(cid:2)L.(cid:2)Alexander Robert(cid:2)L.(cid:2)Bell Stephen(cid:2)R.(cid:2)Brooks Berniece(cid:2)D.(cid:2)Collis Harvey(cid:2)M.(cid:2)Havlichek James(cid:2)R.(cid:2)Martin Larry(cid:2)F.(cid:2)Mazza Dr.(cid:2)Saad(cid:2)Mossallati Dr.(cid:2)Kelly(cid:2)R.(cid:2)Nelson Leonard(cid:2)W.(cid:2)Nossokoff J.(cid:2)Christopher(cid:2)Pallotta Nitesh(cid:2)S.(cid:2)Patel Louis(cid:2)Spatafore Wayne(cid:2)H.(cid:2)Stanley Richard(cid:2)L.(cid:2)Toothman Dr.(cid:2)Michael(cid:2)F.(cid:2)Trent Samuel(cid:2)J.(cid:2)Warash Leonard(cid:2)W.(cid:2)Nossokoff J.(cid:2)Christopher(cid:2)Pallotta Nitesh(cid:2)S.(cid:2)Patel Louis(cid:2)Spatafore Wayne(cid:2)H.(cid:2)Stanley Richard(cid:2)L.(cid:2)Toothman Dr.(cid:2)Michael(cid:2)F.(cid:2)Trent Samuel(cid:2)J.(cid:2)Warash David(cid:2)B.(cid:2)Alvarez John(cid:2)W.(cid:2)Ebert Dr.(cid:2)Carl(cid:2)R.(cid:2)Fischer Harvey(cid:2)M.(cid:2)Havlichek Christine(cid:2)B.(cid:2)Ielapi James(cid:2)R.(cid:2)Martin Larry(cid:2)F.(cid:2)Mazza Dr.(cid:2)Saad(cid:2)Mossallati Dr.(cid:2)Kelly(cid:2)R.(cid:2)Nelson Roger(cid:2)J.(cid:2)Turner John(cid:2)B.(cid:2)Spadafore Wayne(cid:2)H.(cid:2)Stanley Dr.(cid:2)Joseph(cid:2)Cincinnati Berniece(cid:2)D.(cid:2)Collis Dr.(cid:2)Brian(cid:2)D.(cid:2)Gilpin Harvey(cid:2)M.(cid:2)Havlichek Kenneth(cid:2)F.(cid:2)Lowe James(cid:2)R.(cid:2)Martin Larry(cid:2)F.(cid:2)Mazza G.(cid:2)Warren(cid:2)Mickey Timothy(cid:2)R.(cid:2)Procita Christopher(cid:2)B.(cid:2)Shultz Barbara(cid:2)L.(cid:2)Alexander Robert(cid:2)L.(cid:2)Bell Stephen(cid:2)R.(cid:2)Brooks Berniece(cid:2)D.(cid:2)Collis Harvey(cid:2)M.(cid:2)Havlichek James(cid:2)R.(cid:2)Martin Larry(cid:2)F.(cid:2)Mazza Dr.(cid:2)Saad(cid:2)Mossallati Dr.(cid:2)Kelly(cid:2)R.(cid:2)Nelson Leonard(cid:2)W.(cid:2)Nossokoff J.(cid:2)Christopher(cid:2)Pallotta Nitesh(cid:2)S.(cid:2)Patel Louis(cid:2)Spatafore Wayne(cid:2)H.(cid:2)Stanley Richard(cid:2)L.(cid:2)Toothman Dr.(cid:2)Michael(cid:2)F.(cid:2)Trent Samuel(cid:2)J.(cid:2)Warash 30 Summary of Stock Prices/ Transactions July 15, 1998 October 15, 1999 December 31, 1999 December 31, 2000 June 1, 2001 December 31, 2001 November 1, 2002 December 31, 2002 December 31, 2003 August 15, 2004 December 31, 2004 July 1, 2005 December 31, 2005 December 31, 2006 July 1, 2007 December 31, 2007 December 15, 2008 December 31, 2008 Original issue Secondary offering Last price before end of the year Last price before end of the year Stock dividend Last price before end of the year Secondary offering Last price before end of the year Last price before end of the year Stock dividend Last price before end of the year Secondary offering Last price before end of the year Last price before end of the year Secondary offering Last price before end of the year Cash dividend Last price before end of the year $10.00 per share 11.00 per share 11.00 per share 11.00 per share 5% 11.00 per share 12.50 per share 12.50 per share 13.00 Per share 5% 14.00 Per share 16.00 Per share 16.00 Per share 16.00 Per share 20.00 Per share 20.00 Per share $0.10 Per share 20.00 Per share The above information is provided as a guide to your cost basis in your MVB common stock. There have been very few transactions in the MVB common stock and usually we are aware of the sales price. However, there may be other transactions in MVB common stock at prices which are not known to MVB. We believe the above information will help in future years when such information is needed for tax purposes. Please contact Lisa Wanstreet, Corporate Secretary, if you have any questions. She may be reached at (304) 367-8697. 31 MVB Financial Corp. 301 Virginia Avenue Fairmont, West Virginia 26554 Phones: 304-363-4800; 1-888-689-1877 • www.mvbbanking.com 32 

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