MVB Financial Corp
Annual Report 2010

Plain-text annual report

2010 Annual Report to Shareholders MVB FINANCIAL CORP. 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) 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 At or for the Year Ended December 31 $ $ $ $ 16,287 5,470 10,817 1,100 2,454 9,139 795 2,237 1.40 1.38 0.10 17.07 1,598 1,626 14,337 5,533 8,804 785 2,190 8,349 454 1,406 0.88 0.86 0.10 16.64 1,602 1,628 13,687 5,949 7,738 595 1,788 7,840 263 828 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 1,153 261,116 64,104 390,350 293,913 28,037 219,356 30,456 310,187 232,023 26,746 189,070 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 12,957 294,044 69,284 414,267 300,434 30,769 232,847 43,886 352,762 264,531 27,138 203,241 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 7.18% 8.62% 10.76% 10.83% 11.85% 10.48% 8.19% 8.24% 7.21% 8.01% 10.52% 20.85% 0.57% 0.45% 0.35% 0.62% 0.58% 0.45% 1.04% 0.85% 0.54% 0.25% -0.28% -6.36% 7.98% 5.26% 3.22% 5.76% 4.86% 4.34% 12.68% 10.31% 7.44% 3.09% -2.69% -1.33% Leverage Ratio 8.21% 8.55% 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 12.40% 13.31% 12.32% 13.25% 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% $ 21.00 20.00 20.00 20.00 16.00 16.00 14.00 12.38 * 11.90 * 10.48 * 10.00 * 10.00 * 1 MVB Climbs Higher in 2010 Dear Shareholders: Like the most well-prepared and experienced rock climbers, MVB's fit and agile Team surmounted many challenges in 2010. We planned strategically to ensure that each member or the MVB Team was prepared to scale new heights. I am pleased to report to you that 2010 was a truly significant year for Your Most Valuable Bank. Not only did we climb mountains, but the heights we reached enabled us to see many more summits ahead; summits on which we’re determined to stake our flag. Significant Success in Rocky Terrain As I was preparing this letter to you, I reflected on my two years leading the MVB Team and the many positives we have reached in a most challenging and so-often-uncertain world. Before discussing 2010 results, I would like to describe the “mountains” we faced and how well our first two years’ accumulative numbers reflect our strength and agility. In September of 2008, just a few short months before I became President and CEO of MVB Financial Corp, the U.S. and world economy plunged into what we now call the Great Recession. In fact, during 2010, across the country (cid:120) Unemployment is still at very high levels; (cid:120) Housing foreclosures remain brisk; (cid:120) Real estate prices are off 40% from 2008; (cid:120) Bank failures rates are some of the highest in history; (cid:120) Bank profits are some of the lowest in history, and non-performing loans are near historical all-time highs. Yet, through one of the most difficult economic eras in our nation’s history, your bank has taken advantage of its healthy financial situation by advancing the opportunities presented during these times and performed very well. MVB’s strong performance is validated by the following objective cumulative results since I began leading MVB in January 2009: (cid:120) Grown assets by 60%, or $156 million, to $414 million; (cid:120) Increased loans 45%, or $91 million, to $294 million; (cid:120) Lifted deposits by 74%, or $127 million, to $300 million; (cid:120) Grown funding sources by 66%, or $150 million, to $377 million; (cid:120) Most importantly, significantly increased earnings 170%, or $1,409 million, to $2,237 million; With all this positive growth, our charge-offs and non-performing loans have remained at some of the best levels in the nation today. The MVB Team has successfully navigated a positive path through very rocky terrain. I am humbled by our achievements and honored to lead such a strong team. 2010 Higher Peaks Reached The 2010 financials evidence the excellent execution of the whole MVB Team last year. The most profitable year in the bank’s twelve-year history, 2010 saw a net income increase of $831,000, or 59.1%, to $2.2 million. The net interest income, which rose $1.9 million or 13.6%, drove the increase and was primarily due to a $61.2 million growth in loans in 2010. And despite increasing deposits by $35.9 million, MVB was able to decrease its total interest expense by $63,000, as the bank’s cost of funds declined by approximately ½%. Beyond climbing the highest mountain ever this year, we’ve continued to strengthen our base camp in preparation for the future mountains we will climb. As of December 31, 2010, MVB’s balance sheet had grown $61.5 million from year-end 2009. The biggest reason for this continued success was loan growth of $61.2 million (26.3%). MVB continued to deliver such innovative products as the Brokerage Buster Account, MVChecking, and MVSavings to our clients, enabling total deposits to increase $35.9 million (13.6%). Total shareholders’ equity increased by $3.6 million (13.4%), the result of 2010 earnings of $2.2 million and the inclusion of $1.7 million in new capital raised in late 2010 as part of a $8.3 million offering. 2 2011 Continuing the Ascent As is our practice, we do not rest on our laurels. We do not get to the top of one mountain without turning our eyes to the next. We are fully engaged, delivering excellent client service every day as MVB grows. And we are poised and equipped to take advantage of any new, viable window of opportunity that we see. For 2011, as part of our overall strategic plan, I believe we must effectively execute in the following six priority areas: 1. Sustain financial strength and stability within an accelerated deposits and loan growth environment. We will continue to aggressively grow quality loans and deposits and build capital. This year, more than ever, we cannot overlook the vital importance of deposits, core and otherwise. I firmly believe a key element for any bank wishing to significantly add value is its ability to grow net deposits, month in and month out. 2. Deliver stronger and more diversified earnings. Earnings are MVB’s lifeblood. Earnings provide a return to our shareholders and allow us to invest in new markets, new projects, and needed improvements. In 2011, we must meet or exceed our revenue targets and reduce risk by further diversifying our earnings stream. This includes achieving profitability in our new business areas. While growing revenues is fundamental, cutting costs is also important; we will continue to reduce waste through reduced duplication and rework. 3. Expand our client base and build deeper client loyalty. To successfully compete and grow, our client service must be second to none. We must continue to be leaders, not followers, in the marketplace. We will fully implement ClientVoice to further enhance our services in 2011, focusing on increasing the products and services each client has at MVB. 4. Ensure support services, technology, and infrastructure drive value. We must match our aggressive growth with a commensurate level of internal support services and infrastructure. We will invest in appropriate technology and tools, and enhance internal compliance, marketing, operations, back office support, and training. 5. Achieve continuous quality improvement and effective planning in all areas of operation. To remain strong and in the lead, we must demonstrate continuous improvement across the bank. That means doing it right the first time, every time. It means proactively seeking out best practices and staying abreast of industry trends and developments. 6. Invest in our workforce to ensure a healthy and productive team. Our teammates—not our brick and mortar—are MVB’s must valuable asset. We will strengthen our attention to personal performance, coaching efforts, succession planning, and remaining competitive in our benefits package. New initiatives include launching a formal Wellness Program and TeamVoice, designed to establish regular two-way communication with all team members. Increasing Shareholder Value In talking with shareholders, MVB Team members, and our clients, I am enthused by the positive energy for the bank and for our commitment to the future. We remain fully focused on increasing shareholder value through planned growth and effective operations. We will continue to climb every mountain we face until we have mastered them all. I look forward in sharing with you our ongoing progress during 2011. Best Regards, Larry F. Mazza President and Chief Executive Officer 3 A summary of key achievements beyond the financials provides further evidence of how well Your Most Valuable Bank performed in 2010: MVB Milestones 1. Increased significantly our commercial lending capacity. An expanded and experienced commercial lending team brought on board in mid-2010. 2. Raised capital. Started in fourth quarter 2010 and completed in January 2011 MVB’s extremely successful stock offering to accredited investors, which resulted in 393,305 MVB shares being placed for $21.00 per share (a total of $8,259,405 of new capital) in record time. I welcome our newest shareholders. 3. Strengthened retail banking presence. As part of our goal to diversify revenues while increasing deposits and potential referrals, we named a bank-wide Vice President for Retail Banking and Client Services. This position has already been focusing on deposits, retail loans, and credit cards, all intended to strengthen our retail banking presence in all markets. Further, we are establishing standards and building consistency across all bank locations. 4. Hired a Chief Compliance Officer and established Bank Compliance Solutions, a compliance support service for community banks. This provides MVB with greater depth in compliance with the regulatory requirements that are ever increasing (e.g., Dodd-Frank). 5. Continued development of correspondent mortgage lending. We made good progress this past year in building strong footholds with our systems and infrastructure to handle effectively our correspondent mortgage lending operations. We are confident 2011 will see additional partners and greater loan volume as we increase our focus in this marketplace. 6. Sustained the value of shares, paid our third annual dividend, and issued a 10% stock dividend. Our stock price increased to $21 a share, which was the offering price of the new stock issued. Further, we paid an annual dividend along with a 10% stock dividend. 7. Continued to improve our corporate governance. We continue our efforts to ensure our Boards are well organized and operating effectively to guide MVB. Part of this was conducting the first annual board assessment process in 2010, which provided additional areas for improvement. 8. Updated our strategic plan “Building Bank Value.” Our plan includes pinpointed performance benchmarks, ranging from asset growth targets to return on equity, for MVB to achieve. 4  & You The Perfect Fit Say goodbye to brokerage fees. Say hello to unlimited access.* MVB Brokerage Buster M(cid:51)(cid:55)(cid:56)V(cid:37)(cid:48)(cid:57)(cid:37)(cid:38)(cid:48)(cid:41)(cid:38)ANK.COM (cid:42)(cid:69)(cid:77)(cid:86)(cid:81)(cid:83)(cid:82)(cid:88)(cid:3)(cid:3)(cid:136)(cid:3)(cid:3)(cid:38)(cid:86)(cid:77)(cid:72)(cid:75)(cid:73)(cid:84)(cid:83)(cid:86)(cid:88)(cid:3)(cid:3)(cid:136) (cid:59)(cid:76)(cid:77)(cid:88)(cid:73)(cid:3)(cid:44)(cid:69)(cid:80)(cid:80)(cid:3)(cid:3)(cid:136)(cid:3)(cid:3)(cid:39)(cid:76)(cid:69)(cid:86)(cid:80)(cid:73)(cid:87)(cid:3)(cid:56)(cid:83)(cid:91)(cid:82)(cid:3)(cid:3)(cid:136)(cid:3)(cid:3)(cid:49)(cid:69)(cid:86)(cid:88)(cid:77)(cid:82)(cid:87)(cid:70)(cid:89)(cid:86)(cid:75)(cid:3) Unlimited access refers to the number of transactions permitted in the MVB Brokerage Buster account. 5 S.R. Snodgrass, A.C. • 980 National Road • Wheeling, West Virginia 26003-6400 • Phone: (304) 233-5030 • Facsimile: (304) 233-3062 6 MVB Financial Corp. Consolidated Balance Sheets (Dollars in thousands, except number of shares) December 31, 2010 and 2009 ASSETS Cash and due from banks Interest bearing balances with banks Certificates of deposit with other banks Investment Securities: Securities held-to-maturity, at cost Securities available-for-sale, at approximate fair value Loans: Less: Allowance for loan losses Net Loans Loans held for sale Bank premises, furniture and equipment Accrued interest receivable and other assets 2010 2009 $ 3,713 10,091 17,734 $ 2,321 3,935 49,442 7,460 61,824 294,044 (2,478) 291,566 1,839 7,579 12,461 6,594 37,292 232,847 (2,241) 230,606 1,764 7,757 13,051 TOTAL ASSETS $ 414,267 $ 352,762 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing Interest bearing Total Deposits Accrued interest, taxes, and other liabilities Repurchase agreements FHLB and other borrowings 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; 1,802,391 and 1,629,971 shares issued respectively Additional paid-in capital Common stock paid for but not issued, par value $1; 90,560 shares Treasury Stock, 47,218 and 23,036 shares, respectively Retained earnings Accumulated other comprehensive loss Total Stockholders' Equity $ 28,449 271,985 300,434 $ 23,493 241,038 264,531 2,703 47,623 28,614 4,124 383,498 1,802 23,864 1,729 (1,006) 4,643 (263) 30,769 2,130 35,641 19,198 4,124 325,624 1,629 20,457 - (522) 5,917 (343) 27,138 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 414,267 $ 352,762 See Notes to Consolidated Financial Statements 7 MVB Financial Corp. Consolidated Statements of Income (Dollars in thousands except Share and Per Share Data) Years ended December 31, 2010 and 2009 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 FHLB and other 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 Gain on sale of securities 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 Consulting fees FDIC insurance Other taxes Other operating expenses Loss on investment impairment 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 2010 2009 $ 13,468 587 1,427 805 16,287 $ 11,844 699 1,197 597 14,337 4,401 474 513 82 5,470 10,817 1,100 9,717 658 265 361 634 88 448 2,454 4,796 590 472 392 295 338 167 130 211 523 190 1,035 - 9,139 3,032 795 4,630 262 533 108 5,533 8,804 785 8,019 770 178 287 616 - 339 2,190 4,241 569 423 531 238 309 174 98 75 444 177 884 186 8,349 1,860 454 $ 2,237 $ 1,406 $1.40 $1.38 1,598,432 1,625,884 $0.88 $0.86 1,601,986 1,628,102 See Notes to Consolidated Financial Statements 8 MVB Financial Corp. Consolidated Statements of Cash Flows (Dollars in thousands) Years ended December 31, 2010 and 2009 OPERATING ACTIVITIES Net Income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Deferred income tax (benefit) Depreciation Stock based compensation Loans originated for sale Proceeds of loans sold Proceeds from sale of other real estate owned (Gain)/loss on sale of other real estate owned (Gain) on sale of investment securities Amortization, net of accretion Loss on investment impairment (Increase) in interest receivable and other assets Increase in accrued interest, taxes, and other liabilities NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES (Increase) in loans made to customers Purchases of premises and equipment Purchases of investment securities available-for-sale Purchases of investment securities held-to-maturity (Increase) in deposits with FHLB and Fed, net Purchases of certificates of deposit with other banks Proceeds from maturity of certificates of deposit with other banks Proceeds from sales, maturities and calls of securities available-for-sale Proceeds from maturities and calls of securities held-to-maturity Purchase of bank owned life insurance NET CASH (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Net increase in deposits Net increase in repurchase agreements Proceeds from FHLB and other borrowings Principal payments on FHLB and other borrowings Purchase of treasury stock Net proceeds of stock offering Cash dividend Common stock options exercised NET CASH PROVIDED BY FINANCING ACTIVITIES Increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period 2010 2009 $ 2,237 $ 1,406 1,100 (144) 447 46 (46,657) 46,582 866 (61) (88) 513 - (409) 573 5,005 (62,060) (269) (69,602) (1,359) (6,156) (16,321) 48,029 45,082 474 - (62,182) 35,903 11,982 205,716 (196,300) (484) 1,729 (160) 183 58,569 1,392 2,321 785 (39) 445 15 (53,353) 52,704 252 27 - 117 186 (3,029) 295 (189) (29,600) (142) (32,542) (4,899) (3,895) (61,489) 19,047 12,851 7,101 (1,000) (94,568) 91,466 13,737 9,000 (21,744) (223) - (160) 292 92,368 (2,389) 4,710 Cash and cash equivalents at end of period $ 3,713 $ 2,321 Supplemental disclosure of cash flow information Cash payments for: Interest on deposits, repurchase agreements and FHLB borrowings Income taxes $ $ 5,623 811 $ $ 5,488 607 See Notes to Consolidated Financial Statements 9 MVB Financial Corp. Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 2010 and 2009 (Dollars in thousands) Common Stock Additional Paid-in Capital Accumulated Other Total Retained Comprehensive Treasury Stockholders' Earnings Income/(loss) Stock Equity Balance, December 31, 2008 $ 1,604 $ 20,175 $ 4,671 $ (315) $ (299) $ 25,836 Comprehensive income: Net Income Other comprehensive income(loss) Net fair value adjustment on securities available for sale, less reclassification adjustment for realized losses - net of tax effect of $(31) Total Comprehensive Income Minimum pension liability adjustment - net of tax effect Cash dividends paid ($0.10 per share) Stock based compensation Treasury stock, acquired at cost Common stock options execised 1,406 1,406 (46) 18 (160) 15 25 267 (223) (46) 1,360 18 (160) 15 (223) 292 Balance, December 31, 2009 $ 1,629 $ 20,457 $ 5,917 $ (343) $ (522) $ 27,138 2,237 2,237 Comprehensive income: Net Income Other comprehensive income(loss) Net fair value adjustment on securities available for sale, less reclassification adjustment for realized gains - net of tax effect of $(167) Total Comprehensive Income Minimum pension liability adjustment - net of tax effect 251 (171) (484) 251 2,488 (171) (160) 1,729 46 - (484) 183 Cash dividends paid ($0.10 per share) (160) Stock offering in process Stock based compensation 1,729 46 Stock dividend - 10% stock dividend 160 3,191 (3,351) Treasury stock, acquired at cost Common stock options execised 13 170 Balance, December 31, 2010 $ 1,802 $ 25,593 $ 4,643 $ (263) $ (1,006) $ 30,769 See Notes to Consolidated Financial Statements 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 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 with original maturities of ninety days or less. Principles of Consolidation The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Management Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates, such as the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from these estimates. Investment Securities Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premium and accretion of discounts computed by the interest method from purchase date to maturity. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale, net of the deferred income tax effect, are recognized as direct increases or decreases in stockholders' equity. Cost of securities sold is recognized using the specific identification method. Loans Held for Sale Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at the lower of cost or market. After thorough review of the process the Company has concluded that no material derivative instruments exist, as the bank obtains pricing information directly from the websites of the secondary mortgage providers and locks in pricing based upon pre-established margins set by management. Loans and Allowance for Loan Losses Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled principal or interest payments are 31 days past due. Interest income on loans is recognized on an accrual basis. The allowance for loan losses is maintained at a level deemed adequate to absorb probable losses inherent in the loan portfolio. The Company consistently applies a quarterly loan review process to continually evaluate loans for changes in credit risk. This process serves as the primary means by which the Company evaluates the adequacy of the allowance for loan losses, and is based upon periodic review of the collectibility of loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of specific and general components. The specific component relates to loans that are impaired. The general component covers non-classified loans and is based upon historical loss experience adjusted for qualitative factors. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and shortages generally are not classified as impaired. Generally the Company considers impaired loans to include loans classified as non-accrual loans and loans past due for longer than 90 days. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Loan Origination Fees and Costs Accounting standards require that loan origination and commitment fees and direct loan origination costs be deferred and the net amount amortized as an adjustment of the related loan's yield. Bank Premises, Furniture and Equipment Bank premises, 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. furniture and equipment are carried at cost 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 $927 and $941 at December 31, 2010 and 2009, 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 $1,816 and $1,911 at December 31, 2010 and 2009, respectively, and is included in other assets in the accompanying balance sheet. Income Taxes Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes. The differences relate principally to accretion of discounts on investment securities, provision for loan losses, minimum pension liability, and differences between book and tax methods of depreciation. Stock Based Compensation The Company accounts for stock-based compensation in accordance with generally accepted accounting standards. Under these standards the Company is required to record compensation expense for all awards granted after the date of adoption and for any unvested options previously granted. Foreclosed Assets Held for Resale Foreclosed assets held for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are recorded at the lower of cost or fair value less estimated selling costs at the time of foreclosure, with any valuation adjustments charged to the allowance for loan losses. Any unrealized gains or losses on sale are then recorded in other non-interest expense. At December 31, 2010 and 2009, the Company held other real estate of $402 and $1,171. 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 The Company accounts for certain endorsement split-dollar life insurance arrangements by recognizing both the cash surrender value of the insurance asset as well as the liability for the death benefit provided to the employee. Reclassifications Certain amounts in the 2009 financial statements have been reclassified to conform to the 2010 financial statement presentation. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 NOTE 2. INVESTMENT SECURITIES Amortized cost and approximate fair values of unrealized gains and losses, are summarized as follows: (Dollars in thousands) investment securities held-to-maturity at December 31, 2010, including gross Municipal securities U. S. Agency securities Amortized Cost Unrealized Gain 6,460 1,000 7,460 $ 27 17 44 $ Unrealized Loss (62) - (62) $ Approximate Fair Value 6,425 1,017 7,442 $ Amortized cost and approximate fair values of unrealized gains and losses, are summarized as follows: investment securities held-to-maturity at December 31, 2009, including gross Municipal securities U. S. Agency securities Amortized Cost Unrealized Gain 5,594 1,000 6,594 $ 16 59 75 $ Unrealized Loss (59) - (59) $ Approximate Fair Value 5,551 1,059 6,610 $ Amortized cost and approximate fair values of investment securities available-for-sale at December 31, 2010 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Fair Value $ $ $ $ U. S. Agency securities Mortgage-backed securities Other securities $ $ $ $ 34,903 26,135 124 61,162 16,122 20,802 124 37,048 453 306 - 759 196 111 - 307 Amortized cost and approximate fair values of investment securities available-for-sale at December 31, 2009 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Fair Value $ $ $ $ U. S. Agency securities Mortgage-backed securities Other securities $ $ $ $ The following tables summarize amortized cost and approximate fair values of securities by maturity: Held to Maturity Available for sale December 31, 2010 Amortized Cost - $ 115 2,609 4,736 7,460 $ Approximate Fair Value - $ 115 2,618 4,709 7,442 $ Amortized Cost - $ 29,324 2,852 28,986 61,162 $ Approximate Fair Value $ - 29,515 2,922 29,387 61,824 $ Within one year After one year, but within five After five years, but within ten After ten Years Total 13 35,280 26,420 124 61,824 16,300 20,868 124 37,292 (76) (21) - (97) (18) (45) - (63) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Investment securities with a carrying value of $66,426 and $24,724 at December 31, 2010 and 2009, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve discount window. The Company's investment portfolio includes securities that are in an unrealized loss position as of December 31, 2010, the details of which are included in the following table. Although these securities, if sold at December 31, 2010 would result in a pretax loss of $159, 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 for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company's ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of December 31, 2010, 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 prospect The following table discloses investments in an unrealized loss position: At December 31, 2010, total temporary impairment totaled $159. Description and number of positions Less than 12 months Fair Value Unrealized Loss 12 months or more Fair Value Unrealized Loss U.S. Agencies (6) Mortgage-backed securities (6) Municipal securities (14) NOTE 3. LOANS $ $ 8,966 8,533 3,782 21,281 (76) (21) (62) (159) $ $ - $ - - $ - $ - - - $ - The components of loans in the balance sheet at December 31, were as follows: (Dollars in thousands) 2010 2009 Changes in the allowance for loan losses were as follows for the years ended December 31: (Dollars in thousands) 2010 2009 $ $ $ $ $ $ $ $ 194,605 86,020 13,324 95 294,044 2,241 (912) 49 1,100 2,478 152,463 67,507 12,914 (37) 232,847 1,860 (453) 49 785 2,241 Commercial and non-residential real estate Residential real estate Consumer and other Net deferred fees and costs Balance at beginning of period Losses charged to allowance Recoveries credited to allowance Provision for loan losses Balance at end of period 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 The following table summarizes the primary segments of the loan portfolio as of December 31, 2010 (in thousands): Commercial Residential Home Equity Installment Credit Cards Total December 31, 2010 Total Loans Individually evaluated for impairment Collectively evaluated for impairment $194,700 $71,686 $14,334 $12,830 $494 $294,044 $393 $197 $262 $0 $4 $856 $194,307 $71,489 $14,072 $12,830 $490 $293,188 Management evaluates individual loans in all of the commercial segments for possible impairment. Loans are considered to be impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Corporation also separately evaluates individual consumer and residential mortgage loans for impairment. Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future future cash flows discounted at the loan's effective interest rate; (b) the loan's observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2010 (in thousands): Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Recorded Investment Related Allowance Recorded Investment Total Impaired Loans Unpaid Principal Balance Recorded Investment $59 165 262 0 4 $490 $20 75 99 0 4 $198 $334 32 0 0 0 $366 $393 197 262 0 4 $856 $393 197 262 0 4 $856 December 31, 2010 Commercial Residential Home Equity Installment Credit Card Total impaired loans The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands): Average investment in impaired loans Interest income recognized on an accrual basis on impaired loans December 2010 $1,901 2009 $2,369 $76 $95 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 loan Management uses a nine point internal risk rating system to monitor the credit quality of the overall portfolio. The first six categories are considered not criticized, and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank's Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships $500,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portolio. The Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2010 (in thousands): December 31, 2010 Commercial Residential Home Equity Installment Credit Card Total Pass $180,568 69,906 13,945 12,424 488 $277,331 Special Mention $8,294 613 99 233 - $9,239 Substandard Doubtful Total $5,446 1,002 262 173 6 $6,889 $392 165 28 - - $585 $194,700 71,686 14,334 12,830 494 $294,044 Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2010 (in thousands): December 31, 2010 Commercial Residential Home Equity Installment Credit Card Total Current 30-59 Days Past Due 60-89 Days Past Due 90 Days + Past Due Total Past Due Non- Accrual Total Loans $193,414 68,529 13,979 12,222 490 $288,634 241 1,761 28 141 - $2,171 - 272 18 158 - $448 $217 143 47 155 - $562 $458 2,176 93 454 - $3,181 $828 981 262 154 4 $2,229 $194,700 71,686 14,334 12,830 494 $294,044 An allowance for loan losses ("ALL") is maintained to absorb losses from the loan portfolio. The ALL is based on management's continuing evaluation of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. the risk characteristics and credit quality of The Bank's methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank's ALL. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Loans that are collectively evaluated for impairment are analyzed with general allowances being made as loss trends are used in the estimation of losses in the current appropriate. For general allowances, historical portfolio. These historical loss amounts are modified by other qualified factors. The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Commercial, Mortgage and Consumer pools currently utilize a rolling 12 quarters. "Pass" rated credits are segregated from "Criticized" credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volume and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industy and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Historically, management has utilized an internally developed spreadsheet to track and apply the various components of the allowance. The following table summarizes the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2010. Activity in the allowance is presented for the year ended December 31, 2010 (in thousands): ALL balance at December 31, 2009 Charge-offs Recoveries Provision ALL balance at December 31, 2010 Individually evaluated for impairment Collectively evaluated for impairment Commercial Residential Home Equity Installment $ 1,717 (547) - 347 $ 204 (57) 36 277 $ 84 (67) 9 181 $ 216 (241) 4 295 Credit Card 20 $ - - - Total $ 2,241 (912) 49 1,100 $ 1,517 $ 460 $ 207 $ 274 $ 20 $ 2,478 $975 $542 $333 $139 $127 $68 $121 $153 $6 $1,574 $14 $904 The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result is representative of the risk found in the components of the portfolio at any given date. in an ALL that 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT Bank premises, furniture and equipment at December 31, were as follows: (Dollars in thousands) 2010 2009 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 $ $ $ $ 7,533 2,893 10,426 (2,847) 7,579 77,970 27,984 161,534 32,431 515 300,434 2010 2009 $ $ $ $ 7,516 2,641 10,157 (2,400) 7,757 60,837 23,123 172,482 7,319 770 264,531 Time deposits of over $100 included above $ 58,661 $ 47,518 Maturities of certificates of deposit at December 31, 2010 were as follows: 2011 2012 2013 2014 2015 Total $ $ 55,472 19,373 10,920 3,042 4,757 93,564 NOTE 6. BORROWED FUNDS The Company is a party to repurchase agreements with certain customers. As of December 31, 2010 and 2009, the company held repurchase agreements of $47,623 and $35,641. Information related to repurchase agreements is summarized below: (Dollars in thousands) 2010 2009 Balance at end of year Average balance during the year Maximum month-end balance Weighted-average rate during the year Rate at December 31 $ 47,623 44,238 55,550 1.07% 1.00% $ 35,641 27,800 46,163 0.94% 0.97% 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, 2010 was approximately $112,194. At December 31, 2010 and 2009 the Bank had borrowed $24,114 and $19,198. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 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 payable in monthly installments of $4, including interest of 5.90% rate note, originating April 2002, due May 2017, Floating interest rate note, originating March 2003, due December 2011, interest payable monthly, including interest of 0.68% Fixed interest rate note, originating July 2006, due July 2016, payable in monthly installments of $8, including interest of 4.50% 2010 2009 $ 1,000 $ 1,000 933 647 14,126 - 1,341 1,012 662 - 1,380 Fixed interest rate note, originating October 2006, due October 2021, payable in monthly installments of $6, including interest of 5.20% 1,089 1,109 Fixed interest payable in monthly installments of $6, including interest of 5.18% rate note, originating April 2007, due April 2022, 1,034 1,051 Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly installments of $5, including interest of 5.22% Fixed interest rate note, originating May 2009, due May 2010, interest of 0.72% payable quarterly Fixed interest rate note, originating November 2009, due May 2010, interest of 0.35% 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 913 - - 1,031 2,000 929 5,000 4,000 1,055 2,000 $ 24,114 $ 19,198 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, 2010 and 2009 and interest expense of $82 and $109 for the years ended December 31, 2010 and 2009. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage- backed securities and certain investment securities. The bank had borrowed $4,500 in overnight funds at the Federal Reserve discount window on December 31, 2010 at a rate of 0.75%. A summary of maturities of these borrowings over the next five years is as follows: Year 2011 2012 2013 2014 2015 Thereafter Amount $ 18,847 232 2,244 1,257 271 9,887 32,738 $ 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) 2010 2009 Available on lines of credit Stand-by letters of credit Other loan commitments 20 $ $ 32,539 758 691 33,988 $ $ 30,814 1,642 529 32,985 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Concentration of Credit Risk The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers throughout the Marion, Harrison, Jefferson and Berkeley County areas of West Virginia and adjacent counties. Collateral for loans is primarily residential and commercial real estate, personal property, and business equipment. The Company evaluates the credit worthiness of each of its customers on a case-by-case basis, and the amount of collateral it obtains is based upon management's credit evaluation. Litigation The subsidiary bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements. NOTE 8. INCOME TAXES Accounting standards require that the Company use an asset and liability approach that requires the recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain items of income and expense, primarily the provision for possible loan losses, allowance for losses on foreclosed assets held for resale, depreciation, and accretion of discounts on investment securities are reported in different accounting periods for income tax purposes. The provisions for income taxes for the years ended December 31, were as follows: (Dollars in thousands) Current: 2010 2009 Federal State Deferred expense(benefit) Federal State Income Tax expense $ $ 773 166 939 $ $ 392 101 493 $ $ $ $ (119) (25) (144) 795 (32) (7) (39) 454 Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31: Tax at Federal tax rate Tax effect of: State income tax Tax exempt earnings Other 2010 2009 Amount $ 1,031 76 (313) 1 795 $ % 34.0% 2.5% -10.3% 0.0% 26.2% Amount $ 632 47 (226) 1 454 $ % 34.0% 2.5% -12.2% 0.0% 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. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 Deferred income tax liabilities and (assets) were comprised of the following at December 31: Depreciation Unrealized loss on securities available-for-sale Pension Gross deferred tax liabilities Allowance for loan losses Minimum pension liability Gross deferred tax (assets) Net deferred tax (asset) 2010 2009 $ $ 299 264 (66) 497 (778) (381) (1,159) $ $ 318 98 45 461 (765) (326) (1,091) $ (662) $ (630) No deferred income tax valuation allowance is provided since it is more likely than not that realization of the deferred income tax asset will occur in future years. NOTE 9. RELATED PARTY TRANSACTIONS The Company has granted loans to officers and directors of the Company and to their associates. Related party loans are made on substantially the same terms, 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. including interest rates and collateral, as those prevailing at (Dollars in thousands) Balance at Beginning of Year Borrowings Repayments Balance at end of Year December 31, 2010 $ 15,067 $ 764 $ (1,836) $ 13,995 December 31, 2009 $ 13,517 $ 2,468 $ (918) $ 15,067 The Company held related party deposits of $11,812 and $10,941 at December 31, 2010 and December 31, 2009, respectively. The Company held related party repurchase agreements of $1,697 and $1,585 at December 31, 2010 and December 31, 2009, 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 $335 and $291 for the years ended December 31, 2010 and 2009. 22 MVB FINANCIAL CORP. December 31, 2010 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, 2010 and 2009 is as follows: (Dollars in thousands) Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Actuarial loss Benefits paid Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Benefits paid Fair value of plan assets at end of year Funded status Unrecognized net actuarial loss Unrecognized prior service cost Prepaid pension cost recognized Accumulated benefit obligation 2010 2009 $ $ 2,389 311 142 243 (26) 3,059 1,575 188 57 (26) 1,794 (1,265) 1,093 7 (165) $ $ $ $ 1,812 259 112 221 (15) 2,389 967 284 339 (15) 1,575 (814) 944 9 139 $ $ $ $ $ $ $ 2,414 $ 1,869 At December 31, 2010 and 2009, the weighted average assumptions used to determine the benefit obligation are as follows: Discount rate Rate of compensation increase 5.50% 3.00% 6.00% 3.00% 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 $ 311 142 (139) 2 44 $ 360 $ 260 112 (116) 2 33 $ 291 At December 31, 2010 and 2009, the weighted average assumptions used to determine net periodic pension cost are as follows: Discount rate Expected long-term rate of return on plan assets Rate of compensation increase 6.00% 8.00% 3.00% 6.25% 8.00% 3.00% The Company's pension plan asset allocations at December 31, 2010 and 2009, as well as target allocations for 2011 are as follows: Asset Category Equity securities Balanced fund Other Total 12/31/2010 59% 31% 10% 100% 12/31/2009 63% 32% 5% 100% 2011 Target 75% 20% 5% 100% 23 MVB FINANCIAL CORP. December 31, 2010 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) Plan Assets 2011 2010 $ - 2 66 $ - 2 44 The fair value of MVB's pension plan assets at December 31, 2010 by asset class are as follows: The following table sets forth by level, within the fair value hierarchy, as defined in Note 18 - Fair Value Measurements, the Plan’s assets at fair value as of December 31, 2010. Level I Level II Level III Total 31-Dec-10 Assets: Cash and cash equivalents Investment in equity securities Investment in debt $ 179 $ 1,059 $ - $ - $ - $ 556 $ - $ - $ - $ 179 $ 1,059 $ 556 Total assets at fair value $ 1,238 $ 556 $ - $ 1,794 Investment in government and debt securities and short-term investments are valued at the closing price reported on the active market on which the individual securities are traded. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 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 01/01/11 through 12/31/11 Estimated future benefit payments reflecting expected future service 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 12/31/2014 1/1/2015 through 12/31/2015 1/1/2016 through 12/31/2020 Cash Flow $ 552,981 $ 67,593 $ 111,246 $ 122,201 $ 131,706 $ 152,643 $ 1,021,841 NOTE 11. INTANGIBLE ASSETS On October 7, 2005, the Company purchased a full service office in the Charles Town area of Jefferson County West Virginia. This office held assets of $1.8 million and total deposits of $17.1 million. As a result of this transaction, the Company recorded intangible assets. As of December 31, 2010 the Company has allocated $31 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. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 NOTE 12. STOCK OFFERING During 2010 the Company began a confidential offering to accredited investors that resulted in the issuance of 393,305 shares of common stock totaling $8.3 million in additional capital. As of December 31, 2010 the Company had received signed offering memoranda and payment for 82,328 shares totaling 1.7 million in additional capital at December 31, 2010. The proceeds of this offering will be used to support current and long-range growth plans of the Company. During 2010 the Company issued 172,420 shares, concluding 2010 with outstanding shares of 1,802,391. A 10% stock dividend declared December 21, 2010 with a record date of January 25, 2011, payable February 15, 2011 resulted in an additional 159,561 shares. NOTE 13. STOCK OPTIONS The MVB Financial Corp. Incentive Stock Plan provides for the issuance of stock options to selected employees. Under the provisions of the plan, the option price per share shall not be less than the fair market value of the common stock on the date of the grant. All options granted prior to 2004 vest in 4 years, and expire 10 years from the date of grant. For options granted in 2004 and 2005 the vesting period has been accelerated to fully vest at December 31, 2005. These options also expire 10 years from the date of the grant. Options granted in 2006, 2007 and 2010 vest in 5 years and expire 10 years from the date of the grant, with the exception of 10,000 shares granted in 2010 that vest in 3 years and expire 10 years from the date of the grant. The following summarizes MVB's stock options as of December 31, and the changes for the year then ended: 2010 Weighted- Average Exercise Price Number of Shares 2009 Weighted- Average Exercise Price Number of Shares Outstanding at beginning of year Granted Adjust for 5% stock dividend Exercised Forfeited/expired Outstanding at end of year Exercisable at end of year 134,658 99,500 $ 15.83 - 161,007 - $ 15.05 - - (12,859) (14,002) - $ - - - (26,349) - - $ - - 207,297 $ 17.88 134,658 $ 15.83 115,297 $ 16.00 124,658 $ 15.81 Weighted-average fair value of options granted during the year $ 3.10 N/A 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 3.28% for 2010, and a weighted average expected life of the options of 7 years for 2010. The expected volatility of MVB's stock price used for 2010 options was 1.26% and the expected dividend yield used was .50%. The following summarizes information concerning MVB's stock options outstanding at December 31, 2010: Options Outstanding Weighted Average Remaining Options Contractual Exercise Price Outstanding Life $16.00 $20.00 $22.50 115,797 81,500 10,000 6.00 10.00 10.00 Weighted Average Exercise Price $16.00 $20.00 $22.50 25 Options Exercisable Weighted Average Exercise Price Number Exercisable 115,297 $16.00 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. December 31, 2010 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 additional 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 under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as defined. As of December 31, 2010 and 2009, the Bank meets all capital adequacy requirements to which it is subject. The most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. Both the Company's and the Bank's actual capital amounts and ratios are presented in the table below. ACTUAL MINIMUM TO BE WELL CAPITALIZED MINIMUM FOR CAPITAL ADEQUACY PURPOSES AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) As of December 31, 2010 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, 2009 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 $ $ 32,582 36,275 11.9% 13.3% N/A N/A $ 27,258 10.0% $ $ 21,807 21,807 8.0% 8.0% $ $ 30,104 33,797 11.0% 12.4% N/A N/A $ 16,355 6.0% $ $ 10,903 10,903 4.0% 4.0% $ $ 30,104 33,797 7.3% 8.2% N/A N/A $ 20,590 5.0% $ $ 16,487 16,472 4.0% 4.0% $ $ 28,780 32,191 11.8% 13.2% N/A N/A $ 24,300 10.0% $ $ 19,440 19,440 8.0% 8.0% $ $ 26,539 29,950 10.9% 12.3% N/A N/A $ 14,580 6.0% $ $ 9,720 9,720 4.0% 4.0% $ $ 26,539 29,950 7.6% 8.6% N/A N/A $ 17,508 5.0% $ $ 14,020 14,007 4.0% 4.0% 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2010 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, 2010: Years ended December 31: 2011 2012 2013 2014 2015 Thereafter Total minimum payments required: (Dollars in thousands) $ 55 55 36 36 36 318 $ 536 Total lease expense for the years ended December 31, 2010 and 2009 was $54 and $54, respectively. NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments. Short-term financial instruments: The carrying values of short-term financial instruments including cash and due from banks, interest bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values. Repurchase agreements: The fair values of repurchase agreements approximate their estimated fair values. Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed. Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into 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. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2010 The carrying values and estimated fair values of the Company's financial instruments are summarized as follows: December 31, 2010 Carrying Value Estimated Fair Value (Dollars in thousands) Financial assets: Cash and due from banks Interest bearing balances with banks Securities available-for-sale Securities held-to-maturity Loans Accrued interest receivable Financial liabilities: Deposits Repurchase agreements FHLB and other borrowings Accrued interest payable Long-term debt Financial assets: Cash and due from banks Interest bearing balances with banks 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 Accrued interest payable Long-term debt $ 3,713 27,825 61,824 7,460 294,044 1,398 396,264 $ $ $ 300,434 47,623 28,614 378 4,124 381,173 $ 3,713 27,878 61,824 7,442 302,277 1,398 404,532 $ $ $ 307,584 47,671 32,305 378 4,124 392,062 December 31, 2009 Carrying Value Estimated Fair Value $ 2,321 53,377 37,292 6,594 232,847 1,074 333,505 $ $ $ 264,531 35,641 19,198 531 4,124 324,025 $ 2,321 53,484 37,292 6,772 233,313 1,074 334,256 $ $ $ 263,840 35,712 20,427 531 4,124 324,634 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. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2010 NOTE 18. FAIR VALUE MEASUREMENTS Accounting standards require that the Company adopt fair value measurement for financial assets and financial liabilities. This enhanced guidance for using fair value to measure assets and liabilities applies whenever other standards require or permit assets or liabilities to be measured at fair value. This guidance does not expand the use of fair value in any new circumstances. Accounting standards establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by these standards are as follows: Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of December 31, 2010 by level within the fair value hierarchy. As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company classified investments in government securities as Level 2 instruments and valued them using the market approach. (In Thousands) Assets: U.S. Government Agency Securities Mortgage backed Securities Other Securities Total December 31, 2010 Level I Level II Level III Total 35,280 26,420 124 61,824 35,280 26,420 124 61,824 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, 2010 and 2009, and the related statements of income and cash flows for each of those years are presented below: (Dollars in thousands, except share data) Balance Sheets Assets December 31 2010 2009 Cash Investment in bank subsidiary, eliminated in consolidation Other assets Total assets Liabilities and shareholders' equity Liabilities Other liabilities Long-term debt Total liabilities $ 1,779 $ 399 32,733 385 34,897 $ 4 $ 4,124 4,128 29 30,548 319 31,266 $ 4 $ 4,124 4,128 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2010 Stockholders' equity Preferred stock, par value $1,000; 5,000 shares authorized, none issued Common stock, par value $1; 4,000,000 shares authorized; 1,802,391 and 1,629,971 shares issued respectively Additional paid in capital Common stock paid for but not issued, par value $1; 82,328 shares issued 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 (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 (loss)/gain Net cash (used in) operating activities INVESTING ACTIVITIES Investment in subsidiary Net cash provided by/(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 (used in)/provided by financing activities Increase/(decrease) in cash Cash at beginning of period $ - $ - 1,802 23,864 1,729 (1,006) 4,643 (263) 30,769 34,897 $ 2010 - $ 176 (176) (67) (109) 1,629 20,457 - (522) 5,917 (343) 27,138 31,266 $ 2009 - $ 163 (163) (62) (101) 2,346 2,237 $ 1,507 1,406 $ 2010 2009 $ 2,237 $ 1,406 (2,346) (66) - 46 80 (49) 161 161 1,729 - 183 (160) (484) 1,268 1,380 399 (1,507) (62) (3) 15 (28) (179) 301 301 - - 292 (160) (223) (91) 31 368 Cash at end of period $ 1,779 $ 399 30 DDIRECTORS MMVB Financial Corp. Stephen R. Brooks Dr. Joseph P. Cincinnati Berniece D. Collis Harvey M. Havlichek James R. Martin Larry F. Mazza Barbara A. McKinney Dr. Saad Mossallati Dr. Kelly R. Nelson Leonard W. Nossokoff J. Christopher Pallotta Nitesh S. Patel Louis Spatafore Wayne H. Stanley Richard L. Toothman Dr. Michael F. Trent Samuel J. Warash MMVB Bank Stephen R. Brooks Dr. Joseph P. Cincinnati Berniece D. Collis Harvey M. Havlichek James R. Martin Larry F. Mazza Barbara A. McKinney Dr. Saad Mossallati Dr. Kelly R. Nelson Leonard W. Nossokoff J. Christopher Pallotta Nitesh S. Patel Louis Spatafore Wayne H. Stanley Richard L. Toothman Dr. Michael F. Trent Samuel J. Warash MMVB Central David B. Alvarez Stephen R. Brooks Dr. Joseph P. Cincinnati Berniece D. Collis John W. Ebert Dr. Carl R. Fischer Harvey M. Havlichek Christine B. Ielapi James R. Martin Larry F. Mazza Barbara A. McKinney Dr. Saad Mossallati Dr. Kelly R. Nelson Leonard W. Nossokoff J. Christopher Pallotta Nitesh S. Patel John B. Spadafore Louis Spatafore Wayne H. Stanley Richard L. Toothman Dr. Michael F. Trent Roger J. Turner Samuel J. Warash MMVB East Dr. Joseph P. Cincinnati Berniece D. Collis Dr. Brian D. Gilpin Maria K. Lorensen Kenneth F. Lowe James R. Martin Larry F. Mazza G. Warren Mickey J. Christopher Pallotta Christopher B. Shultz 31 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 December 15, 2009 December 31, 2009 December 15, 2010 December 31, 2010 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 Cash dividend 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 0.10 Per share 20.00 Per share 0.10 Per share 21.00 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. 32 MVB Financial Corp. 301 Virginia Avenue Fairmont, West Virginia 26554 Phones: 304-363-4800; 1-888-689-1877 (cid:129) www.mvbbanking.com 

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