MVB Financial Corp
Annual Report 2012

Plain-text annual report

2012 Annual Report Charles Town, WV Setting the Pace 301 Virginia aVenue • Fairmont, West Virginia 26554 • 304.363.4800 • 1.888.689.1877 • mVbbanking.com Welcome to MVB MVB Financial Corp. is the financial holding company for MVB Bank, Inc. We provide community banking services in the Berkeley, Harrison, Jefferson, Marion and Monongalia Counties of West Virginia. With our 2012 acquisition of Potomac Mortgage Group, MVB has expanded into the Northern Virginia/Washington, D.C. region as well. We offer a wide range of deposit products including checking, money market, savings accounts, our enhanced Most Valuable Checking and Savings accounts, and certificates of deposit. In addition, our new Wealth Management Solutions provides clients with an added level of service for their money management needs. MVB is an active business partner when it comes to commercial and consumer loans, offering an array of loan products for commercial development and real estate, capital needs, as well as personal loans, residential real estate loans, home equity lines of credit, and construction mortgages. We offer many other personalized and automated services in our branch locations, online and by phone. MVB commenced operations in 1999 and is based in Fairmont, West Virginia. Most importantly, we consider the communities we serve and our relationships with all of our clients to be our most valuable assets. Visit us at mvbbanking.com. Vision, Mission & Values VISION A valued partner in growing strong communities MISSION A proactive community partner providing quality financial products and services that go beyond a typical bank through recognized extraordinary service and valued relationships On the Cover VALUES Extraordinary Service Integrity Accountability Teamwork Respect Honesty Community Our expansion in West Virginia’s Eastern Panhandle as well as into the Northern Virginia market is symbolized on our cover with an image of the rich thoroughbred breeding and racing tradition. The spirited competitiveness, mighty strength, high quality and hard work exhibited in thoroughbred breeding and racing, is emblematic of MVB’s focus on profitable quality growth and forward progress. ‘Aaron’s Way,’ ridden by Mathew McGowan, Winner of the Coin Collector Handicap at Charles Town Races and Slots in Charles Town, West Virginia on June 18, 2011. Trained by Chris Keller (Ryan Lasek / Eclipse Sportwire) ) s d ) s n d a n s a u s o u h o t h ( t ( $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $- $- ) s d ) s n d a n s a u s o u h o t h ( t ( $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $- $- $800,000 $800,000 $600,000 $600,000 $400,000 $400,000 $200,000 $200,000 ) s d ) s n d a n s a u s o u h o t h ( t ( $- $- ) s d ) s n d a n s a u s o u h o t h ( t ( $5,000 $5,000 $4,000 $4,000 $3,000 $3,000 $2,000 $2,000 $1,000 $1,000 $- $- $200,000 $173,065 $300,434 $264,531 ) s d n a s u o h t ( $500,000 $400,000 $300,000 $100,000 $- Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 $486,519 $390,545 Total Deposits Selected Financial Highlights $500,000 $446,442 Total Loans In each of the past five years, MVB has posted progressive increases in these selected indicators of growth and development. The graphs below depict the strength of MVB’s performance in the communities we serve. MVB’s $203,241 $232,847 $390,545 $390,545 $300,434 $300,434 $373,822 $294,044 $486,519 $486,519 total deposits increased by 25 percent compared to 2011. Total assets grew by 36 percent, on a 19 percent increase ) s d n a s u o h t ( $400,000 $300,000 Total Deposits $200,000 Total Deposits $100,000 $264,531 $264,531 $173,065 $173,065 in total loans during 2012. Net income increased by 54 percent from the previous year. Overall performance in 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 $- includes results for Potomac Mortgage Group acquired in the fourth quarter. Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 LOANS $800,000 DEPOSITS $726,769 Total Assets $446,442 $446,442 $373,822 $373,822 $294,044 $294,044 $203,241 $203,241 $232,847 $232,847 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 $500,000 $600,000 Total Loans Total Loans ) s d n a s u o h t ( ) s d n a s u o h t ( $400,000 $400,000 $300,000 $200,000 $200,000 $533,481 $486,519 $414,267 $390,545 $352,762 $264,531 $300,434 $258,706 $173,065 Total Deposits $- $100,000 $- Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 ASSETS NET INCOME $726,769 $726,769 $533,481 $533,481 $414,267 $414,267 $352,762 $352,762 $258,706 $258,706 $500,000 $5,000 Total Assets Total Assets $4,000 $400,000 ) s d n a s u o h t ( ) s d n a s u o h t ( $300,000 $3,000 $200,000 $2,000 $100,000 $1,000 $203,241 $232,847 $1,406 $828 $446,442 $4,168 Total Loans $373,822 $2,702 $294,044 $2,237 Net Income Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 $- $- Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Following a record high stock price at the end of 2012, MVB’s stock has outperformed the S&P 500 and the $726,769 $800,000 Total Assets major bank index KBW with a compounded annual growth rate of 9.0%. $600,000 $4,168 $4,168 MVB STOCK PERFORMANCE VS. S&P 500 & KBW BANK INDEX $258,706 $2,702 $2,702 $400,000 ) s d n a s u o h t Net Income ( $200,000 Net Income $533,481 $414,267 $352,762 $2,237 $2,237 $1,406 $1,406 $30,000 $828 $828 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 $25,000 1 0 0 2 r e b m e c e D n i d e t s e v n I 0 0 0 , 0 1 $ f o e u a V l $20,000 $15,000 $10,000 $5,000 $ $- Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 MVB $25,738 9.0% $5,000 $4,000 $3,000 $2,000 ) s d n a s u o h t ( $1,000 $828 S&P 500 $12,966 2.4% $4,168 $1,406 $2,702 $2,237 KBW Bank Index $6,287 -4.1% Net Income Growth rate is calculated as the compound annual growth rate using end of December stock prices and index values unless otherwise noted. Stock and cash dividends are included for MVB. (Source: MVB documents; Yahoo! Finance for S&P 500 and KBW Bank Index) Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 2001 2002 2003 2004 2005 2006 2007 $- 2008 2009 2010 2011 2012 2012 Annual Report n 1 Setting the Pace Dear Shareholders, Teammates & Friends: Everywhere we look, it is clear 2012 was another great year for MVB, Your Most Valuable Bank. We achieved significant milestones for the fourth consecutive year of record-setting financial performances. We greatly enhanced the value of our products, services, delivery channels and technology. We continued to strengthen MVB’s brand and position in our existing and new markets for long-term success. And we remained committed to supporting the financial needs and opportunities for our clients and their communities. A WINNINg P ERFORMANCE Our values, strategy, commitment and execution Larry F. Mazza, CEO are best shown by the bottom line performance we delivered for fiscal year 2012. As outlined in the full financials section of this report, and separately shown graphically, MVB had a strong and highly productive year. Summary highlights include: • Net income increased $1.5 million, or by 54.3%, compared to 2011. • Loans increased $72.6 million, 19.4% more than the previous year. • Total assets increased $193.3 million, up 36.2% from the year ago period, mainly as a result of the increased loan and investment portfolios. • Total deposits increased $96 million, a 24.6% increase over last year. • Stockholders’ equity increased $19.8 million, 41.5% higher compared to a year ago. “ At every level, 2012 was another remarkable year of excellent results for MVB, a testament to our business model, client satisfaction and our talented team. ” Our strong pace of growth and development continues, especially with regard to the quality of our growth. While our growth initiatives are being recognized by clients, news media and others, we remain focused on the tasks ahead for further development and expansion of MVB’s brand of community banking in 2013 and beyond. MVB’s record stock price at year-end showed continued positive momentum with an average of approximately nine percent annual return over the past decade. Further evidence of our progress is the success of MVB’s Dividend Reinvestment Program (DRIP) launched this past year, which had a 30 percent participation rate compared to the U.S. average of 10 percent. ADDINg CAPITAL The private stock offering, initiated during the fourth quarter of 2012, has been well-received and successful to date in meeting our funding objectives. Both new and existing shareholders have invested in MVB at significant levels, which further builds our capital position. We truly appreciate the overwhelming acceptance of our capital program and the confidence placed in MVB’s future. Our plan calls for raising additional capital needed to support ongoing growth plans. 2 n Setting the Pace STRONg, SuSTAINABLE gROWTH A truly game-changing event for MVB took place in the final quarter of 2012 – the acquisition of Potomac Mortgage Group (PMG). This is an excellent strategic partnership that is immediately accretive to our earnings in addition to expanding our footprint into the prosperous, strong economy of the Northern Virginia/ Washington, D.C. market. Under the leadership of CEO Ed Dean, PMG has been recognized as one of the top mortgage lending companies in the country. It brings a wealth of best practices, especially in sales and loan “ We are confident that combining modern banking convenience in a hometown fashion with high-quality personal service will serve our clients and shareholders very well in the years to come. ” operations, to MVB that will further enhance our recent record-breaking mortgage lending performance. I am pleased that Ed Dean and his team are bringing their expertise and client relationships to MVB and are fully committed to further growing MVB’s mortgage production and expansion of our banking operations into PMG’s markets. MVB’s organic growth continues to advance, with the new Clarksburg branch setting internal growth records of branch opening performance. Morgantown’s Sabraton branch opened this March, with Martinsburg’s new Edwin Miller Boulevard location’s refurbishing on schedule for opening later in 2013. We also took another significant growth step with our plan to enter the Greater Kanawha Valley market to our south. The design for this new facility is well under way on MVB’s property in Charleston’s downtown district. I’m pleased to welcome to the MVB Family those new shareholders from the south to lead our presence in the Capital City. LEADINg WITH SKILLED T ALENT Looking back, a year of notable achievements was made possible by the extraordinary efforts of our talented, hard-working team which is focused daily on making banking with MVB easier, more convenient, and more rewarding than ever for our clients. We are motivated by being one of the few truly local, community-centered banks, and we are receiving a positive response from clients and prospective clients who believe that their connection with a local bank is important. We are confident that combining modern banking convenience in a hometown fashion with high-quality personal service will serve our clients and shareholders very well in the years to come. uNPARALLELED SERVICE TO CLIENTS & COMMuNITIES As the old adage goes, “…a satisfied client is the best form of advertising.” Feedback from our clients tells us that MVB Team members at all levels are working hard to achieve an extraordinary level of client satisfaction. Thanks to our entire team for representing MVB’s special brand of community banking by maintaining superior client ratings and remaining the bank of choice in our markets. A focus on nurturing client relationships will continue to be a top priority in the years to come as we know we cannot rest when it comes to continuous improvement of our service quality in all aspects of client satisfaction and operations. On the community front, in addition to our mission of hometown local banking, our commitment to community service remains deeply embedded in our culture. We encourage and appreciate the volunteerism of so many of our team members. In addition, we continue to support charitable causes important to the communities we serve. (See more about our community commitment inside this report.) 2012 Annual Report n 3 2012 Annual Report n 3 gOINg FROM gOOD TO gREAT As we summarize the past year and take measured pride in our achievements, we are also taking aim at bigger and bolder goals for future years. We must keep pace with competition, regulation and an entrepreneurial attitude in order to sustain what has been a very healthy growth trend for MVB. Our priorities for 2013 include: 1. Overall growth with Quality Our growth path will continue to be a top priority, from continuing organic expansion to seeking additional acquisitions. This will include continued development of our processes for identifying, seeking and integrating new branches and right fit acquisitions into the MVB business model. We also must take advantage of opportunities that allow us ways to leverage what we already have. “ As we enter 2013, we remain fully focused on delivering strong results, while investing to ensure that our long-term performance is sustainable. ” 2. Deposit growth Quality growth is more than mere words; it is a non-negotiable goal for our team. We will never compromise on quality when considering expansion—organically or through acquisition. We firmly believe we can hold to a high quality standard for client service and value while meeting our profitability goals. When all is said and done, we see many excellent opportunities to advance our brand of community banking in all of our regions, including the Eastern Panhandle and Northern Virginia. Growing deposits is a staple of our business and remains absolutely critical to our success. With a major demand for deposit growth, we are focused on acquiring the type of core deposits that bring value to our clients and that are manageable. This is an area which requires vigilant leadership and constant identification of specific deposit growth strategies that lead to success. Some of these programs we seek to improve include: MVB@Work, increasing sales in Treasury Services and strongly promoting MVB’s Most Valuable Checking and Most Valuable Savings accounts. 3. Loan growth Loan growth, along with deposit growth, represents the heart of our business. Although retail mortgage lending has increased significantly for MVB, commercial lending remains clearly in our focus as we grow. We’re set on sustaining our high credit quality standards and expanding our reach into the small business loan segment. Along with retail banking, commercial and mortgage lending will be important contributors to future revenue. We have continued to do well in loan growth, and with the added lenders from PMG, especially in mortgage, we should continue to see increases in the number of loans we process and service. What is important in this regard is for us to ensure that we have quality loans and with clients who will establish a relationship with MVB that allows us to offer them our core products and services. Connected to our strength in lending is the opportunity to cross-sell, grow and leverage our existing strong referral networks. 4. Non-Interest Income growth Community banks that successfully diversify their revenue streams are most often able to achieve their ambitious growth goals. I am committed to increasing MVB’s non-interest income in 2013. To do so, areas that we need to execute with precision include mortgage loan servicing and a broader offering of all types of insurance including title insurance. Along with these products and services, we must continue to aggressively grow our personal approach to Wealth Management Solutions, especially in the trust services area. I believe it is vital to our overall performance that we increase the percentage of revenues gained from these types of non-interest income sources. 4 n Setting the Pace 5. Capabilities Excellence Key to our growth in 2013 is the ability to further build and strengthen our internal business operations, including a stronger compliance effort and more effective project management. MVB’s internal capabilities are important to building and opening new branches, especially regarding day-to-day execution of client services. I am committed to retaining and attracting the best talent to help every operational area of our organization to enhance internal capacity and achieve their goals with quality and a sense of urgency. 6. Internal Efficiency As MVB grows so does the cost of operations; however, with size comes the opportunity for efficiencies. Historically, my efforts have leaned more toward building revenue. We will balance this approach in 2013 as our focus will be equally on revenue growth and cost savings. This will include looking at ways to improve overall quality and processes that will enhance the client experience and relationships while driving down costs of operations. STAyINg ON TRACK In 2012, we showed resolve and discipline, like an athlete or jockey that successfully maneuvers to maintain the lead. We will not let up in 2013. We are committed to optimizing long-term return to our shareholders while providing a safe and sound investment. This commitment extends to supporting the causes and programs important to the communities we serve. I am appreciative for the support and expertise of our past and “ We remain fully committed to our growth with quality strategy and we are confident that it is on target to deliver progressive, profitable growth for MVB. ” present members of MVB’s Board of Directors who, on behalf of all our shareholders, have entrusted me and our excellent management team to drive MVB’s growth as a successful leading community bank. We are focused, first and foremost, on developing great client relationships, and increasing shareholder value through quality growth and improved operational processes. We are on track to achieve our 2013 goals, and I look forward to sharing this progress along the way. On behalf of all of MVB, I extend heartfelt thanks for your continued business, loyalty and support. With Gratitude, Larry F. Mazza, Chief Executive Officer MVB Financial Corp. 2012 Annual Report n 5 2012 Annual Report n 5 2012 Milestones • At the end of 2012, MVB reached total assets of $726.7 million and a record profit of approximately $4.2 million, both highest in MVB’s history. • MVB’s acquisition of Potomac Mortgage Group, recognized as one of the top mortgage lending companies in the country, will greatly enhance MVB’s existing mortgage lending, which saw strong growth unto itself in 2012. The acquisition was immediately accretive, thus adding to MVB’s earnings. • The year finished with a record high $24 per share value for MVB stock. • A new branch opened in November in Clarksburg, W. Va., at the site of the legendary Empire Bank building, the first bank to open in the city in more than 15 years. Clarksburg was also a record opening for deposits for any MVB branch to date. • Bank capital was significantly increased by an additional $13.7 million from a highly successful private stock offering in which existing and new shareholders invested in MVB’s growth plan. • MVB successfully implemented a major transition to a more robust online banking capability during 2012. • A new MVB location was selected in Martinsburg on Edwin Miller Boulevard, while construction at Morgantown’s Sabraton location was completed and opened in March 2013. • MVB announced plans to enter the Charleston, W. Va., market through land purchase and initial design work on a new four-story downtown facility. In addition, MVB gained new shareholders in Charleston to help prioritize the bank’s presence in West Virginia’s Capital City. • A stockholder Dividend Reinvestment Program (DRIP) initiated in early 2012 resulted in more than 30 percent of current investors participating in generating new capital for the bank. • Semi-annual cash dividends were initiated during 2012 for a total of .14 cents, representing a 40 percent increase over the 2011 dividend payout. • MVB continued to earn the 5-Star Superior rating from Bauer Financial, Inc., the nation’s leading bank rating and research firm. This third party recognition is an industry-wide acknowledgment placing MVB in a special group of banks that qualify because of their safety, soundness and financial strength. • Deposit growth continues through core checking and savings products, as well as a new MVB@Work program and expanded Treasury Services to businesses. • Wealth Management Solutions, MVB’s financial and investment advisory service, completed its first year by successfully building a strong asset base and solid deposit referrals. • An additional 150 people joined MVB during the past year through organic growth and the PMG acquisition. 6 n Setting the Pace Present MVB Branches Future MVB Branches PMG Locations Dominance in the Virginias: Welcome New Branches & Potomac Mortgage group MVB’s organic growth continues to advance across West Virginia, and now into the lucrative northern Virginia/Washington, D.C. region. In West Virginia, our new Downtown Clarksburg branch opened in November 2012, setting internal records for branch performance. In 2013, the growth continues with the opening of Morgantown’s Sabraton branch in the spring, and a new branch set to open in Charleston’s downtown district, giving MVB a presence in the Greater Kanawha Valley. In addition, Martinsburg’s new Edwin Miller Boulevard location is undergoing refurbishment for opening later in 2013. MVB Market Presence 2013-2014 Sabraton Cheat Lake Fairmont White Hall Bridgeport Martinsburg Present MVB Branches Future MVB Branches PMG Locations Sabraton Cheat Lake Fairmont Clarksburg Clarksburg Martinsburg White Hall Bridgeport WEST VIRGINIA Charleston Edwin Miller Blvd. Charles Town WEST VIRGINIA Charleston Reston McLean VIRGINIA Fairfax Edwin Miller Blvd. Charles Town Reston McLean VIRGINIA Fairfax In December 2012, MVB enhanced its already record-breaking mortgage division with the acquisition of the Potomac Mortgage Group (PMG). Combined with MVB’s mortgage business, the bank’s total mortgage production rose to $1 billion. The PMG team of 68 employees, including an outstanding group of professional mortgage lenders, a state-of-the-art technology platform and an additional 30 employees through PMG’s joint venture operations center, became part of one of West Virginia’s fastest growing banks and a key complement to our already strong mortgage business. In 2012, the PMG service region included offices in the northern Virginia communities of Fairfax, McLean and Reston, an affluent area of high opportunity for growth for MVB. PMG is ranked among the prestigious ‘Top 100’ Mortgage Companies in America by Mortgage Executive Magazine. 2012 Annual Report n 7 MVB Cares About Our Communities Being a truly local bank doesn’t just mean we’re doing business in the communities we serve. It means we’re involved. Whether it’s little league baseball, high school sports, helping to teach financial literacy to young people or cheering on the Mountaineers, MVB strives to be an engaged partner in helping communities to become better places to live, work and play. We appreciate the people and businesses we serve and the causes that are important to them. Whether it is one of our managers or tellers volunteering for a local charity, organizing a fundraising event or the bank’s financial contributions to support local organizations, we see ourselves as a valued partner in growing strong communities. MVB is locally-owned. Members of our Board of Directors live in the communities we serve. They are essential partners in many of our relationships throughout the state of West Virginia and beyond. Our MVB teammates play an active role in the community. We understand the responsibility that comes with being a good neighbor. Community development is important to our collective future. We make decisions locally that are based on the needs and knowledge of each local market area. As a true community bank, MVB believes in supporting our communities in every way possible – through local job creation, supporting local organizations, paying local taxes, promoting the growth of small business through low interest loans and investing our assets in the local homes and businesses in these same communities. We are extremely proud of our community bank heritage and the vital role we play in our markets. We consider the communities we serve and our relationships with all of our clients to be our most valuable asset. 8 n Setting the Pace 2012 Annual Report n 9 MVB Financial Corp. & Subsidiaries Consolidated Balance Sheets MVB Financial Corp. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except number of shares) December 31, 2012 and 2011 (Dollars in thousands, except number of shares) December 31, 2012 and 2011 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 Bank owned life insurance Accrued interest receivable and other assets Goodwill 2012 2011 $ 21,637 3,703 9,427 $ 9,763 278 9,918 35,370 79,502 446,443 (4,076) 442,367 85,529 11,354 10,524 9,734 17,622 13,568 99,366 373,822 (3,045) 370,777 7,147 7,782 8,076 5,909 897 TOTAL ASSETS $ 726,769 $ 533,481 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing Interest bearing Total Deposits Accrued interest, taxes, and other liabilities Repurchase agreements FHLB and other borrowings Subordinated debt Total Liabilities STOCKHOLDERS' EQUITY Preferred stock, par value $1,000; 8,500 and 8,500 shares authorized; 8,500 and 8,500 shares issued Common stock, par value $1; 4,000,000 shares authorized; 2,932,901 and 2,234,767 shares issued respectively Additional paid-in capital Treasury Stock, 51,077 and 51,077 shares, respectively Retained earnings Accumulated other comprehensive loss Total Stockholders' Equity $ 54,620 431,899 486,519 $ 38,632 351,913 390,545 6,726 70,234 91,617 4,124 659,220 3,478 77,835 9,767 4,124 485,749 8,500 8,500 2,933 48,750 (1,084) 9,945 (1,495) 67,549 2,235 32,603 (1,084) 6,220 (742) 47,732 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 726,769 $ 533,481 10 n Setting the Pace See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Consolidated Statements of Income MVB Financial Corp. and Subsidiaries Consolidated Statements of Income (Dollars in thousands except Share and Per Share Data) (Dollars in thousands, except Share and Per Share Data) Years ended December 31, 2012 and 2011 Years ended December 31, 2012 and 2011 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 subordinated 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 Gain on derivative 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 Income before income taxes Income tax expense Net Income Preferred dividends 2012 2011 $ 19,105 204 1,457 1,488 22,254 $ 16,446 103 1,539 920 19,008 3,866 511 466 87 4,930 17,324 2,800 14,524 730 343 471 3,850 638 72 1,645 7,749 9,266 852 717 612 387 647 396 200 1,022 302 183 1,855 16,439 5,834 1,666 3,852 503 464 81 4,900 14,108 1,723 12,385 660 287 414 957 833 - 537 3,688 6,717 697 594 412 332 482 632 172 408 368 175 1,370 12,359 3,714 1,012 $ 4,168 $ 2,702 136 44 Net Income available to common shareholders $ 4,032 $ 2,658 Basic net income per share after preferred dividends Diluted net income per share after preferred dividends Basic weighted average shares outstanding Diluted weighted average shares outstanding $1.84 $1.79 2,194,325 2,254,617 $1.24 $1.21 2,147,890 2,194,410 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 2012 Annual Report n 11 MVB Financial Corp. & Subsidiaries Consolidated Statements of Comprehensive Income MVB Financial Corp. and Subsidiaries Consolidated Statements of Comprehensive Income (Dollars in thousands) (Dollars in thousands) Years ended December 31, 2012 and 2011 Years ended December 31, 2012 and 2011 Net Income Other comprehensive income Securities available for sale not other than temporarily impaired: Unrealized holding gains/(losses) during the year Income tax effect Reclassification adjustment for gain recognized in income Income tax effect Minimum pension liability adjustment Income tax effect Other comprehensive income Comprehensive income December 31 2012 2011 4,168 2,702 (996) 398 638 (255) (898) 360 (753) (737) 295 833 (333) (895) 358 (479) 3,415 2,223 See Notes to Consolidated Financial Statements 12 n Setting the Pace See Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity MVB Financial Corp. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands) (Dollars in thousands) Years ended December 31, 2012 and 2011 Years ended December 31, 2012 and 2011 Balance, December 31, 2010 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 $(38) Minimum pension liability adjustment - net of tax effect of $358 Total other comprehensive (loss) Cash dividends paid ($0.10 per share) Dividends on preferred stock Stock offering Preferred stock issued Stock based compensation Stock dividend - 10% stock dividend Treasury stock acquired at cost Balance, December 31, 2011 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 $143 Minimum pension liability adjustment - net of tax effect of $360 Total other comprehensive (loss) Cash dividends paid ($0.14 per share) Dividends on preferred stock Stock offering in process Dividend reinvestment plan proceeds Stock based compensation Stock issuance from acquisition Treasury stock, acquired at cost Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income/(loss) Treasury Stock Total Stockholders' Equity $ - $ 1,802 $ 25,593 $ 4,643 $ (263) $ (1,006) $ 30,769 2,702 (218) (44) (6) (37) (820) 2,702 58 (537) (479) (218) (44) 6,500 8,463 117 - (78) 58 (537) (78) 8,500 394 39 6,112 117 781 $ 8,500 $ 2,235 32,603 $ 6,220 $ (742) $ (1,084) $ 47,732 4,168 4,168 573 42 83 13,161 931 138 1,917 (307) (136) - (215) (538) (215) (538) (753) (307) (136) 13,734 973 138 2,000 - - Balance, December 31, 2012 $ 8,500 $ 2,933 $ 48,750 9,945 $ (1,495) $ (1,084) $ 67,549 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 2012 Annual Report n 13 MVB Financial Corp. & Subsidiaries Consolidated Statements of Cash Flows MVB Financial Corp. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) Years ended December 31, 2012 and 2011 (Dollars in thousands) Years ended December 31, 2012 and 2011 OPERATING ACTIVITIES Net Income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses Deferred income tax (benefit)/expense Depreciation Stock based compensation Loans originated for sale Proceeds of loans sold (Gain) on sale of loans held for resale Loss on sale of other real estate owned (Gain) on sale of investment securities Amortization, net of accretion (Gain) on derivatives (Increase) in interest receivable and other assets Increase in accrued interest, taxes, and other liabilities NET CASH (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES (Increase) in loans made to customers Purchases of premises and equipment Purchases of investment securities available-for-sale Purchases of investment securities held-to-maturity (Increase)/decrease in deposits with 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 Proceeds from sale of other real estate owned Branch acquisition, net of cash acquired Purchase of bank owned life insurance NET CASH (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Net increase in deposits Net (decrease)/increase in repurchase agreements Proceeds from FHLB and other borrowings Principal payments on FHLB and other borrowings Purchase of treasury stock Net proceeds of stock offering Cash dividend Dividend reinvestment plan proceeds Issuance of preferred stock Dividends on preferred stock NET CASH PROVIDED BY FINANCING ACTIVITIES Increase in cash and cash equivalents Cash and cash equivalents at beginning of period 2012 2011 $ 4,168 $ 2,702 2,800 (144) 533 138 (160,367) 145,633 (3,415) 10 (638) 1,240 (72) (1,911) 1,384 (10,641) (74,390) (3,859) (61,207) (22,046) (3,425) - 491 80,240 115 215 (15,646) (2,105) (101,617) 95,974 (7,601) 159,984 (138,489) - 13,734 (307) 973 - (136) 124,132 11,874 9,763 1,723 147 466 117 (62,647) 58,236 (897) 73 (833) 886 - (1,489) 775 (741) (80,934) (669) (249,771) (7,361) 9,813 (9,918) 17,734 212,300 1,225 373 - (2,100) (109,308) 90,111 30,212 80,104 (98,951) (78) 6,500 (218) - 8,463 (44) 116,099 6,050 3,713 Cash and cash equivalents at end of period $ 21,637 $ 9,763 Supplemental disclosure of cash flow information Loans transferred to other real estate owned $ 284 $ 284 Cash payments for: Interest on deposits, repurchase agreements and FHLB borrowings Income taxes $ $ 4,922 1,184 $ $ 4,958 1,101 Non-cash investing activity Issuance of stock in acquisition 14 n Setting the Pace $ 2,000 $ - See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly owned subsidiaries. All The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly owned subsidiaries. All The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make 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 and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of 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 revenues and expenses during the reporting period. Estimates, such as the allowance for loan losses, are based upon known facts and 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 circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from these circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from these The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates estimates. estimates. 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 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 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 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 circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from these amortization of premium and accretion of discounts computed by the interest method from purchase date to maturity. Other marketable securities amortization of premium and accretion of discounts computed by the interest method from purchase date to maturity. Other marketable securities 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 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 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 income tax effect, are recognized as direct increases or decreases in stockholders' equity. Cost of securities sold is recognized using the specific income tax effect, are recognized as direct increases or decreases in stockholders' equity. Cost of securities sold is recognized using the specific identification method. identification method. identification method. 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 Investment Securities Investment Securities 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 MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas being the Marion, Harrison, Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio management MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas being the Marion, Harrison, Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio management 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 Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at fair value. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES December 31, 2012 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES and deposit growth, are directly affected by the market area economies. Cash and cash equivalents include cash and due from banks with original maturities of ninety days or less. and deposit growth, are directly affected by the market area economies. significant intercompany accounts and transactions have been eliminated in consolidation. Cash and cash equivalents include cash and due from banks with original maturities of ninety days or less. significant intercompany accounts and transactions have been eliminated in consolidation. Operations Operations Cash and Cash Equivalents Principles of Consolidation Cash and Cash Equivalents Management Estimates Principles of Consolidation Management Estimates estimates. Investment Securities estimates. Investment Securities identification method. Loans Held for Sale identification method. Loans Held for Sale Derivative Financial Instruments Derivative Financial Instruments lock commitments and the best efforts contracts is very high due to their similarity. lock commitments and the best efforts contracts is very high due to their similarity. rate lock commitments. rate lock commitments. The Company utilizes interest rate swaps to manage interest rate risk. The Company utilizes interest rate swaps to manage interest rate risk. values or cash flows of hedged items. values or cash flows of hedged items. Loans and Allowance for Loan Losses principal or interest payments are 31 days past due. Loans and Allowance for Loan Losses principal or interest payments are 31 days past due. more information becomes available. Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at fair value. The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to fundiing (rate lock commitments). Rate lock commitments on mortage loans that are intended to be sold are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to fundiing (rate lock commitments). Rate lock commitments on mortage loans that are intended to be sold are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the Interest rate swaps are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to current accounting guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair Interest rate swaps are recognized on the balance sheet at fair value. On the date the derivative contract is entered into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to current accounting guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair The Company has not designated any derivatives as fair value hedges as of December 31, 2011. For designated cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. The Company has not designated any derivatives as fair value hedges as of December 31, 2011. For designated cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled 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 Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled 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. Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES MVB FINANCIAL CORP. AND SUBSIDIARIES MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 December 31, 2012 December 31, 2012 Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations Operations Operations Operations MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas being the Marion, Harrison, MVB Financial Corp., with its subsidiaries (the Company), provides banking and financial services to the domestic market with the primary market areas MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas being the Marion, Harrison, MVB Financial Corp., "the Company", provides banking services to the domestic market with the primary market areas being the Marion, Harrison, Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio management Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio management being the Marion, Harrison, Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan Monongalia, Jefferson and Berkeley counties of West Virginia. To a large extent, the operations of the Company, such as loan portfolio management and deposit growth, are directly affected by the market area economies. and deposit growth, are directly affected by the market area economies. portfolio management and deposit growth, are directly affected by the market area economies. and deposit growth, are directly affected by the market area economies. Cash and cash equivalents include cash and due from banks with original maturities of ninety days or less. Cash and cash equivalents include cash and due from banks with original maturities of ninety days or less. Cash and cash equivalents include cash and due from banks with original maturities of ninety days or less. The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly owned subsidiaries. All The accompanying consolidated financial statements include the accounts of MVB Financial Corp. Inc., and its wholly owned subsidiaries. All 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. significant intercompany accounts and transactions have been eliminated in consolidation. significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents Cash and Cash Equivalents Cash and Cash Equivalents Principles of Consolidation Principles of Consolidation Principles of Consolidation Management Estimates Management Estimates Management Estimates Loans Held for Sale Loans Held for Sale Loans Held for Sale 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 Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, the Company’s subsidiary, MVB Bank, Inc., (the Bank), has the Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term Through Crescent Mortgage Company, Franklin American Mortgage and Freddie MAC, MVB Bank, Inc. has the ability to offer customers long-term fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at fair value. ability to offer customers long-term fixed rate mortgage products without holding these instruments in the bank’s loan portfolio. MVB values the loans fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at fair value. fixed rate mortgage products without holding these instruments in the bank's loan portfolio. MVB values loans held for sale at fair value. held for sale at fair value. Derivative Financial Instruments Derivative Financial Instruments Derivative Financial Instruments Derivative Financial Instruments The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to fundiing (rate lock The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to fundiing (rate lock The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to fundiing (rate lock commitments). Rate lock commitments on mortage loans that are intended to be sold are considered to be derivatives. The period of time between commitments). Rate lock commitments on mortage loans that are intended to be sold are considered to be derivatives. The period of time between commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. The period of time between commitments). Rate lock commitments on mortage loans that are intended to be sold are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to losses and will not commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan. As a result, the Company is not exposed to losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate lock commitments and the losses and will not realize significant gains related to its rate lock commitments due to changes in interest rates. The correlation between the rate lock commitments and the best efforts contracts is very high due to their similarity. lock commitments and the best efforts contracts is very high due to their similarity. best efforts contracts is very high due to their similarity. lock commitments and the best efforts contracts is very high due to their similarity. The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and The market value of rate lock commitments and best efforts contracts is not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best best efforts contracts are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best best efforts contracts are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and best efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock efforts contracts by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the commitments will close. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss occurs on the rate lock commitments. rate lock commitments. rate lock commitments. Interest rate swaps are recognized on the balance sheet at fair value. On the The Company utilizes interest rate swaps to manage interest rate risk. Interest rate swaps are recognized on the balance sheet at fair value. On the The Company utilizes interest rate swaps to manage interest rate risk. Interest rate swaps are recognized on the balance sheet at fair value. On the The Company utilizes interest rate swaps to manage interest rate risk. date the derivative contract is entered into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to date the derivative contract is entered into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to date the derivative contract is entered into, the Company designates the derivatives as either a fair value hedge or a cash flow hedge according to current accounting guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk current accounting guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk current accounting guidance. The Company documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. values or cash flows of hedged items. values or cash flows of hedged items. The Company has not designated any derivatives as fair value hedges as of December 31, 2011. For designated cash flow hedges, the effective The Company has not designated any derivatives as fair value hedges as of December 31, 2011. For designated cash flow hedges, the effective The Company has not designated any derivatives as fair value hedges as of December 31, 2011. For designated cash flow hedges, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. Loans and Allowance for Loan Losses Loans and Allowance for Loan Losses 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 Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled Loans are stated at the amount of unpaid principal reduced by an allowance for loan losses. Loans are considered delinquent when scheduled Interest income on loans is recognized on an accrual basis. The allowance for loan losses is 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 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 principal or interest payments are 31 days past due. maintained at a level deemed adequate to absorb probable losses inherent in the loan portfolio. The Company consistently applies a quarterly loan maintained at a level deemed adequate to absorb probable losses inherent in the loan portfolio. The Company consistently applies a quarterly loan 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 review process to continually evaluate loans for changes in credit risk. This process serves as the primary means by which the Company evaluates 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 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 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 nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral 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 and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. more information becomes available. more information becomes available. 2012 Annual Report n 15 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. Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The allowance consists of specific and general components. The specific component relates to loans that are impaired. The general component covers non-classified loans and is based upon historical loss experience adjusted for qualitative factors. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and shortages generally are not classified as impaired. Generally the Company considers impaired loans to include loans classified as non-accrual loans and loans past due for longer than 90 days. Loan Origination Fees and Costs Accounting standards require that loan origination and commitment fees and direct loan origination costs be deferred and the net amount amortized as an adjustment of the related loan's yield. Troubled Debt Restructurings (TDRs) A restructuring of debt constitues a TDR if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. The determination of whether a concession has been granted includes an evaluation of the debtor's ability to access funds at a market rate for debt with similar risk characteristics and among other things, the significance of the modification relative to unpaid principal or collateral value of the debt, and/or the significance of a delay in the timing of payments relative to the frequency of payments, original maturity date or the expected duration of the loan. The most common concessions granted generally include one or more modifications to the terms of the debt such as a reduction in the interest rate for the remaining life of the debt, an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or reduction of the unpaid principal or interest. All TDRs are considered impaired loans. Mortgage Servicing Assets Mortgage servicing assets (MSAs) are recorded when MVB sells mortgage loans and retains the servicing on those loans. On a monthly basis, MVB tracks the amount of mortgage loans that are sold with servicing retained. A valuation is done to determine the MSA's value, which is then recorded as an asset and amortized over the period of estimated net servicing revenues. Servicing loans for others generallly consists of collecting mortgage payments from borrowers, maintaining escrow accounts, remitting payments to third party investors and when necessary, foreclosure processing. Serviced loans are not included in the Consolidated Balance Sheets. The amortization taken on the servicing asset for the year-ended December 31, 2012 was $47. At December 31, 2012, MVB had total loans serviced for others of $89,295. Bank Premises, Furniture and Equipment Bank premises, furniture and equipment are carried at cost less accumulated depreciation. The provision for depreciation is computed for financial reporting by the straight-line-method based on the estimated useful lives of assets, which range from 7 to 40 years on buildings and leasehold improvements and 3 to 10 years on furniture, fixtures and equipment. Intangible Assets The excess of the cost of an acquired company over the fair value of the net assets and identified intangibles acquired is recorded as goodwill. The net carrying amount of intangible assets was $17.6 million and $917 at December 31, 2012 and 2011, respectively. Other Investments Federal Home Loan Bank (FHLB) stock is recorded at cost and considered to be restricted as the Company is required by the FHLB to hold this investment, and the only market for this stock is the issuing agency. FHLB stock totaled $2,798 and $1,973 at December 31, 2012 and 2011, respectively, and is included in accrued interest receivable and other assets in the accompanying Consolidated Balance Sheets. Income Taxes Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes. The differences relate principally to accretion of discounts on investment securities, provision for loan losses, minimum pension liability, and differences between book and tax methods of depreciation. Stock Based Compensation The Company accounts for stock-based compensation in accordance with generally accepted accounting principals. Under these standards the Company is required to record compensation expense for all awards granted after the date of adoption and for any unvested options previously granted. Foreclosed Assets Held for Resale Foreclosed assets held for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are recorded at the lower of cost or fair value less estimated selling costs at the time of foreclosure, with any valuation adjustments charged to the allowance for loan losses. Any gains or losses on sale are then recorded in other non-interest expense. At December 31, 2012 and 2011, the Company held other real estate of $207 and $176. Net Operating Income Per Common Share Diluted net income per common share includes any dilutive effects of stock options, and is computed by dividing net income by the average number of common shares outstanding during the period less the preferred stock dividend, adjusted for the dilutive effect of options under the Company's 2003 Stock Incentive Plan. 16 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and minimum pension liability, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. Bank-owned life insurance Bank-owned life insurance ("BOLI") represents life insurance on the lives of certain Company employees who have provided positive consent allowing the Company to be the beneficiary of such policies. These policies are recorded at their cash surrender value, or the amount that can be realized upon surrender of the policy. Income from these policies is not subject to income taxes and is recorded as other income. Advertising Costs Advertising costs are expensed as incurred. Transfers of Financial Assets Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assests have been isolated from the company, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Reclassifications Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 financial statement presentation. 2012 Annual Report n 17 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTE 2. INVESTMENT SECURITIES Amortized cost and approximate fair values of investment securities held-to-maturity at December 31, 2012, including gross unrealized gains and losses, are summarized as follows: (Dollars in thousands) Municipal securities Amortized Cost 35,370 35,370 $ Unrealized Gain 988 988 $ Unrealized Loss Approximate Fair Value $ (140) (140) $ 36,218 36,218 Amortized cost and approximate fair values of investment securities held-to-maturity at December 31, 2011, including gross unrealized gains and losses, are summarized as follows: Municipal securities Amortized Cost 13,568 13,568 $ Unrealized Gain 587 587 $ Unrealized Loss Approximate Fair Value $ (11) (11) $ 14,144 14,144 Amortized cost and approximate fair values of investment securities available-for-sale at December 31, 2012 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Fair Value U. S. Agency securities U.S. Sponsored Mortgage-backed securities Other securities $ $ $ $ $ $ $ $ 21,951 56,217 934 79,102 51,165 47,319 124 98,608 247 328 - 575 710 198 - 908 (6) (169) - (175) (1) (149) - (150) 22,192 56,376 934 79,502 51,874 47,368 124 99,366 Amortized cost and approximate fair values of investment securities available-for-sale at December 31, 2011 are summarized as follows: Amortized Cost Unrealized Gain Unrealized Loss Approximate Fair Value U. S. Agency securities U.S. Sponsored Mortgage-backed securities Other securities $ $ $ $ $ $ $ $ The following tables summarize amortized cost and approximate fair values of securities by maturity: Within one year After one year, but within five After five years, but within ten After ten Years Total Held to Maturity Available for sale December 31, 2012 Amortized Cost $ - 1,746 9,311 24,313 35,370 $ Approximate Fair Value - $ 1,761 9,757 24,700 36,218 $ Amortized Cost $ - 9,962 23,886 45,254 79,102 $ Approximate Fair Value - $ 10,118 24,069 45,315 79,502 $ 18 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 Investment securities with a carrying value of $98,209 and $94,866 at December 31, 2012 and 2011, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve discount window. The Company's investment portfolio includes securities that are in an unrealized loss position as of December 31, 2012, the details of which are included in the following table. Although these securities, if sold at December 31, 2012 would result in a pretax loss of $315, the Company has no intent to sell the applicable securities at such market values, and maintains the Company has the ability to hold these securities until all principal has been recovered. Declines in the market values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company's ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of December 31, 2012 the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in market value. The following table discloses investments in an unrealized loss position: At December 31, 2011, total temporary impairment totaled $161. Description and number of positions Less than 12 months 12 months or more Fair Value Unrealized Loss Fair Value Unrealized Loss U.S. Agencies (1) U.S. Sponsored Mortgage-backed securities (16) Municipal securities (3) $ $ $ $ $ - 3,124 - 3,124 $ - $ (21) - $ (21) At December 31, 2012, total temporary impairment totaled $315. Description and number of positions Less than 12 months 12 months or more Fair Value Unrealized Loss Fair Value Unrealized Loss 4,999 31,073 936 37,008 9,676 28,688 11,216 49,580 (1) (128) (11) (140) (6) (169) (140) (315) U.S. Agencies (3) U.S. Sponsored Mortgage-backed securities (11) Municipal securities (28) $ $ $ $ NOTE 3. LOANS The components of loans in the balance sheet at December 31, were as follows: (Dollars in thousands) Commercial and non-residential real estate Residential real estate Consumer and other Net deferred fees and costs Changes in the allowance for loan losses were as follows for the years ended December 31: (Dollars in thousands) Balance at beginning of period Losses charged to allowance Recoveries credited to allowance Provision for loan losses Balance at end of period $ - - - $ - - - $ - $ - 2012 2011 $ $ $ $ 298,854 130,012 16,792 785 446,443 3,045 (1,791) 22 2,800 4,076 2012 2011 $ $ $ $ 238,177 121,536 13,782 327 373,822 2,478 (1,189) 33 1,723 3,045 2012 Annual Report n 19 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The following table summarizes the primary segments of the loan portfolio as of December 31, 2012 and 2011 (in thousands): December 31, 2011 Total Loans Individually evaluated for impairment Collectively evaluated for impairment December 31, 2012 Total Loans Individually evaluated for impairment Collectively evaluated for impairment Commercial Residential Home Equity Installment Credit Cards Total $238,504 $105,606 $15,930 $13,217 $565 $373,822 $96,152 $6,870 $1,665 $193 $0 $104,880 $142,352 $98,736 $14,265 $13,024 $565 $268,942 $299,639 $113,212 $16,800 $16,174 $618 $446,443 $203,060 $16,407 $1,824 $101 $0 $221,392 $96,579 $96,805 $14,976 $16,073 $618 $225,051 Management evaluates individual loans in all of the commercial segments for possible impairment. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company also separately evaluates individual consumer and residential mortgage loans for impairment. Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future future cash flows discounted at the loan's effective interest rate; (b) the loan's observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2012 and 2011 (in thousands): Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Recorded Investment Related Allowance Recorded Investment Total Impaired Loans Unpaid Principal Balance Recorded Investment $2,597 76 9 140 0 $2,822 $3,074 43 0 1 0 $3,118 $758 10 9 100 0 $877 $684 35 0 1 0 $720 $0 0 0 0 0 $0 $0 0 0 0 0 $0 $2,597 76 9 140 0 $2,822 $3,074 43 0 1 0 $3,118 $2,597 76 9 140 0 $2,822 $3,074 43 0 1 0 $3,118 December 31, 2011 Commercial Residential Home Equity Installment Credit Card Total impaired loans December 31, 2012 Commercial Residential Home Equity Installment Credit Card Total impaired loans 20 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands): Average investment in impaired loans Interest income recognized on an accrual basis on impaired loans December 2012 $2,970 $112 2011 $2,091 $84 Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category. To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank's Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships $750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the 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, 2011 and 2012 (in thousands): December 31, 2011 Commercial Residential Home Equity Installment Credit Card Total December 31, 2012 Commercial Residential Home Equity Installment Credit Card Total Pass $225,500 103,958 15,750 12,806 565 $358,579 $286,472 110,663 16,540 15,806 589 $430,070 Special Mention $7,752 1,157 96 242 - $9,247 $8,646 2,260 260 354 29 $11,549 Substandard Doubtful Total $2,655 491 75 29 - $3,250 $1,770 289 - 13 - $2,072 $2,597 - 9 140 - $2,746 $2,751 - - 1 - $2,752 $238,504 105,606 15,930 13,217 565 $373,822 $299,639 113,212 16,800 16,174 618 $446,443 Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2011 and 2012 (in thousands): December 31, 2011 Commercial Residential Home Equity Installment Credit Card Total December 31, 2012 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 $232,765 103,875 15,846 12,888 565 $365,939 $295,295 111,053 16,772 15,991 589 $288,634 $448 1,593 - 138 - $2,179 767 1,772 28 179 24 $2,770 $2,836 - 84 26 - $2,946 221 293 - - 5 $519 $2 62 - 2 - $66 $275 51 - 3 - $329 $3,286 1,655 84 166 - $5,191 $1,263 2,116 28 182 29 $3,618 $2,453 76 - 163 - $2,692 $3,081 43 - 1 - $3,125 $238,504 105,606 15,930 13,217 565 $373,822 $299,639 113,212 16,800 16,174 618 $446,443 2012 Annual Report n 21 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 An allowance for loan losses ("ALL") is maintained to absorb losses from the loan portfolio. The ALL is based on management's continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. The Bank's methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank's ALL. Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualified factors. The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Commercial, Mortgage and Consumer pools currently utilize a rolling 12 quarters. "Pass" rated credits are segregated from "Criticized" credits for the application of qualitative factors. qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Loans in the criticized pools, which possess certain 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. Loans that are 90 days past due and still accruing are both adequately secured and in the process of collection. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Historically, management has utilized an internally developed spreadsheet to track and apply the various components of the allowance. The following table summarizes the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2011 and 2012. Activity in the allowance is presented for the year ended December 31, 2012 (in thousands): ALL balance at December 31, 2010 Charge-offs Recoveries Provision ALL balance at December 31, 2011 Individually evaluated for impairment Collectively evaluated for impairment for impairment ALL balance at December 31, 2011 Charge-offs Recoveries Provision ALL balance at December 31, 2012 Individually evaluated for impairment Collectively evaluated for impairment Commercial Residential Home Equity Installment Credit Card Total $ 1,517 (552) 4 1,195 $ 460 (349) - 255 $ 207 (177) 10 209 $ 274 (105) 19 67 $ 20 (6) - (3) $ 2,478 (1,189) 33 1,723 $ 2,164 $ 366 $ 249 $ 255 $ 11 $ 3,045 $758 $1,406 $356 $10 Commercial Residential $240 $9 Home Equity $155 $100 Installment $ 2,164 (1,731) 5 2,669 366 $ - - 148 $ 249 (9) 5 (3) $ 255 (51) 12 (16) $0 $11 Credit Card 11 $ - - 2 $1,509 $1,536 Total $ 3,045 (1,791) 22 2,800 $ 3,107 $ 514 $ 242 $ 200 $ 13 $ 4,076 $373 $2,734 $432 $82 $215 $27 $198 $2 $0 $13 $1,218 $2,858 The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date. Troubled Debt Restructurings The restructuring of a loan is considered a "troubled debt restructuring" if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Troubled debt restructurings during 2012 and 2011 are set forth in the following table. No TDR's have defaulted. 22 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The following table presents details related to loans identified as Troubled Debt Restructurings (TDRs) at December 31, 2012 and 2011. New TDRs (1) December 31, 2012 December 31, 2011 Number of Contracts 1 2 (Unaudited, dollars in thousands) Commercial real estate: Land and construction Other 103 Total commercial real estate 103 Commercial and industrial - Residential real estate 415 Home equity - Consumer - Total 518 (1) Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end. 103 103 - 415 - - 518 - 3 6 3 - - - Number of Contracts - - 1 11 - 1 - - 2 Pre- Modification Outstanding Recorded Investment 886 349 - 1,235 - - - 13 1,248 Post- Modification Outstanding Recorded Investment 886 349 - 1,235 - - - 13 1,248 Pre- Modification Outstanding Recorded Investment - - Post-Modification Outstanding Recorded Investment - - 2012 Annual Report n 23 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTE 4. BANK PREMISES, FURNITURE AND EQUIPMENT Bank premises, furniture and equipment at December 31, were as follows: (Dollars in thousands) 2012 2011 Bank Premises 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 $ $ 10,533 5,054 15,587 (4,233) 11,354 $ 7,647 3,445 11,092 (3,310) 7,782 $ 2012 2011 $ $ 175,442 51,821 206,263 50,036 2,957 486,519 $ $ 113,515 37,744 184,993 53,237 1,056 390,545 Time deposits of over $100 included above $ 86,872 $ 65,316 Maturities of certificates of deposit at December 31, 2012 were as follows: 2013 2014 2015 2016 2017 Total $ $ 120,299 9,827 8,157 5,703 3,864 147,850 NOTE 6. BORROWED FUNDS The Company is a party to repurchase agreements with certain customers. As of December 31, 2012 and 2011, the company held repurchase agreements of $70,234 and $77,835. Information related to repurchase agreements is summarized below: (Dollars in thousands) 2012 2011 Balance at end of year Average balance during the year Maximum month-end balance Weighted-average rate during the year Rate at December 31 70,234 $ 67,709 77,852 0.76% 0.80% 77,835 $ 61,855 86,507 0.81% 0.66% MVB Bank, Inc. (the Bank) is a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh, Pennsylvania. The remaining maximum borrowing capacity with the FHLB at December 31, 2012 was approximately $146,393. At December 31, 2012 and 2011 the Bank had borrowed $32,600 and $9,767. 24 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 Borrowings from the FHLB as of December 31 were as follows: (Dollars in thousands) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 Borrowings from the FHLB as of December 31 were as follows: (Dollars in thousands) 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% Floating interest rate note, originating March 2003, interest payable monthly of 0.25% 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 payable in monthly installments of $6, including interest of 5.18% rate note, originating April 2007, due April 2022, 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 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 April 1999, due April 2014, interest of 5.405% is payable monthly 2012 2011 2012 2011 $ 1,000 $ 1,000 Fixed interest rate note, originating January 2005, due January 2020, payable in monthly installments of $11, including interest of 5.140% $ $ 1,000 1,000 Fixed interest rate note, originating April 2002, due May 2017, payable in monthly installments of $4, including interest of 5.90% 763 851 615 631 Floating interest rate note, originating March 2003, interest payable monthly of 0.25% Fixed interest rate note, originating July 2006, due July 2016, payable in monthly installments of $8, including interest of 4.50% 23,065 - 1,258 1,301 Fixed interest rate note, originating October 2006, due October 2021, payable in monthly installments of $6, including interest of 5.20% 1,047 Fixed interest payable in monthly installments of $6, including interest of 5.18% 1,068 rate note, originating April 2007, due April 2022, 995 1,015 Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly installments of $5, including interest of 5.22% Fixed interest rate note, originating December 2007, due December 2017, payable in monthly installments of $7, including interest of 5.25% 879 896 Fixed interest rate note, originating March 2008, due March 2013, 978 interest of 2.37% payable quarterly 1,005 763 615 23,065 1,258 1,301 1,047 1,068 995 879 978 2,000 851 631 - 1,015 896 1,005 2,000 2,000 2,000 $ 32,600 $ 9,767 In March 2007 the Company completed the private placement of $4 million Floating Rate, Trust Preferred Securities through its MVB Financial Statutory Trust I subsidiary (the "Trust"). The Company established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The proceeds from the sale of the Trust Preferred Securities will be loaned to the Company under subordinated Debentures (the "Debentures") issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the Company's Tier I capital. $ 9,767 $ 32,600 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 2037 and are redeemable by the Company in 2012. March, June, September and December and are adjusted at the interest due dates at a rate of 1.62% over the three month LIBOR Rate. The Company reflects borrowed funds in the amount of $4.1 million as of December 31, 2012 and 2011 and interest expense of $87 and $81 for the years ended December 31, 2012 and 2011. Interest payments are due in The Trust Preferred Securities and the Debentures mature in 2037 and are redeemable by the Company in 2012. Interest payments are due in March, June, September and December and are adjusted at the interest due dates at a rate of 1.62% over the three month LIBOR Rate. The Company reflects borrowed funds in the amount of $4.1 million as of December 31, 2012 and 2011 and interest expense of $87 and $81 for the years ended December 31, 2012 and 2011. Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-backed securities and certain investment securities. Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-backed securities and certain investment securities. PMG had borrowings of $59.0 million at December 31, 2012, which were comprised of three lines. A floating rate line at BB&T which originated January 26, 2012, with a rate of 3.50% and a balance of $18.8 million at December 31, 2012, a floating rate line with Comerica, originated February 27, 2012, with a rate of 3.50% and a balance of $17.6 million at December 31, 2012 and a floating rate line with United Bank, originating September 15, 2011, with a rate of 3.00% and a balance of $22.5 million at December 31, 2012. A summary of maturities of these borrowings over the next five years is as follows: PMG had borrowings of $59.0 million at December 31, 2012, which were comprised of three lines. A floating rate line at BB&T which originated January 26, 2012, with a rate of 3.50% and a balance of $18.8 million at December 31, 2012, a floating rate line with Comerica, originated February 27, 2012, with a rate of 3.50% and a balance of $17.6 million at December 31, 2012 and a floating rate line with United Bank, originating September 15, 2011, with a rate of 3.00% and a balance of $22.5 million at December 31, 2012. A summary of maturities of these borrowings over the next five years is as follows: Year 2013 2014 2015 2016 2017 Thereafter Amount $ 61,261 1,257 271 1,353 1,582 30,017 95,741 $ Year 2013 2014 2015 2016 2017 Thereafter Amount $ 61,261 1,257 271 1,353 1,582 30,017 95,741 $ 2012 Annual Report n 25 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 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) 2012 2011 Available on lines of credit Stand-by letters of credit Other loan commitments Concentration of Credit Risk $ $ 60,357 458 1,616 62,431 $ $ 45,627 346 1,423 47,396 The Company grants a majority of its commercial, financial, real estate and installment loans to customers throughout the Marion, Harrison, Monongalia, Jefferson and Berkeley County areas of West Virginia and adjacent counties. Collateral for loans is primarily residential and commercial real estate, personal property, and business equipment. The Company evaluates the credit worthiness of each of its customers on a case-by-case basis, and the amount of collateral it obtains is based upon management's credit evaluation. Litigation The subsidiary bank is involved in various legal actions arising in the ordinary course of business. the outcome of these matters will not have a significant adverse effect on the consolidated financial statements. In the opinion of management and counsel, 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. 26 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The provisions for income taxes for the years ended December 31, were as follows: (Dollars in thousands) Current: 2012 2011 Federal State Deferred expense(benefit) Federal State Income Tax expense $ $ 1,479 331 1,810 $ $ 658 207 865 $ $ (115) (29) (144) 1,666 $ $ 112 35 147 1,012 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 2012 2011 Amount $ 1,984 146 (465) 1 1,666 $ % 34.0% 2.5% -8.0% 0.0% 28.5% Amount $ 1,263 93 (345) 1 1,012 $ % 34.0% 2.5% -9.3% 0.0% 27.2% Deferred tax assets and liabilities are the result of timing differences in recognition of revenue and expense for income tax and financial statement purposes. Deferred income tax liabilities and (assets) were comprised of the following at December 31: 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) 2012 2011 $ 477 160 184 821 (1,203) (1,157) (2,360) $ 482 303 (9) 776 (871) (798) (1,669) $ (1,539) $ (893) No deferred income tax valuation allowance is provided since it is more likely than not that realization of the deferred income tax asset will occur in future years. 2012 Annual Report n 27 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 December 31, 2012 NOTE 9. RELATED PARTY TRANSACTIONS NOTE 9. RELATED PARTY TRANSACTIONS NOTE 9. RELATED PARTY TRANSACTIONS 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 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 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. 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. 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. not involve more than normal risk of collectibility. Set forth below is a summary of the related loan activity. Balance at Balance at Beginning Balance at Beginning of Year Balance at Beginning of Year Beginning of Year $ 13,300 of Year $ 13,300 $ 13,300 $ 13,995 $ 13,300 $ 13,995 $ 13,995 $ 13,995 (Dollars in thousands) (Dollars in thousands) (Dollars in thousands) December 31, 2012 (Dollars in thousands) December 31, 2012 December 31, 2012 December 31, 2011 December 31, 2012 December 31, 2011 December 31, 2011 The Company held related party deposits of $11,483 and $14,973 at December 31, 2012 and December 31, 2011, respectively. December 31, 2011 The Company held related party deposits of $11,483 and $14,973 at December 31, 2012 and December 31, 2011, respectively. The Company held related party deposits of $11,483 and $14,973 at December 31, 2012 and December 31, 2011, respectively. The Company held related party repurchase agreements of $361 and $1,313 at December 31, 2012 and December 31, 2011, respectively. The Company held related party deposits of $11,483 and $14,973 at December 31, 2012 and December 31, 2011, respectively. The Company held related party repurchase agreements of $361 and $1,313 at December 31, 2012 and December 31, 2011, respectively. The Company held related party repurchase agreements of $361 and $1,313 at December 31, 2012 and December 31, 2011, respectively. The Company held related party repurchase agreements of $361 and $1,313 at December 31, 2012 and December 31, 2011, respectively. Repayments Repayments Repayments $ (2,707) Repayments $ (2,707) $ (2,707) $ (2,699) $ (2,707) $ (2,699) $ (2,699) $ (2,699) Borrowings Borrowings Borrowings $ 12,978 Borrowings $ 12,978 $ 12,978 $ 2,004 $ 12,978 $ 2,004 $ 2,004 $ 2,004 23,571 23,571 23,571 13,300 23,571 13,300 13,300 13,300 $ $ $ $ $ $ $ $ Balance Balance at end Balance at end of Year Balance at end of Year at end of Year of Year NOTE 10. PENSION PLAN NOTE 10. PENSION PLAN NOTE 10. PENSION PLAN NOTE 10. PENSION PLAN 2012 2012 2012 2012 2011 2011 2011 2011 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all full-time employees. 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 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 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 Benefits are based on years of service and the employee's compensation. The Company's funding policy is to fund normal costs of the plan as accrued. Contributions are intended to provide not only for benefits attributed to service to date, but also for those benefits expected to be earned in the future. The Company participated in the pension plan beginning January 1, 1999. The Company has recognized estimated pension expense of $502 and $410 for the years ended December 31, 2012 and 2011. accrued. Contributions are intended to provide not only for benefits attributed to service to date, but also for those benefits expected to be earned in the future. The Company participated in the pension plan beginning January 1, 1999. The Company has recognized estimated pension expense of $502 and $410 for the years ended December 31, 2012 and 2011. earned in the future. The Company participated in the pension plan beginning January 1, 1999. The Company has recognized estimated pension expense of $502 and $410 for the years ended December 31, 2012 and 2011. Information pertaining to the activity in the Company's defined benefit plan, using the latest available actuarial valuations with a measurement pension expense of $502 and $410 for the years ended December 31, 2012 and 2011. Information pertaining to the activity in the Company's defined benefit plan, using the latest available actuarial valuations with a measurement date of December 31, 2012 and 2011 is as follows: Information pertaining to the activity in the Company's defined benefit plan, using the latest available actuarial valuations with a measurement date of December 31, 2012 and 2011 is as follows: Information pertaining to the activity in the Company's defined benefit plan, using the latest available actuarial valuations with a measurement date of December 31, 2012 and 2011 is as follows: (Dollars in thousands) date of December 31, 2012 and 2011 is as follows: (Dollars in thousands) Change in benefit obligation (Dollars in thousands) Change in benefit obligation Benefit obligation at beginning of year (Dollars in thousands) Change in benefit obligation Benefit obligation at beginning of year Service cost Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Benefit obligation at beginning of year Service cost Interest cost Actuarial loss Service cost Interest cost Actuarial loss Benefits paid Interest cost Actuarial loss Benefits paid Benefit obligation at end of year Actuarial loss Benefits paid Benefit obligation at end of year Benefits paid Benefit obligation at end of year Change in plan assets: Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Benefits paid Actual return on plan assets Employer contribution Benefits paid Fair value of plan assets at end of year Employer contribution Benefits paid Fair value of plan assets at end of year Benefits paid Fair value of plan assets at end of year Funded status Fair value of plan assets at end of year Funded status Unrecognized net actuarial loss Funded status Unrecognized net actuarial loss Unrecognized prior service cost Funded status Unrecognized net actuarial loss Unrecognized prior service cost Prepaid pension cost recognized Unrecognized net actuarial loss Unrecognized prior service cost Prepaid pension cost recognized Unrecognized prior service cost Prepaid pension cost recognized Accumulated benefit obligation Prepaid pension cost recognized Accumulated benefit obligation Accumulated benefit obligation At December 31, 2012 and 2011, the weighted average assumptions used to determine the benefit obligation are as follows: Accumulated benefit obligation At December 31, 2012 and 2011, the weighted average assumptions used to determine the benefit obligation are as follows: At December 31, 2012 and 2011, the weighted average assumptions used to determine the benefit obligation are as follows: Discount rate At December 31, 2012 and 2011, the weighted average assumptions used to determine the benefit obligation are as follows: Discount rate Rate of compensation increase Discount rate Rate of compensation increase Discount rate Rate of compensation increase The components of net periodic pension cost are as follows: Rate of compensation increase The components of net periodic pension cost are as follows: The components of net periodic pension cost are as follows: Service cost The components of net periodic pension cost are as follows: Service cost Interest cost Service cost Interest cost Expected return on plan assets Service cost Interest cost Expected return on plan assets Amortization of prior service costs Interest cost Expected return on plan assets Amortization of prior service costs Amortization of loss Expected return on plan assets Amortization of prior service costs Amortization of loss Net periodic pension cost Amortization of prior service costs Amortization of loss Net periodic pension cost Amortization of loss Net periodic pension cost At December 31, 2012 and 2011, the weighted average assumptions used to determine net periodic pension cost are as follows: Net periodic pension cost At December 31, 2012 and 2011, the weighted average assumptions used to determine net periodic pension cost are as follows: At December 31, 2012 and 2011, the weighted average assumptions used to determine net periodic pension cost are as follows: Discount rate At December 31, 2012 and 2011, 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 Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Discount rate Expected long-term rate of return on plan assets Rate of compensation increase Expected long-term rate of return on plan assets Rate of compensation increase Rate of compensation increase 4,214 4,214 424 4,214 424 210 4,214 424 210 998 424 210 998 (48) 210 998 (48) 5,798 998 (48) 5,798 (48) 5,798 5,798 2,198 2,198 232 2,198 232 984 2,198 232 984 (48) 232 984 (48) 3,366 984 (48) 3,366 (48) 3,366 (2,432) 3,366 (2,432) 2,890 (2,432) 2,890 2 (2,432) 2,890 2 460 2,890 2 460 2 460 4,473 460 4,473 4,473 4,473 3,059 3,059 356 3,059 356 166 3,059 356 166 669 356 166 669 (36) 166 669 (36) 4,214 669 (36) 4,214 (36) 4,214 4,214 1,794 1,794 (113) 1,794 (113) 553 1,794 (113) 553 (36) (113) 553 (36) 2,198 553 (36) 2,198 (36) 2,198 (2,016) 2,198 (2,016) 1,990 (2,016) 1,990 4 (2,016) 1,990 4 (22) 1,990 4 (22) 4 (22) 3,288 (22) 3,288 3,288 3,288 $ 424 $ 424 210 $ 424 210 (251) $ 424 210 (251) 2 210 (251) 2 117 (251) 2 117 $ 502 2 117 $ 502 117 $ 502 $ 502 $ 356 $ 356 166 $ 356 166 (180) $ 356 166 (180) 2 166 (180) 2 66 (180) 2 66 $ 410 2 66 $ 410 66 $ 410 $ 410 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5.50% 5.50% 8.00% 5.50% 8.00% 3.00% 5.50% 8.00% 3.00% 8.00% 3.00% 3.00% 5.06% 5.06% 8.00% 5.06% 8.00% 3.00% 5.06% 8.00% 3.00% 8.00% 3.00% 3.00% 4.31% 4.31% 3.00% 4.31% 3.00% 4.31% 3.00% 3.00% 5.06% 5.06% 3.00% 5.06% 3.00% 5.06% 3.00% 3.00% 28 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 The Company's pension plan asset allocations at December 31, 2012 and 2011, as well as target allocations for 2013 are as follows: Asset Category Equity securities Balanced fund Other Total 2013 Target 60% 30% 10% 100% 12/31/2012 54% 25% 21% 100% 12/31/2011 72% 24% 4% 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) Plan Assets 2013 2012 $ - 2 186 $ - 2 117 The fair value of MVB's pension plan assets at December 31, 2012 by asset class are as follows: The following table sets forth by level, within the fair value hierarchy, as defined in Note 18 - Fair Value Measurements, the Plan's assets at fair value as of December 31, 2012. Level I Level II Level III Total Assets: Cash and cash equivalents Investment in equity securities Investment in debt securities $ 707 $ 1,818 $ - $ - $ - $ 841 $ - $ - $ - $ 707 $ 1,818 $ 841 Total assets at fair value $ 2,525 $ 841 $ - $ 3,366 Investment in government and debt securities and short-term investments are valued at the closing price reported on the active market on which the individual securities are traded. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. 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 01/01/13 through 12/31/13 Estimated future benefit payments reflecting expected future service 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 12/31/2016 1/1/2017 through 12/31/2017 1/1/2018 through 12/31/2022 Cash Flow $ 409,563 $ 145,222 $ 150,428 $ 164,048 $ 204,050 $ 210,551 $ 1,401,378 2012 Annual Report n 29 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 December 31, 2012 NOTE 11. INTANGIBLE ASSETS NOTE 11. INTANGIBLE ASSETS NOTE 11. INTANGIBLE ASSETS On October 7, 2005, the Company purchased a full service office in the Charles Town area of Jefferson County West Virginia. This office held assets of $1.8 million and total deposits of $17.1 million. As a result of this transaction, the Company recorded intangible assets. As of December 31, 2012 the Company has allocated $12 to core deposit intangibles, which are being amortized using the double-declining balance method over 10 years. The original amount of the core deposit intangible was $128, with $116 amortized through December 31, 2012 and $12 remaining to be amortized over the next three years. The remaining $897 has been recorded as goodwill, and is evaluated for impairment on October 1st each year by the Company. In December 2012 the Company purchased Potomac Mortgage Group (PMG), a mortgage company in Northern Virginia. As a result of this transaction, MVB recorded $16.7 million in goodwill. This goodwill will be evaluated for impairment on an annual basis each December. On October 7, 2005, the Company purchased a full service office in the Charles Town area of Jefferson County West Virginia. This office held 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 assets of $1.8 million and total deposits of $17.1 million. As a result of this transaction, the Company recorded intangible assets. As of December 31, 2012 the Company has allocated $12 to core deposit intangibles, which are being amortized using the double-declining balance December 31, 2012 the Company has allocated $12 to core deposit intangibles, which are being amortized using the double-declining balance method over 10 years. The original amount of the core deposit intangible was $128, with $116 amortized through December 31, 2012 and $12 method over 10 years. The original amount of the core deposit intangible was $128, with $116 amortized through December 31, 2012 and $12 remaining to be amortized over the next three years. The remaining $897 has been recorded as goodwill, and is evaluated for impairment on remaining to be amortized over the next three years. The remaining $897 has been recorded as goodwill, and is evaluated for impairment on October 1st each year by the Company. In December 2012 the Company purchased Potomac Mortgage Group (PMG), a mortgage company in October 1st each year by the Company. In December 2012 the Company purchased Potomac Mortgage Group (PMG), a mortgage company in Northern Virginia. As a result of this transaction, MVB recorded $16.7 million in goodwill. This goodwill will be evaluated for impairment on an Northern Virginia. As a result of this transaction, MVB recorded $16.7 million in goodwill. This goodwill will be evaluated for impairment on an annual basis each December. annual basis each December. NOTE 12. STOCK OFFERING NOTE 12. STOCK OFFERING NOTE 12. STOCK OFFERING During 2012 the Company began a confidential offering to accredited investors. As of December 31, 2012 the Company had received signed offering memoranda and payment for 573,263 shares totaling $13.7 million in additional capital at December 31, 2012. The proceeds of this offering are being used to support the acquisition of PMG as well as continued growth of the Company. During 2011 the Company issued 393,305 shares, concluding 2011 with outstanding shares of 2,234,767. A 10% stock dividend declared December 21, 2010 with a record date of January 25, 2011, payable February 15, 2011 resulted in an additional 39,071 shares. In 2012, MVB implemented a dividend reinvestment plan (DRIP) which resulted in the addition of 41,538 shares totaling $973,000 in additional capital. During 2012 the Company began a confidential offering to accredited investors. As of December 31, 2012 the Company had received signed During 2012 the Company began a confidential offering to accredited investors. As of December 31, 2012 the Company had received signed offering memoranda and payment for 573,263 shares totaling $13.7 million in additional capital at December 31, 2012. The proceeds of this offering memoranda and payment for 573,263 shares totaling $13.7 million in additional capital at December 31, 2012. The proceeds of this offering are being used to support the acquisition of PMG as well as continued growth of the Company. During 2011 the Company issued offering are being used to support the acquisition of PMG as well as continued growth of the Company. During 2011 the Company issued 393,305 shares, concluding 2011 with outstanding shares of 2,234,767. A 10% stock dividend declared December 21, 2010 with a record date 393,305 shares, concluding 2011 with outstanding shares of 2,234,767. A 10% stock dividend declared December 21, 2010 with a record date of January 25, 2011, payable February 15, 2011 resulted in an additional 39,071 shares. In 2012, MVB implemented a dividend reinvestment of January 25, 2011, payable February 15, 2011 resulted in an additional 39,071 shares. In 2012, MVB implemented a dividend reinvestment plan (DRIP) which resulted in the addition of 41,538 shares totaling $973,000 in additional capital. plan (DRIP) which resulted in the addition of 41,538 shares totaling $973,000 in additional capital. On September 8, 2011 MVB received $8.5 million in Small Business Lending Fund (SBLF) capital. MVB issued 8,500 shares of $1,000 per share preferred stock with dividends payable in arrears on January 1, April 1, July 1 and October 1 each year. At December 31, 2012 and 2011, MVB's loan production qualified for the lowest dividend rate possible of 1%. MVB may continue to utilize the SBLF capital for a period of four and one half years at the 1% dividend rate so long as loan growth continues to support the reduced rate. On September 8, 2011 MVB received $8.5 million in Small Business Lending Fund (SBLF) capital. MVB issued 8,500 shares of $1,000 per On September 8, 2011 MVB received $8.5 million in Small Business Lending Fund (SBLF) capital. MVB issued 8,500 shares of $1,000 per share preferred stock with dividends payable in arrears on January 1, April 1, July 1 and October 1 each year. At December 31, 2012 and 2011, share preferred stock with dividends payable in arrears on January 1, April 1, July 1 and October 1 each year. At December 31, 2012 and 2011, MVB's loan production qualified for the lowest dividend rate possible of 1%. MVB may continue to utilize the SBLF capital for a period of four MVB's loan production qualified for the lowest dividend rate possible of 1%. MVB may continue to utilize the SBLF capital for a period of four and one half years at the 1% dividend rate so long as loan growth continues to support the reduced rate. and one half years at the 1% dividend rate so long as loan growth continues to support the reduced rate. NOTE 13. STOCK OPTIONS NOTE 13. STOCK OPTIONS NOTE 13. STOCK OPTIONS The MVB Financial Corp. Incentive Stock Plan provides for the issuance of stock options to selected employees. Under the provisions of the plan, the option price per share shall not be less than the fair market value of the common stock on the date of the grant. All options granted prior to 2004 vest in 4 years, and expire 10 years from the date of grant. For options granted in 2004 and 2005 the vesting period has been accelerated to fully vest at December 31, 2005. These options also expire 10 years from the date of the grant. Options granted in 2006, 2007, 2010, 2011 and 2012 vest in 5 years and expire 10 years from the date of the grant, with the exception of 10,000 shares granted in 2010 that vest in 3 years and expire 10 years from the date of the grant. The MVB Financial Corp. Incentive Stock Plan provides for the issuance of stock options to selected employees. Under the provisions of the 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 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 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, accelerated to fully vest at December 31, 2005. These options also expire 10 years from the date of the grant. Options granted in 2006, 2007, 2010, 2011 and 2012 vest in 5 years and expire 10 years from the date of the grant, with the exception of 10,000 shares granted in 2010 that 2010, 2011 and 2012 vest in 5 years and expire 10 years from the date of the grant, with the exception of 10,000 shares granted in 2010 that vest in 3 years and expire 10 years from the date of the grant. 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: The following summarizes MVB's stock options as of December 31, and the changes for the year then ended: The following summarizes MVB's stock options as of December 31, and the changes for the year then ended: 2012 2011 Outstanding at beginning of year Granted Outstanding at beginning of year Outstanding at beginning of year Adjust for 10% stock dividend Granted Granted Exercised Adjust for 10% stock dividend Adjust for 10% stock dividend Forfeited/expired Exercised Exercised Forfeited/expired Forfeited/expired Outstanding at end of year Number Number of of Shares Shares 239,576 239,576 79,500 79,500 - - - - - - 2012 2012 Number Weighted- Weighted- of Average Average Shares Exercise Exercise Price Price 239,576 79,500 16.46 16.46 - 24.00 24.00 - - - - - - - - 319,076 $ $ Weighted- Average Exercise Price $ 16.46 24.00 - - - $ 18.34 Outstanding at end of year Outstanding at end of year Exercisable at end of year 319,076 319,076 $ $ 18.34 18.34 172,880 $ 15.63 2011 2011 Number Weighted- Weighted- of Average Average Shares Exercise Exercise Price Price 207,297 10,500 17.88 17.88 21,779 20.45 20.45 - - - - - - - - 239,576 $ $ $ $ 148,973 16.46 16.46 Weighted- Average Exercise Price $ 17.88 20.45 - - - $ 16.46 $ 15.13 Number Number of of Shares Shares 207,297 207,297 10,500 10,500 21,779 21,779 - - - - 239,576 239,576 Exercisable at end of year Exercisable at end of year Weighted-average fair value of options granted during the year Weighted-average fair value of options granted Weighted-average fair value of options granted during the year during the year 172,880 172,880 $ $ 15.63 15.63 $ 1.88 148,973 148,973 $ $ 15.13 15.13 $ 3.67 $ $ 1.88 1.88 $ $ 3.67 3.67 The fair value for the options was estimated at the date of grant using a Black-Scholes option-pricing model with average risk-free interest rates of 1.67% and 3.29% for 2012 and 2011 and a weighted average expected life of the options of 7 years for both 2012 and 2011. The expected volatility of MVB's stock price used for 2012 options was 5.60%, while for the 2011 options it was 5.40%. The expected dividend yield used was .50% for both 2012 and 2011. The fair value for the options was estimated at the date of grant using a Black-Scholes option-pricing model with average risk-free interest rates The fair value for the options was estimated at the date of grant using a Black-Scholes option-pricing model with average risk-free interest rates of 1.67% and 3.29% for 2012 and 2011 and a weighted average expected life of the options of 7 years for both 2012 and 2011. The expected of 1.67% and 3.29% for 2012 and 2011 and a weighted average expected life of the options of 7 years for both 2012 and 2011. The expected volatility of MVB's stock price used for 2012 options was 5.60%, while for the 2011 options it was 5.40%. The expected dividend yield used was volatility of MVB's stock price used for 2012 options was 5.60%, while for the 2011 options it was 5.40%. The expected dividend yield used was .50% for both 2012 and 2011. .50% for both 2012 and 2011. The following summarizes information concerning MVB's stock options outstanding at December 31, 2012: The following summarizes information concerning MVB's stock options outstanding at December 31, 2012: The following summarizes information concerning MVB's stock options outstanding at December 31, 2012: Options Outstanding Weighted Options Outstanding Options Outstanding Average Weighted Weighted Remaining Average Average Options Contractual Remaining Remaining Outstanding Options Contractual Options Contractual Life Weighted Weighted Average Average Exercise Exercise Price Price Outstanding Outstanding Life Life 127,376 89,650 4.00 4.00 22,550 8.00 8.00 79,500 8.00 8.00 10.00 10.00 127,376 127,376 89,650 89,650 22,550 22,550 79,500 79,500 4.00 8.00 8.00 10.00 $14.55 $14.55 $18.18 $18.18 $20.45 $20.45 $24.00 $24.00 Exercise Price Exercise Price Exercise Price $14.55 $14.55 $18.18 $18.18 $20.45 $20.45 $24.00 $24.00 $14.55 $18.18 $20.45 $24.00 30 n Setting the Pace Options Exercisable Options Exercisable Options Exercisable Weighted Weighted Number Average Average Exercisable Exercise Exercise Price Price 172,880 Number Number Exercisable Exercisable 172,880 172,880 $15.63 $15.63 Weighted Average Exercise Price $15.63 Weighted Average Exercise Price $14.55 $18.18 $20.45 $24.00 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 NOTE 14. REGULATORY CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets, as defined. As of December 31, 2012 and 2011, the Bank meets all capital adequacy requirements to which it is subject. The most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk- based, Tier I risk-based, and Tier I leverage ratios as set forth in the table below. Both the Company's and the Bank's actual capital amounts and ratios are presented in the table below. ACTUAL MINIMUM TO BE WELL CAPITALIZED MINIMUM FOR CAPITAL ADEQUACY PURPOSES AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO (Dollars in thousands) As of December 31, 2012 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, 2011 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 $ $ 55,527 59,231 12.3% 13.1% N/A $ 45,303 N/A 10.0% $ $ 36,243 36,243 $ $ 51,451 55,155 11.4% 12.2% N/A $ 27,182 N/A 6.0% $ $ 18,121 18,121 $ $ 51,451 55,155 8.4% 9.0% N/A $ 31,630 N/A 5.0% $ $ 25,323 25,304 $ $ 50,603 54,291 14.8% 15.8% N/A $ 34,276 N/A 10.0% $ $ 27,421 27,421 $ $ 47,558 51,246 13.9% 14.9% N/A $ 20,566 N/A 6.0% $ $ 13,710 13,710 $ $ 47,558 51,246 8.9% 9.6% N/A $ 26,686 N/A 5.0% $ $ 21,354 21,349 8.0% 8.0% 4.0% 4.0% 4.0% 4.0% 8.0% 8.0% 4.0% 4.0% 4.0% 4.0% 2012 Annual Report n 31 2013 2013 2014 2013 2014 2013 2015 2014 2015 2014 2016 2013 2015 2016 2015 2013 2017 2014 2016 2017 2013 2016 2014 2015 2017 2014 2017 2015 2016 2015 2016 2017 2016 2017 2017 (Dollars in thousands) (Dollars in thousands) (Dollars in thousands) (Dollars in thousands) $ 390 $ 390 310 (Dollars in thousands) $ 390 310 $ 390 (Dollars in thousands) 322 310 322 (Dollars in thousands) 310 258 $ 390 322 258 322 $ 390 142 310 258 142 $ 390 258 310 471 322 142 471 310 142 322 258 $ 1,893 471 $ 1,893 322 471 258 142 $ 1,893 258 142 $ 1,893 471 142 471 $ 1,893 471 $ 1,893 $ 1,893 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 MVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 December 31, 2012 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 MVB FINANCIAL CORP. AND SUBSIDIARIES December 31, 2012 December 31, 2012 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 15. REGULATORY RESTRICTION ON DIVIDEND NOTE 16. LEASES NOTE 16. LEASES NOTE 16. LEASES NOTE 16. LEASES NOTE 16. LEASES NOTE 16. LEASES NOTE 16. LEASES 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 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. 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. 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. net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. 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 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. 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. The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases. The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases. net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years. Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non- 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- The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases. cancelable lease terms in excess of one year as of December 31, 2012: Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non- cancelable lease terms in excess of one year as of December 31, 2012: Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non- The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases. cancelable lease terms in excess of one year as of December 31, 2012: cancelable lease terms in excess of one year as of December 31, 2012: 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- 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- Years ended December 31: cancelable lease terms in excess of one year as of December 31, 2012: Years ended December 31: Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non- cancelable lease terms in excess of one year as of December 31, 2012: Years ended December 31: cancelable lease terms in excess of one year as of December 31, 2012: Years ended December 31: Years ended December 31: Years ended December 31: Years ended December 31: Thereafter Thereafter Thereafter Thereafter Thereafter Thereafter Thereafter NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS Total minimum payments required: Total minimum payments required: Total minimum payments required: Total minimum payments required: Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. Total minimum payments required: Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. Total minimum payments required: Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. Total minimum payments required: Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial Total lease expense for the years ended December 31, 2012 and 2011 was $251 and $156, respectively. instruments. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments. instruments. Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments. Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. instruments. Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable 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. instruments. Level I: Quoted prices are available in active markets for identical assets or liabilities 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 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 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. valued using other financial instruments, the parameters of which can be directly observed. 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 I: Quoted prices are available in active markets for identical assets or liabilities 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 Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. valued using other financial instruments, the parameters of which can be directly observed. valued using other financial instruments, the parameters of which can be directly observed. Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. 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 The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair 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 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 and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant 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 The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair 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 valued using other financial instruments, the parameters of which can be directly observed. management judgment or estimation. 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. valued using other financial instruments, the parameters of which can be directly observed. and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant 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 management judgment or estimation. management judgment or estimation. 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 instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial 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 instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial management judgment or estimation. bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial 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. bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. management judgment or estimation. bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. estimated fair values are based on quoted market prices of comparable securities. If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. estimated fair values are based on quoted market prices of comparable securities. instruments including cash and due from banks, interest Short-term financial instruments: The carrying values of short-term financial 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. bearing balances - FHLB, and certificates of deposit in other banks approximate the fair value of these instruments. 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 If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. 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. If quoted market prices are not available, Securities: Estimated fair values of securities are based on quoted market prices, where available. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at estimated fair values are based on quoted market prices of comparable securities. interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. estimated fair values are based on quoted market prices of comparable securities. interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed. Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair Loans held for sale: Estimated fair values of loans held for sale approximate their carrying values. values. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. values. Bank Owned Life Insurance: Estimated fair values of bank owned life insurance approximate the cash surrender value of the policies. values. Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values. Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. values. Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts values. and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships 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 Repurchase agreements: The fair values of repurchase agreements approximate their carrying values. and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted with depositors is not considered in estimating the fair values disclosed. Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts 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. cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships 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 with depositors is not considered in estimating the fair values disclosed. Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts with depositors is not considered in estimating the fair values disclosed. and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with 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 similar terms and maturities. with depositors is not considered in estimating the fair values disclosed. FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with similar terms and maturities. cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with with depositors is not considered in estimating the fair values disclosed. similar terms and maturities. with depositors is not considered in estimating the fair values disclosed. similar terms and maturities. Subordinated debt: The fair value of long-term debt approximates its fair value. FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with Subordinated debt: The fair value of long-term debt approximates its fair value. FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with similar terms and maturities. Subordinated debt: The fair value of long-term debt approximates its fair value. FHLB and other borrowings: The fair values of FHLB and other borrowings are based upon rates currently available for borrowings with Subordinated debt: The fair value of long-term debt approximates its fair value. similar terms and maturities. Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees similar terms and maturities. currently charged to enter into similar agreements, taking into account the remaining terms of agreements and the present credit standing of Subordinated debt: The fair value of long-term debt approximates its fair value. Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of agreements and the present credit standing of Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees Subordinated debt: The fair value of long-term debt approximates its fair value. the counterparties. The amounts of fees currently charged on commitments and standby letters of credit are deemed insignificant, and 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 Subordinated debt: The fair value of long-term debt approximates its fair value. currently charged to enter into similar agreements, taking into account the remaining terms of agreements and the present credit standing of therefore, the estimated fair values and carrying values are not shown. Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees 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 counterparties. The amounts of fees currently charged on commitments and standby letters of credit are deemed insignificant, and 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 therefore, the estimated fair values and carrying values are not shown. Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees therefore, the estimated fair values and carrying values are not shown. 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 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 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. therefore, the estimated fair values and carrying values are not shown. 32 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 The carrying values and estimated fair values of the Company's financial instruments are summarized as follows: (Dollars in thousands) Financial assets: Cash and due from banks Interest bearing balances with banks Securities available-for-sale Securities held-to-maturity Loans Loans held for sale Derivative on loans held for sale Bank owned life insurance Accrued interest receivable Financial liabilities: Deposits Repurchase agreements FHLB and other borrowings Accrued interest payable Subordinated debt Financial assets: Cash and due from banks Interest bearing balances with banks Securities available-for-sale Securities held-to-maturity Loans Loans held for sale Accrued interest receivable Financial liabilities: Deposits Repurchase agreements FHLB and other borrowings Accrued interest payable Subordinated debt Carrying Value Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) $ $ 21,637 13,130 79,502 35,370 446,443 85,529 1,261 10,524 1,778 695,174 486,519 70,234 91,617 329 4,124 652,823 $ $ 21,637 13,554 80,138 36,218 457,158 85,529 1,261 10,524 1,778 707,797 498,244 70,234 94,487 329 4,664 667,958 $ $ $ $ December 31, 2011 Carrying Value Estimated Fair Value (Dollars in thousands) $ $ 9,763 10,196 99,366 13,568 373,822 7,147 1,582 515,444 390,545 77,835 9,767 341 4,124 482,612 $ $ 9,763 10,216 99,366 14,144 388,027 7,147 1,582 530,245 400,894 77,861 11,027 341 4,124 494,247 $ $ $ $ $ 21,637 13,130 - - - - 10,524 1,778 47,069 $ $ 329,083 70,234 - 329 4,664 404,310 $ $ - $ - 79,502 36,218 - 85,529 1,261 - 202,510 $ - $ - - - - $ $ - - 457,158 - - $ 457,158 $ 169,161 - 94,487 - $ - $ 263,648 2012 Annual Report n 33 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of instruments, fair value estimates are based on judgments regarding future expected loss the Company's financial 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. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 NOTE 18. FAIR VALUE Accounting standards require that the Company adopt fair value measurement for financial assets and financial liabilities. This enhanced guidance for using fair value to measure assets and liabilities applies whenever other standards require or permit assets or liabilities to be measured at fair value. This guidance does not expand the use of fair value in any new circumstances. Accounting standards establish a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by these standards are as follows: Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level II: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed. Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of December 31, 2012 and 2011 by level within the fair value hierarchy. As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company classified investments in government securities as Level 2 instruments and valued them using the market approach. All measurements are made on a recurring basis, with the exception of other real estate and impaired loans, which are measured on a non-recurring basis. (In Thousands) Assets: U.S. Government Agency Securities U.S. Sponsored Mortgage backed Securities Other Securities Loans held for sale Derivative on loans held for sale Other Real Estate Owned Impaired Loans Total Level I December 31, 2012 Level II Level III Total Level I December 31, 2011 Level III Level II Total 22,192 56,376 934 85,529 1,261 - - 166,292 22,192 56,376 - 934 - 85,529 - 1,261 207 207 3,118 3,118 3,325 169,617 51,874 47,368 124 7,147 - - 106,513 51,874 47,368 124 - 7,147 - - 176 176 2,822 2,822 109,511 2,998 34 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which MVB has utilized Level 3 inputs to determine fair value: (in thousands) December 31, 2012 Impaired loans Quantitative Information about Level 3 Fair Value Fair Value Estimate Valuation Techniques Unobservable Input 3,118 Appraisal of collateral (1) Appraisal adjustments (2) Liquidation expenses (2) Range Weighted Average 0% to -50.0% (-25.2%) -1.5% to 8.0% (-5.5%) Other real estate owned and repossessed assets 207 Appraisal of collateral (1),(3) (1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustements are presented as a percent of the appraisal. (3) Includes qualitative adjustments by management and estimated liquidation expenses. NOTE 19. ACQUISITION OF PMG On December 20, 2012, the Company acquired Potomac Mortgage Group, LLC (PMG), a mortgage loan company based in Northern Virginia. The acquisition significantly expands MVB's mortgage production capacity. PMG operates four offices, with their main location in Fairfax, VA. Under terms of the agreement, the Company acquired PMG for a total purchase price of $19 million, $17 million in cash and $2 million in MVB Financial Corp. stock. As a result of the acquisition, the Company issued 83,333 common shares, or 3.7% of the total shares outstanding, to the majority owner of PMG. PMG is now a wholly owned subsidiary of MVB Bank, Inc. The acquired assets and liabilities were measured at estimated fair values. Fair values of loans held for sale were based upon the locked in sales price recorded on each individual loan in the portfolio. Other assets and liabilities were insignificant to the transaction. Outstanding lines of credit were recorded at fair value. The transaction resulted in MVB recording $16.7 million in goodwill, which will be measured for impairment each December 1. The following condensed statement reflects the values assigned to PMG's net assets and liabilities as of the acquisition Total Purchase Price Net Assets Acquired Cash Loans held for sale Other assets Lines of credit Other liabilities Fair value of net assets acquired Goodwill resulting from PMG acquisition $ 19,000 1,354 60,233 2,907 (60,355) (1,864) 2,275 16,725 $ The company recorded goodwill with the acquisition of PMG of $16.7 million. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize any impairment during the year ended December 31, 2012. The carrying amount of the goodwill at December 31, 2012 was $16.7 million. 2012 Annual Report n 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which MVB has utilized Level 3 inputs to determine fair value: (in thousands) December 31, 2012 Impaired loans Quantitative Information about Level 3 Fair Value Fair Value Estimate Valuation Unobservable Techniques Input Range Weighted Average 3,118 Appraisal of collateral (1) Appraisal adjustments (2) 0% to -50.0% Liquidation expenses (2) (-25.2%) -1.5% to 8.0% (-5.5%) Other real estate owned and repossessed assets 207 Appraisal of collateral (1),(3) (1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustements are presented as a percent of the appraisal. (3) Includes qualitative adjustments by management and estimated liquidation expenses. NOTE 19. ACQUISITION OF PMG On December 20, 2012, the Company acquired Potomac Mortgage Group, LLC (PMG), a mortgage loan company based in Northern Virginia. The acquisition significantly expands MVB's mortgage production capacity. PMG operates four offices, with their main location in Fairfax, VA. Under terms of the agreement, the Company acquired PMG for a total purchase price of $19 million, $17 million in cash and $2 million in MVB Financial Corp. stock. As a result of the acquisition, the Company issued 83,333 common shares, or 3.7% of the total shares outstanding, to the majority owner of PMG. PMG is now a wholly owned subsidiary of MVB Bank, Inc. The acquired assets and liabilities were measured at estimated fair values. Fair values of loans held for sale were based upon the locked in sales price recorded on each individual loan in the portfolio. Other assets and liabilities were insignificant to the transaction. Outstanding lines of credit were recorded at fair value. The transaction resulted in MVB recording $16.7 million in goodwill, which will be measured for impairment each December 1. The following condensed statement reflects the values assigned to PMG's net assets and liabilities as of the acquisition Total Purchase Price Net Assets Acquired $ 19,000 Cash Loans held for sale Other assets Lines of credit Other liabilities Fair value of net assets acquired Goodwill resulting from PMG acquisition Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries 2,275 16,725 $ 1,354 60,233 2,907 (60,355) (1,864) The company recorded goodwill with the acquisition of PMG of $16.7 million. Goodwill is not amortized, but is periodically evaluated for impairment. The Company did not recognize any impairment during the year ended December 31, 2012. The carrying amount of the goodwill at December 31, 2012 was $16.7 million. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 The following table presents financial information regarding PMG included in MVB's Consolidated Statement of Income from the date of acquisition through December 31, 2012 under the column "Actual from acquisition date through December 31, 2012". In addition the following table presents unaudited pro forma information as if the acquisition of PMG had occurred on January 1, 2011 under the "Pro forma" columns. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company merged with PMG at the beginning of 2011. Net interest income Noninterest income Net income Pro forma earnings per share Basic Diluted Actual from acquisition date through December 31, 2012 Pro forma year ended December 31 2011 2012 3 $ 618 39 $ 17,324 7,749 4,168 $ 14,396 9,476 4,394 $ 1.84 1.79 $ 1.43 1.41 36 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 NOTE 20. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY The investment of the Company in its second tier subsidiaries is presented on the equity method of accounting. Information relative to the parent company's balance sheets at December 31, 2012 and 2011, and the related statements of income and cash flows for each of those years are presented below: (Dollars in thousands, except share data) Balance Sheets 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; 8,500 and 8,500 shares authorized, 8,500 and 8,500 shares issued Common stock, par value $1; 4,000,000 shares authorized; 2,932,901 and 2,234,767 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 before income taxes and undistributed income Income tax (benefit) Income after tax (benefit) Equity in undistributed income of bank subsidiary Net income Preferred dividends Net income Available Comprehensive invome December 31 2012 2011 $ 158 $ 167 71,253 302 71,713 $ $ 40 4,124 4,164 51,421 293 51,881 $ $ 25 4,124 4,149 $ 8,500 $ 8,500 2,933 48,750 (1,084) 9,945 (1,495) 67,549 71,713 $ 2012 $ 531 350 181 (133) 314 3,854 4,168 $ 136 4,032 3,415 $ $ 2,235 32,603 (1,084) 6,220 (742) 47,732 51,881 $ 2011 $ 473 296 177 (112) 289 2,413 2,702 $ 44 2,658 2,223 $ $ 2012 Annual Report n 37 Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MVB FINANCIAL CORP. DECEMBER 31, 2012 (Dollars in thousands) Statements of Cash Flows OPERATING ACTIVITIES Net income Equity in undistributed income of bank subsidiary Decrease/(increase) in other assets Increase in other liabilities Stock option expense Net cash provided by operating activities INVESTING ACTIVITIES Investment in subsidiary Net cash (used in) investing activities FINANCING ACTIVITIES Proceeds of stock offering Proceeds from dividend reinvestment plan Preferred stock issued Proceeds from long-term borrowings Common stock options exercised Cash dividend Preferred stock dividend Purchase of treasury stock Net cash provided by financing activities (Decrease) in cash Cash at beginning of period 2012 2011 $ 4,168 $ 2,702 (3,854) (9) 15 138 (2,413) 92 21 117 458 519 (14,731) (16,754) (14,731) (16,754) 13,734 973 - - - (307) (136) - 14,264 (9) 167 6,500 - 8,463 - - (218) (44) (78) 14,623 (1,612) 1,779 Cash at end of period $ 158 $ 167 Non-cash investing activity Issuance of stock in acquisition $ 2,000 $ - 38 n Setting the Pace Notes to Consolidated Financial Statements MVB Financial Corp. & Subsidiaries MVB Financial Corp. & Subsidiaries Selected Financial Data MVB Financial Corp. Selected Financial Data Amounts in thousands, except for share data Amounts in thousands, except for share data At or for the Year Ended December 31 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) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ $ $ $ 22,254 4,930 17,324 2,800 7,749 16,439 1,666 4,168 1.84 1.79 0.14 20.13 2,194 2,255 19,008 4,900 14,108 1,723 3,688 12,359 1,012 2,702 1.24 1.21 0.10 17.88 2,148 2,194 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 1,153 427,467 114,169 589,724 449,084 50,024 334,747 95,529 473,734 353,698 40,379 261,116 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 12,957 446,443 114,872 726,769 486,519 67,549 373,822 112,934 533,481 390,545 47,732 294,044 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 8.48% 8.52% 7.18% 8.62% 10.76% 10.83% 11.85% 10.48% 8.19% 8.24% 7.21% 8.01% 10.52% 20.85% 0.71% 0.57% 0.57% 0.45% 0.35% 0.62% 0.58% 0.45% 1.04% 0.85% 0.54% 0.25% -0.28% -6.36% 8.33% 6.69% 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 8.97% 9.60% 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 & 10% stock dividend effective February 15, 2011 12.23% 13.13% 14.95% 15.84% 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% $ 24.00 22.00 19.09 * 18.18 * 18.18 * 18.18 * 14.55 * 14.55 * 12.73 * 11.25 * 10.82 * 9.52 * 9.07 * 9.07 2012 Annual Report n 39 Shareholder & Company Information SHAREHOLDERS MEETINg The Annual Meeting of Shareholders of MVB Financial Corp. (“MVB”) will be held at 4035 Ridge Top Road, Fairfax, Virginia and at 113 Platinum Drive, Suite H, Bridgeport, West Virginia (MVB’s new Operations Center), at 5:30 p.m. on May 21, 2013. You may attend at either location. Video communications will link the two sites. This meeting is for the purposes of considering and voting upon proposals. Only those shareholders of record at the close of business on April 1, 2013, shall be entitled to notice of the meeting and to vote at the meeting. TRANSFER A gENT AND SHAREHOLDER INQ uIRIES The corporation’s transfer agent is The Registrar & Transfer Company. Inquiries concerning transfer requirements, lost certificates and change of address should be directed to: The Registrar & Transfer Company 10 Commerce Drive Cranford, NJ 07016 www.rtco.com ALL OTHER INQ uIRIES Investor inquiries to the company should be directed to: Lisa Wanstreet • 304.367.8697 • lwanstreet@mvbbanking.com All other inquiries about the company should be directed to: MVB Financial Corp. 301 Virginia Avenue Fairmont, West Virginia 26554 304.363.4800 mvbbanking.com Form 10K A copy of the MVB Financial Corp. Form 10-K for 2012, which has been filed with the SEC, is available without attachments at no charge upon written request and is also available at http://ir.mvbbanking.com. Inquiries should be directed to the Investor Relations contact (above). Independent registered accounting firm S.R. Snodgrass, A.C. Certified Public Accountants, Wheeling, WV Stock market listing MVB Financial Corp. shares trade over-the-counter at OTCQB: MVBF MVB BANK LOCATIONS 2012 Current Locations Bridgeport 1000 Johnson Avenue Bridgeport, WV 26330 Charles Town 88 Somerset Boulevard Charles Town, WV 25414 Cheat Lake 2400 Cranberry Square Morgantown, WV 26508 Clarksburg 406 West Main Street Clarksburg, WV 26301 Fairmont 301 Virginia Avenue Fairmont, WV 26554 Martinsburg 651 Foxcroft Avenue Martinsburg, WV 25401 Sabraton 10 Sterling Drive Morgantown, WV 26505 White Hall 9789 Mall Loop White Hall, WV 26555 Planned Locations Martinsburg/ Edwin Miller Boulevard – 2013 Charleston – 2014 40 n Setting the Pace Board of Directors DaviD B . alvarez Board Member of MVB Central, Inc.; President of MEC Construction in Bridgeport, WV Stephen r. BrookS Vice-Chair of MVB Financial Corp., MVB Bank, Inc., MVB East, Inc. and MVB Central, Inc.; Attorney with Flaherty, Sensabaugh & Bonasso in Morgantown, WV JameS J. Cava, Jr. Board Member of MVB Central, Inc.; CPA & Managing Member of Cava & Banko, PLLC in Bridgeport, WV Dr. JoSeph p. CinCinnati Chair of MVB East, Inc. and Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Orthopedic Surgeon with the Center of Orthopedic Excellence in Martinsburg, WV BernieCe D. ColliS Vice-Chair of MVB East, Inc., Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Vice President of Minghini’s General Contractors, Inc. in Martinsburg, WV h. eDwarD Dean, iii Board Member of MVB Financial Corp. and MVB Bank, Inc.; President & Chief Executive Officer of Potomac Mortgage Group (PMG), Inc. in Reston, VA John w. eBert Board Member of MVB Central, Inc.; President of J.W. Ebert Corp. dba McDonald’s in Bridgeport, WV Dr. Carl r. FiSCher* Board Member of MVB Central, Inc.; General Surgeon in Bridgeport, WV Dr. Brian D. Gilpin Board Member of MVB East, Inc.; Veterinarian with Shenandoah Veterinary Hospital in Martinsburg, WV harvey m. havliChek (retired 02/20/2013) Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; President of Adams Office Supply & Novelty Company, Inc. in Fairmont, WV ChriStine B. ielapi* Board Member of MVB Central, Inc.; Executive Vice President of Your Chef, Inc. in Bridgeport, WV *Retirement Effective May 2013 maria k. lorenSen Board Member of MVB East, Inc.; Development Director for the Hospice of the Panhandle in Martinsburg, WV kenneth F. lowe, iii Board Member of MVB East, Inc.; Director of Hotel and Restaurant Operations for the Clarion Hotel & Conference Center & CEO/Vice President of Ken Lowe Management Company in Shepherdstown, WV JameS r. martin Chair of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc., Board Member of MVB East, Inc.; Past President & Chief Executive Officer of MVB Financial Corp. and MVB Bank, Inc. in Fairmont, WV larry F. mazza Board Member of MVB Financial Corp., MVB Bank, Inc., MVB Central, Inc. and MVB East, Inc.; Chief Executive Officer of MVB Financial Corp. and President & Chief Executive Officer of MVB Bank, Inc. and MVB East, Inc. in Fairmont, WV BarBara a. mCkinney* Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Owner/ Broker-Howard Hanna/Premier Properties by Barbara Alexander, LLC in Morgantown, WV G. warren miCkey* Board Member of MVB East, Inc.; Retired Educator/Farmer in Charles Town, WV Dr. SaaD moSSallati Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Vascular Surgeon with Associated Specialists, Inc. in Bridgeport, WV Dr. kelly r. nelSon Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Senior Vice President with MedExpress Urgent Care in Bridgeport, WV leonarD w. noSSokoFF* Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Owner, Shop ‘n Save Supermarkets in Pittsburgh, PA J. ChriStopher pallotta Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; President of Bond Insurance Agency in Fairmont, WV niteSh S. patel Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Business Consultant; Previously President & Chief Executive Officer of D.N. American, Inc. in Dayton, OH John t. SChirripa Board Member of MVB Central, Inc.; President & Chief Executive Officer of MVB Central, Inc. and Executive Vice President, Regional President-Central, and Commercial Loan Officer of MVB Bank, Inc. in Bridgeport, WV ChriStopher B. Shultz Board Member of MVB East, Inc.; Owner/Realtor of Shultz Realty and Commercial Associates and Developer in Jefferson County, WV John B. SpaDaFore Board Member of MVB Central, Inc.; Retired Physical Therapist in Bridgeport, WV louiS SpataFore Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; President & General Manager of Friendly Furniture Galleries in Fairmont, WV riCharD l. toothman* Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Broker & Owner of Toothman Realty in Fairmont, WV Dr. miChael F. trent Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; Dentist in the Naval Dental Center in Camp Lejeune, NC roGer J. turner Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; President of MVB Financial Corp. and Executive Vice President and Senior Commercial Loan Officer of MVB Bank, Inc. in Fairmont, WV Samuel J. waraSh Board Member of MVB Financial Corp., MVB Bank, Inc. and MVB Central, Inc.; President of S.J. Warash, Inc. in Fairmont, WV 301 vir Ginia avenue • Fairmont, weSt vir Ginia 26554 • 304.363.4800 • 1.888.689.1877 • mvBBankinG.Com 

Continue reading text version or see original annual report in PDF format above