THINK BIGGER!
Annual Report 2017
About the Cover:
MVB’s community banking roots run deep in
every market we serve – from caring for each
client’s financial well-being to financial literacy
education to community revitalization projects.
We serve because it’s the right thing to do. We
help all of our clients “Think bigger!”
Annual Meeting:
The Annual Meeting of Shareholders of MVB
Financial Corp. (MVB) will be held at the
Fairmont State University Falcon Center,
1201 Locust Avenue, Fairmont, WV 26554
at 9:00 a.m. on May 15, 2018.
2017 Annual Report
1
Larry Mazza and
Mateen Abdul-Aziz
Mateen Abdul-Aziz addresses those gathered for the September 2017
kickoff ceremony for the Kelly Miller Community Center project,
part of M.O.R.E. (Monticello Ongoing Revitalization Effort).
THINK BIGGER!
MVB’S GROWTH JOURNEY
TO OUR SHAREHOLDERS:
As part of our commitment to community, MVB Bank has taken a leadership role in the Monticello Ongoing
Revitalization Effort (M.O.R.E.) in Clarksburg, West Virginia. Having grown up in this area, I personally know
the people involved working to make a difference. The momentum began with one man, Mateen Abdul-Aziz,
who started picking up garbage one piece at a time. As he walked his neighborhood, he noticed sidewalks
needing repairs and collaborated with the City of Clarksburg to make improvements. He inspired others to
join his efforts, and they helped create a community garden.
When Mateen approached me about MVB’s possible involvement, I advised him: “Think bigger!” I encouraged
him to focus on a vision for the future without limits. I committed my time and assisted with resources to
help M.O.R.E. reach the next level. Growth is a journey, so we must share our vision, plan for where we want to
be next year and in the next five years and get moving.
Today, a renaissance is happening in Clarksburg, and the M.O.R.E. vision includes a community center, youth
programs, soccer fields, a splash pad, affordable housing and has grown to potentially be a more than $50
million project. I share this story because, like M.O.R.E., MVB Financial is on a growth journey that has required
us to “Think bigger!” and to get moving. We also are focused on sharing our vision and planning for the future.
RINGING THE NASDAQ CLOSING BELL
2017 closed with a major milestone for MVB reflecting more than a decade of dedication and teamwork –
MVB’s listing on The Nasdaq Capital Market®.
2017 Annual Report
2
MVB is the first West Virginia company in 10 years, and the first West Virginia
bank in 18 years, to be listed on The Nasdaq.
Through investor presentations, we have shared our growth story and our strong community bank model. In
2017, total assets reached a new high of $1.5 billion, reflecting an 8.1 percent increase over 2016. Truly positive
was the significant rise in MVB’s stock price which reached a new 52-week high during third quarter 2017. The
buzz around MVB continues to build.
Our Nasdaq move has generated additional visibility and higher trading volume, but we will continue to
“Think bigger!” MVB Intends to qualify for inclusion in the Russell 2000 Index as part of the index’s next annual
reconstitution, which occurs in June of 2018. On March 28, 2018, we paused to celebrate our historic moment
with our Team, families, shareholders and friends as we rang The Nasdaq Closing Bell and posed for photos in
Times Square.
2017 MVB BANK STOCK PRICE
MVB MORTGAGE
Although 2017 was a challenging year for the industry, MVB Mortgage saw a drop off in originations of 6 percent,
or less than half the industry average. Mortgage’s performance was the result of a management team that
remained focused on recruiting highly qualified loan production officers and cultivating a corporate philosophy
of efficiently providing and delivering a quality product.
Interest rates continue to increase, and the inventory of homes for sale within our markets is low; however,
management is committed to growth. This will be achieved through expansion in current markets and entering
new markets where there are opportunities to recruit accomplished production teams.
Mortgage continues to “Think Bigger!” Lender Service Provider dba Lenderworks, in which Mortgage has a 33
percent interest, has expanded its role from not only performing its services for the companies that own it, but
also is now seeking other clients. To date, Lenderworks has contracted with two mortgage companies to provide
secondary marketing, compliance, loan originations system support and other back office services. The two
companies will be onboarded in the second quarter of 2018 and will defray costs for Mortgage.
STRATEGICALLY ADDING TO OUR TEAM
In fourth quarter 2017, MVB approved the hiring of 31 new Team
members during 2018. We already strategically have added po-
sitions to reinforce our sales Team efforts and take advantage of
disruptions in our markets due to recent M&A activity, especially in
Northern Virginia. We are successfully recruiting some of the best
talent in our markets because people are attracted to our entre-
preneurial spirit, Team culture and community focus. As I have said
before, when the pain to stay the same is equal to the pain to make
a job change, people are willing to make a move.
EXPANDING OUR FOOTPRINT
The MVB Bank footprint in West Virginia and Virginia now
encompasses 14 total locations, as well as 18 MVB Mortgage
locations in West Virginia; Virginia; Washington, D.C.; North
Carolina; and South Carolina.
2017 Annual Report
3
TOTAL
ASSETS
(in millions)
1,534
1,419
1,384
1,110
987
2013
2014 2015 2016
2017
YEAR
We have invested in Interactive Teller Machines (ITM) in our new
branches for our drive-thrus and lobbies. The state-of-the-art
technology increases client accessibility with extended hours
of operations and offers enhanced security, while maintaining
LOANS
(in millions)
1,024 1,044
1,096
a personal touch. MVB is positioned to strategically pinpoint
792
well-performing markets. Our two newest branches, located in
Morgantown, West Virginia, and Leesburg, Virginia, opened in
July 2017 in two excellent markets in the Tri-State region. MVB
continues to provide the highest level of touch and convenience
along with the “wow” experience our clients have come to expect,
setting us apart in key deposit markets. For future expansion, we
will “Think Bigger!” In 2018, we will focus on additional branches
in Northern Virginia to increase our presence there. We also will
remain active in exploring strategic M&A opportunities that best
fit our established criteria for success.
617
2013
2014 2015 2016
2017
YEAR
COMPLETING A RIGHTS OFFERING
The capital raise in late 2016 was the first time MVB offered
stock to institutional investors through private placement.
Approximately 1.9 million shares of the Company’s common
stock were issued from the capital raise completed in
December 2016, and 434,783 shares of the Company’s
common stock were issued from a rights offering completed in
April 2017. This strategic decision helped to drive value for the
long-term and to increase MVB’s stock liquidity. To show my
continued commitment to MVB and my belief in our future, I
personally purchased 100,000 shares in this offering.
CONVERTING OUR CORE
PROCESSOR
In the first quarter of 2017, MVB Bank went through the
extensive project of a core processor conversion. From
enhanced client services to significant efficiencies in operations,
our switch to Jack Henry & Associates took support from the
entire Team MVB but continues to assist us with operational
data for planning and monitoring performance and for client
relationship management. As a leading provider of technology
solutions and payment processing services in the financial
services industry, Jack Henry provides the tools we need to
grow and to “Think Bigger!”
BUILDING FINTECH PARTNERSHIPS
Fintech is here to stay as a disruption in the banking industry.
We have a choice: partner with fintech companies or fight
against them. At MVB we choose partnership and to “Think
Bigger!”
In the fourth quarter 2017, we welcomed Dan Holt to the MVB
Financial Corp. family. Dan is Co-Founder and CEO of BillGO,
a bill payment engine that offers real-time payments, revenue
and automation to payment providers. Under his leadership,
BillGO has become the top bill payments engine in the
financial industry. Dan brings fintech expertise to the Board
that will serve us well as that sector continues to bring fast-
paced change to the banking industry.
2017 Annual Report
4
DEPOSITS
(in millions)
1,160
1,107
1,012
823
696
2013
2014 2015 2016
2017
YEAR
NET
INCOME
(in thousands)
12,912
7,575
6,816
4,020
2,079
2013
2014 2015 2016
2017
YEAR
INVESTING IN OUR COMMUNITIES
2017 Annual Report
5
MVB’s community banking roots run deep in every market we serve – from caring for each client’s financial
well-being, to financial literacy education, to community revitalization projects. While this is part of our
Community Reinvestment Act (CRA) commitment, community service remains part of our culture; we serve
because it’s the right thing to do. This past year, we enhanced our efforts with our first annual Team MVB
Cares Week in all markets.
MVB has made a $2 million initial investment in the creation of our Community Development Corporation
(CDC), which started full operations in the fourth quarter 2017, including forming its Board of Directors.
Led by CDC President Herman DeProspero, MVB’s CDC will play an integral role in our commitment to the
economic welfare of our communities. Establishing the CDC allows us to “Think Bigger!” about investing in our
communities.
THANK YOU FOR YOUR SUPPORT
My teammates are amazing! We are all “Thinking Bigger!” and discovering new and innovative ways that we
can continue to improve. As a Team, we are totally resetting and modernizing our processes and systems for
the best client delivery and shareholder volume. Team MVB works hard and makes a difference every day.
I am thankful for our Board of Directors who share their time and talent to make MVB the best we can be
with a focus on a solid return to the shareholders. The Board remains a valuable resource to MVB and its
shareholders.
In closing, thank you for your investment in MVB. Thank you for believing in our vision and helping MVB to
“Think Bigger!” I look forward to sharing updates on our progress with you throughout 2018. As always, please
feel free to contact me directly at any time with comments or questions, including how we can assist you or
someone you know with your banking or mortgage needs.
Kindest regards,
Larry F. Mazza, CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2017
or
1934
For the transition period from __________ to __________.
Commission file Number 34603-9
MVB Financial Corp.
(Exact name of registrant as specified in its charter)
West Virginia
(State or other jurisdiction of
incorporation or organization)
301 Virginia Avenue, Fairmont, WV
(Address of principal executive offices)
20-0034461
(I.R.S. Employer Identification No.)
26554
(Zip Code)
Registrant's telephone number, including area code (304) 363-4800
(Former name, former address and former fiscal year, if changed since last report) [None]
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 Par
Name of each exchange on
which registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
Based upon the average selling price of sales known to the Registrant of the common shares of the Registrant during the period through June 30, 2017, the
aggregate market value of the common shares of the Registrant held by non-affiliates during that time was $121,710,032. For this purpose certain executive
officers and directors are considered affiliates.
Portions of the registrant’s definitive proxy statement relating to the Annual Meeting to be held May 15, 2018, are incorporated by reference into Part III of this
Annual Report on Form 10-K.
As of March 7, 2018, the Registrant had 10,528,627 shares of common stock outstanding with a par value of $1.00 per share.
TABLE OF CONTENTS
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
2
Page
3
21
30
30
31
31
32
34
35
58
59
116
116
120
120
120
120
120
120
121
Table of Contents
ITEM 1. BUSINESS
Corporate Overview
PART I
MVB Financial Corp. (“the Company”) is a financial holding company and was organized in 2003. MVB operates principally through
it’s wholly-owned subsidiary, MVB Bank, Inc. (“MVB Bank”). MVB Bank’s operating subsidiaries include MVB Mortgage, MVB
Insurance, LLC (“MVB Insurance”), and MVB Community Development Corporation (“CDC”).
MVB Bank was chartered in 1997 and commenced operations in 1999.
In 2012, MVB Bank acquired Potomac Mortgage Group, Inc. (“PMG” which began doing business under the registered trade name
“MVB Mortgage”), a mortgage company in the northern Virginia area, and fifty percent (50%) interest in a mortgage services
company, Lender Service Provider, LLC (“LSP”). In 2013, this fifty percent interest (50%) in LSP was reduced to a twenty-five
percent (25%) interest and in 2017, a forfeiture of a partial interest occurred, which increased the interest owned to thirty-three
percent (33%). At this time, LSP began doing business as Lenderworks.
MVB Insurance was originally formed in 2000. In 2013, MVB Insurance became a direct subsidiary of the Company. In 2016, the
Company entered into an Asset Purchase Agreement with USI Insurance Services (“USI”), in which USI purchased substantially all
of the assets and assumed certain liabilities of MVB Insurance, which resulted in a pre-tax gain of $6.9 million and was reported in
discontinued operations. MVB Insurance retained the assets related to, and continues to operate, its title insurance business, which
is immaterial in terms of revenue. The Company reorganized MVB Insurance as a subsidiary of the Bank in 2016.
MVB Community Development Corporation was formed in 2017 to house significant CRA investments that the Bank participates
in to better the communities it serves.
Business Overview
The Company’s primary business activities, through its subsidiaries, are primarily community banking and mortgage banking. The
Bank offers its customers a full range of products and services including:
• Various demand deposit accounts, savings accounts, money market accounts, and certificates of deposit;
• Commercial, consumer, and real estate mortgage loans and lines of credit;
• Debit cards;
• Cashier’s checks;
Safe deposit rental facilities; and
•
• Non-deposit investment services.
The Bank’s financial products and services are offered through its financial service locations and automated teller machines (“ATMs”)
in West Virginia and Virginia, as well as telephone and internet-based banking through both personal computers and mobile devices.
Non-deposit investment services are offered through an association with a broker-dealer.
Since its opening in 1999, the Bank has experienced significant growth in assets, loans, and deposits due to strong community and
customer support in Marion and Harrison counties in West Virginia, expansion into Jefferson, Berkeley, Monongalia, and Kanawha
counties in West Virginia and, most recently, into Fairfax and Loudoun counties in Virginia. Since the acquisition of PMG, mortgage
banking is now a much more significant focus, which has opened increased market opportunities in the Washington, DC metropolitan
region and added enough volume to further diversify the Company’s revenue stream.
The Company’s business activities include three reportable segments: commercial and retail banking, mortgage banking, and a
financial holding company. For a discussion of each of these reporting segments, please see Note 21, “Segment Reporting” of the
Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K.
Recent Corporate Developments
On April 7, 2017, the Bank converted its core banking system (including the related operating systems, data systems, and products).
3
Table of Contents
On December 7, 2017, the Company's common stock was approved for listing and began trading on The Nasdaq Common Market.
Primary Market Area and Customers
The Company considers its primary market area to be comprised of those counties where it has a physical branch presence and their
contiguous counties. This includes Marion, Harrison, Jefferson, Berkeley, Monongalia, and Kanawha counties of West Virginia and
Fairfax and Loudoun counties of Virginia. In addition, MVB Mortgage has mortgage-only offices located in Virginia, Washington,
DC, North Carolina, and South Carolina. The Bank currently operates a total of fourteen full-service banking branches: twelve in
West Virginia and two in Virginia. MVB Mortgage operates ten mortgage-only offices, located in Virginia, within the Washington,
DC metropolitan area, North Carolina, and South Carolina. In addition, MVB Mortgage has mortgage loan originators located at
select Bank locations throughout West Virginia.
The Company originates various types of loans, including commercial and commercial real estate loans, residential real estate loans,
home equity lines of credit, real estate construction loans, and consumer loans (loans to individuals). In general, the Company retains
most of its originated loans (exclusive of long-term, fixed rate residential mortgages that are sold.) However, loans originated in
excess of the Bank’s legal lending limit are participated to other banking institutions and the servicing of those loans is retained by
the bank.
The current economic climate in the Company’s primary market areas reflect economic climates that are consistent with the general
national climate. Unemployment in the United States was 3.9%, 4.5% and 4.8% in December 2017, 2016 and 2015, respectively.
The unemployment levels in the Company’s primary market areas were as follows for the periods indicated:
Berkeley County, WV
Harrison County, WV
Jefferson County, WV
Marion County, WV
Monongalia County, WV
Kanawha County, WV
Fairfax County, VA
Loudoun County, VA
December 2017
December 2016 December 2015
3.6%
4.8%
3.0%
5.5%
3.6%
5.1%
2.6%
2.7%
3.0%
4.9%
2.6%
5.1%
3.3%
4.7%
3.0%
3.0%
3.8%
5.8%
3.1%
5.9%
3.8%
5.2%
3.1%
3.1%
The energy industry, consisting of coal and natural gas, which has seen recent stimulation through natural gas pipeline projects and
increases in energy commodity pricing, are elements of the West Virginia economy and numerous markets in which the Company
operates. The Company has limited exposure in both the coal and natural gas industry. As of December 31, 2017 and 2016, the
outstanding loan balances to coal and natural gas production clients were $6.3 million and $7.3 million, respectively.
Segment Reporting
The Company has identified three reportable segments: commercial and retail banking; mortgage banking; and financial holding
company. Insurance services was previously identified as a reportable segment until entering into the Asset Purchase Agreement
with USI, as discussed above and in Note 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements
included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Revenue from commercial
and retail banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit
accounts. Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.
Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage
origination process. The mortgage banking services are conducted by MVB Mortgage. Revenue from insurance services is comprised
mainly of commissions on the sale of insurance products. Due to the sale as discussed below and in Note 23, "Discontinued Operations"
of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K. None of the insurance services activity is included in continuing operations
4
Table of Contents
Information about the reportable segments and reconciliation to the consolidated financial statements for the years ended
December 31, 2017, 2016 and 2015 are as follows:
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations, before income
taxes
Income tax expense (benefit) - continuing operations
Net income (loss) from continuing operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued operations
Net income (loss) from discontinued operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common shareholders
Capital Expenditures for the year ended December 31, 2017
Total Assets as of December 31, 2017
Goodwill as of December 31, 2017
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
2017
Financial
Holding
Company
Intercompany
Eliminations
Consolidated
$
52,423
$
4,698
$
$
(527) $
736
563
5,303
59,025
9,118
12,266
1,967
19,523
42,874
16,151
5,820
10,331
—
—
—
37,262
—
(2,372)
39,588
2,317
26,196
206
8,188
36,907
2,681
1,082
1,599
—
—
—
4
—
—
5,466
5,470
2,241
5,646
—
4,085
11,972
(6,502)
(2,147)
(4,355)
—
—
—
10,331
—
10,331
$
$
1,599
—
1,599
$
$
(4,355) $
498
(4,853) $
(849)
—
(5,403)
(6,779)
(1,375)
—
—
(5,404)
(6,779)
—
—
—
—
—
—
— $
—
— $
56,598
37,149
563
2,994
97,304
12,301
44,108
2,173
26,392
84,974
12,330
4,755
7,575
—
—
—
7,575
498
7,077
3,226
$
1,187
$
83
$
— $
4,496
1,533,497
1,598
149,323
16,882
184,600
(333,118)
1,534,302
—
—
18,480
5
Table of Contents
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations,
before income taxes
Income tax expense (benefit) - continuing
operations
Net income (loss) from continuing
operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued
operations
Net income (loss) from discontinued
operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital Expenditures for the year ended
December 31, 2016
Total Assets as of December 31, 2016
Goodwill as of December 31, 2016
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
Financial
Holding
Company
Insurance
Intercompany
Eliminations
Consolidated
2016
$
50,413
$
4,285
$
(252)
420
5,485
56,066
8,437
11,592
3,632
18,009
41,670
14,396
4,496
9,900
—
—
—
36,960
—
1,674
42,919
2,082
27,696
—
8,125
37,903
5,016
1,954
3,062
—
—
—
3
—
—
5,247
5,250
2,226
5,937
—
3,144
11,307
(6,057)
(2,072)
(3,985)
6,926
2,629
4,297
$
— $
(578) $
—
—
—
—
—
—
—
—
—
—
—
—
(580)
(218)
(362)
(1,035)
—
(5,294)
(6,907)
(1,613)
—
—
(5,294)
(6,907)
—
—
—
—
—
—
54,123
35,673
420
7,112
97,328
11,132
45,225
3,632
23,984
83,973
13,355
4,378
8,977
6,346
2,411
3,935
12,912
1,128
9,900
$
3,062
$
312
$
(362) $
—
—
1,128
—
— $
—
9,900
$
3,062
$
(816) $
(362) $
— $
11,784
1,145
$
220
$
303
$
— $
— $
1,668
1,415,735
1,598
122,242
16,882
180,340
—
—
—
(299,513)
1,418,804
—
18,480
6
Table of Contents
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations,
before income taxes
Income tax expense (benefit) - continuing
operations
Net income (loss) from continuing
operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued
operations
Net income (loss) from discontinued
operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital Expenditures for the year ended
December 31, 2015
Total Assets as of December 31, 2015
Goodwill as of December 31, 2015
Commercial & Retail Banking
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
Financial
Holding
Company
Insurance
Intercompany
Eliminations
Consolidated
2015
$
40,524
$
3,882
$
$
— $
(308) $
7
338
3,721
44,590
6,776
11,049
2,493
16,132
36,450
8,140
2,176
5,964
—
—
—
30,560
1,673
36,115
1,647
20,774
—
7,471
29,892
6,223
2,394
3,829
—
—
—
2
—
—
4,331
4,333
2,204
4,250
—
2,534
8,988
(4,655)
(1,597)
(3,058)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
134
53
81
81
—
(1,095)
—
(4,580)
(5,983)
(1,402)
—
—
(4,362)
(5,764)
(219)
(87)
(132)
219
87
132
$
— $
—
44,100
29,472
338
5,145
79,055
9,225
36,073
2,493
21,775
69,566
9,489
2,886
6,603
353
140
213
6,816
575
5,964
$
3,829
$
(3,058) $
—
—
575
5,964
$
3,829
$
(3,633) $
81
$
— $
6,241
1,174
$
354
$
616
$
9
$
— $
2,153
1,378,988
1,598
125,227
16,882
148,509
—
5,017
—
(273,265)
1,384,476
—
18,480
For the year ended December 31, 2017, the Commercial & Retail Banking segment earned $10.3 million compared to $9.9 million
in 2016. Net interest income increased by $1.3 million, primarily the result of a $1.3 million increase in interest on taxable investment
securities and a $734 thousand increase in interest and fees on loans which was offset by a $546 thousand increase in interest on
deposits and a $132 thousand increase in interest on FHLB and other borrowings. Noninterest income increased by $949 thousand,
primarily the result of a $988 thousand increase in mortgage fee income, a $419 thousand increase on commercial swap fee income,
a $447 thousand increase in other operating income, offset by a $557 thousand decrease in gain on sale of securities and a $504
thousand decrease in gain on sale of portfolio loans. Noninterest expense increased by $2.2 million, primarily the result of the
following: $674 thousand increase in salaries and employee benefits expense, $599 thousand increase in occupancy and equipment
expense, and $227 thousand increase in data processing and communications expense, which was offset by a $209 thousand decrease
in professional fees. The $599 thousand increase in occupancy and equipment expense was primarily the result of two new full-
service branches opened in 2017 and increased equipment expense related to depreciation and continued maintenance of property
and software. The $227 thousand increase in data processing and communications was primarily the result of the core conversion
completed in April 2017, along with overall growth in terms of personnel and office space company-wide and the usage of additional
products, services, and providers to better serve the client base. In addition, provision expense decreased by $1.7 million. Also,
income tax expense increased $1.3 million as a result of both increased net income before income taxes and as a result of tax reform
in which the Company was required to re-measure its net deferred tax asset and resulted in an income tax charge of $646 thousand.
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Mortgage Banking
For the year ended December 31, 2017, the Mortgage Banking segment earned $1.6 million compared to $3.1 million in 2016. Net
interest income increased $178 thousand, noninterest income decreased by $3.7 million, and noninterest expense decreased by $1.4
million. The decrease in noninterest income was primarily the result of a $4.1 million decrease in the gain on derivative. The decrease
in the gain on derivatives was largely the result of a 39.0% decrease in the locked mortgage pipeline for 2017 compared to a 31.6%
increase in the locked mortgage pipeline for 2016. The decrease in noninterest expense was primarily the result of the following:
$1.5 million decrease in salaries and employee benefits expense, which was primarily due to a 15.6% decrease in origination volume
and a $1.2 million decrease in the earn out paid to management of the mortgage company related to the 2012 acquisition. Other items
that impacted noninterest expense were as follows: a $242 thousand increase in occupancy and equipment expense and a $146
thousand increase in travel, entertainment, dues, and subscriptions expense, which were offset by a $159 thousand decrease in
marketing expense and a $148 thousand decrease in mortgage processing expense.
Financial Holding Company
Excluding discontinued operations, for the year ended December 31, 2017, the Financial Holding Company segment lost $4.4 million
compared to a loss of $4.0 million in 2016. Interest expense increased $15 thousand, noninterest income increased $219 thousand
and noninterest expense increased $650 thousand. In addition, the income tax benefit increased $75 thousand. The increase in
noninterest expense was primarily due to a $604 thousand increase in professional fees, a $169 thousand increase in travel,
entertainment, dues, and subscriptions expense, a $125 thousand increase in occupancy and equipment expense, and a $100 thousand
increase in other operating expense.
Insurance
In June 2016, primarily all the assets of the Insurance segment were sold and the segment was reorganized as a subsidiary of the
Bank. There was no insurance segment in 2017. The discontinued insurance segment lost $362 thousand in 2016.
Commercial Loans
At December 31, 2017, the Bank had outstanding approximately $783.9 million in commercial loans, including commercial,
commercial real estate, financial and agricultural loans. These loans represented approximately 70.9% of the total aggregate loan
portfolio as of that date.
Lending Practices. Commercial lending entails significant additional risks as compared with consumer lending (i.e., single-family
residential mortgage lending, and installment lending). In addition, the payment experience on commercial loans typically depends
on adequate cash flow of a business and thus may be subject, to a greater extent, to adverse conditions in the general economy or in
a specific industry. Loan terms include amortization schedules commensurate with the purpose of each loan, the source of repayment
and the risk involved. The primary analysis technique used in determining whether to grant a commercial loan is the review of a
schedule of estimated cash flows to evaluate whether anticipated future cash flows will be adequate to service both interest and
principal due. In addition, the Bank reviews collateral to determine its value in relation to the loan in the event of a foreclosure.
The Bank evaluates all new commercial loans and the Credit Department facilitates an annual loan review process that ensures that
a significant portion of the commercial loan portfolio, typically a minimum of 50%, is reviewed each year under a risk-based approach.
If deterioration in credit worthiness has occurred, the Bank takes prompt action designed to assure repayment of the loan. Upon
detection of the reduced ability of a borrower to meet original cash flow obligations, the loan is considered a classified loan and
reviewed for possible downgrading or placement on non-accrual status.
Consumer Loans
At December 31, 2017, the Bank had outstanding consumer loans in an aggregate amount of approximately $12.8 million or
approximately 1.2% of the aggregate total loan portfolio.
Lending Practices.
Consumer loans generally involve more risk as to collectability than mortgage loans because of the type and nature of the collateral
and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower’s
continued financial stability, and thus are more likely to be adversely affected by employment loss, personal bankruptcy, or adverse
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economic conditions. Credit approval for consumer loans requires demonstration of sufficiency of income to repay principal and
interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. It is the policy of the Bank
to review its consumer loan portfolio monthly and to charge-off loans that do not meet its standards and to adhere strictly to all laws
and regulations governing consumer lending.
Real Estate Loans
At December 31, 2017, the Bank had approximately $308.6 million of residential real estate loans, home equity lines of credit, and
construction mortgages outstanding, representing 27.9% of total loans outstanding.
Lending Practices.
The Bank generally requires that the residential real estate loan amount be no more than 80% of the purchase price or the appraised
value of the real estate securing the loan, unless the borrower obtains private mortgage insurance for the percentage exceeding 80%.
Occasionally, the Bank may lend up to 100% of the appraised value of the real estate. Loans made in this lending category are
generally one to ten-year adjustable rate, fully amortizing to maturity mortgages. MVB Bank also originates fixed rate real estate
loans and generally sells these loans in the secondary market. Most real estate loans are secured by first mortgages with evidence of
title in favor of the Bank in the form of an attorney’s opinion of the title or a title insurance policy. MVB Bank also requires proof
of hazard insurance with the Bank named as the mortgagee and as the loss payee. Full appraisals are obtained from licensed appraisers
for the majority of loans secured by real estate.
Home Equity Loans.
Home equity lines of credit are generally made as second mortgages by MVB Bank. The maximum amount of a home equity line
of credit is generally limited to 80% of the appraised value of the property less the balance of the first mortgage. The Bank will lend
up to 89.9% of the appraised value of the property at higher interest rates which are considered compatible with the additional risk
assumed in these types of loans. The home equity lines of credit are written with 10 year terms, but are subject to review upon request
for renewal.
Construction Loans.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved,
occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s
value at completion of construction and the estimated cost (including interest) of construction. If the estimate of construction cost
proves to be inaccurate, MVB may advance funds beyond the amount originally committed to permit completion of the project. Also,
note that with respect to construction loans, the bank generally makes loans to the homeowner and not to builders. At December 31,
2017, residential mortgage construction loans to individuals totaled approximately $117.1 million with an average life of 10 months
and are generally refinanced to a permanent loan upon completion of the construction.
Competition
The Company experiences significant competition in attracting depositors and borrowers. Competition in lending activities comes
principally from other commercial banks, savings associations, insurance companies, governmental agencies, credit unions, brokerage
firms and pension funds. The primary factors in competing for loans are interest rate and overall lending services. Competition for
deposits comes from other commercial banks, savings associations, money market funds and credit unions as well as from insurance
companies and brokerage firms. The primary factors in competing for deposits are interest rates paid on deposits, account liquidity,
convenience of office location and overall financial condition. The Company believes that its community approach provides flexibility,
which enables the Bank to offer an array of banking products and services. MVB Mortgage faces significant competition from both
traditional financial institutions and other national and local mortgage banking operations.
The Company primarily focuses on the Marion, Harrison, Jefferson, Berkeley, Monongalia and Kanawha County markets in West
Virginia and the northern Virginia area for its products and services. Management believes it has developed a level of expertise in
serving this area.
The Company operates under a “needs-based” selling approach that management believes has proven successful in serving the
financial needs of most customers. It is not the Company’s strategy to compete solely on the basis of interest rates. Management
believes that a focus on customer relationships and service will promote our customers’ continued use of our financial products and
services and will lead to enhanced revenue opportunities.
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Supervision and Regulation
The Company, the Bank and its subsidiaries are subject to extensive regulation under federal and state laws. The Company’s earnings
are affected by general economic conditions, management policies, changes in state and federal laws and regulations and actions of
various regulatory authorities, including those referred to in this section. The following discussion describes elements of an extensive
regulatory framework applicable to bank holding companies, financial holding companies, and banks and contains specific
information about the Company. Regulation of banks, bank holding companies, and financial holding companies is intended primarily
for the protection of depositors, the insurance fund of the Federal Deposit Insurance Corporation (“FDIC”) and the stability of the
financial system, rather than for the protection of shareholders and creditors.
In addition to banking laws, regulations and regulatory agencies, the Company is subject to various other laws, regulations, supervision
and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of the Company
and its ability to make distributions to shareholders. State and federal law govern the activities in which the Bank engages, the
investments it makes, and the aggregate amount of loans that may be granted to one borrower. Various consumer and compliance
laws and regulations also affect the Company’s operations.
The following discussion is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are
described. Such statutes, regulations and policies are continually under review by Congress and state legislatures and federal and
state regulatory agencies. The likelihood and timing of any such changes and the impact such changes may have on the Company
is impossible to determine with any certainty. A change in statutes, regulations or regulatory policies applicable to the Company and
its subsidiary could have a material effect on our business, financial condition or our results of operations.
Financial Regulatory Reform
During the past several years, there has been a significant increase in regulation and regulatory oversight for U.S. financial services
firms, primarily resulting from the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”) in 2010. The Dodd-Frank Act is extensive, complicated, and comprehensive legislation that impacts practically all aspects of
a banking organization, representing a significant overhaul of many aspects of the regulation of the financial services industry. The
Dodd-Frank Act implements numerous and far-reaching changes that affect financial companies, including banks, bank holding
companies, and financial holding companies such as the Company. The Dodd-Frank Act imposes new prudential regulation on
depository institutions and their holding companies. As such, the Company is subject to more stringent standards and requirements
with respect to (1) bank and nonbank acquisitions and mergers, (2) the “financial activities” in which it engages as a financial holding
company, (3) affiliate transactions and (4) proprietary trading, among other provisions.
Certain provisions of the Dodd-Frank Act and other laws are subject to further rulemaking, guidance and interpretation by the
applicable federal regulators. The Company will continue to evaluate the impact of any new regulations so promulgated, including
changes in regulatory costs and fees, modifications to consumer products or disclosures required by the Consumer Financial Protection
Bureau (“CFPB”) and the requirements of the enhanced supervision provisions, among others.
Regulatory Agencies
The Company is a legal entity separate and distinct from the Bank and the Bank's wholly-owned subsidiaries. As a financial holding
company and a bank holding company, the Company is regulated under the Bank Holding Company Act of 1956, as amended
(“BHCA”), and it and its subsidiary are subject to inspection, examination and supervision by the Board of Governors of the Federal
Reserve System (“Federal Reserve Board”). The BHCA provides generally for “umbrella” regulation of financial holding companies
such as the Company by the Federal Reserve Board, and for functional regulation of banking activities by bank regulators, securities
activities by securities regulators, and insurance activities by insurance regulators. The Company is also under the jurisdiction of the
Securities and Exchange Commission (“SEC”) and is subject to the disclosure and regulatory requirements of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as administered by the SEC.
The Bank is a West Virginia state chartered bank. The Bank is not a member bank of the Federal Reserve System (“non-member
bank”). Accordingly, the West Virginia Division of Financial Institutions and the FDIC are the primary regulators of the Bank.
Bank Holding Company Activities
In general, the BHCA limits the business of bank holding companies to banking, managing or controlling banks and other activities
that the Federal Reserve Board has determined to be so closely related to banking as to be a proper incident thereto. In addition, bank
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holding companies that qualify and elect to be financial holding companies may engage in any activity, or acquire and retain the
shares of a company engaged in any activity, that is either (i) financial in nature or incidental to such financial activity (as determined
by the Federal Reserve Board in consultation with the Secretary of the Treasury) or (ii) complementary to a financial activity and
does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally (as solely
determined by the Federal Reserve Board), without prior approval of the Federal Reserve Board. Activities that are financial in nature
include securities underwriting and dealing, insurance underwriting and making merchant banking investments. Under current federal
law, as a bank holding company, the Company has elected to become a financial holding company.
Most of the financial activities that are permissible for financial holding companies also are permissible for a bank’s “financial
subsidiary,” except for insurance underwriting, insurance company portfolio investments, real estate investments and development,
and merchant banking, which must be conducted by a financial holding company. In order for a financial subsidiary of a bank to
engage in permissible financial activities, federal law requires the parent bank (and its sister-bank affiliates) to be well capitalized
and well managed; the aggregate consolidated assets of all of that bank’s financial subsidiaries may not exceed the lesser of 45% of
its consolidated total assets or $50 billion; the bank must have at least a satisfactory Community Reinvestment Act rating.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries must be
“well capitalized” and “well managed” under applicable Federal Reserve Board regulations. A depository institution subsidiary is
considered to be “well capitalized” if it satisfies the requirements for this status discussed in the sections captioned “Capital
Requirements” and “Prompt Corrective Action,” included elsewhere in this item. A depository institution subsidiary is considered
“well managed” if it received a composite rating and management rating of at least “satisfactory” in its most recent examination. If
a financial holding company ceases to meet these capital and management requirements, the Federal Reserve Board’s regulations
provide that the financial holding company must enter into an agreement with the Federal Reserve Board to comply with all applicable
capital and management requirements. Until the financial holding company returns to compliance, the Federal Reserve Board may
impose limitations or conditions on the conduct of its activities, and the company may not commence any of the broader financial
activities permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval
of the Federal Reserve Board. If the company does not return to compliance within 180 days, the Federal Reserve Board may require
divestiture of the holding company’s depository institutions. Bank holding companies and banks must also be both well capitalized
and well managed in order to acquire banks located outside their home state.
In order for a financial holding company to commence any new activity permitted by the BHCA or to acquire a company engaged
in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must
have received a rating of at least “satisfactory” in its most recent examination under the Community Reinvestment Act. See the
section captioned “Community Reinvestment Act” included elsewhere in this item.
The Federal Reserve Board has the power to order any bank holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when the Federal Reserve Board has reasonable grounds to believe that
continuation of such activity or such ownership or control constitutes a serious risk to the financial soundness, safety or stability of
any bank subsidiary of the bank holding company.
Current federal law establishes a system of functional regulation under which the Federal Reserve Board is the umbrella regulator
for bank holding companies, but bank holding company affiliates are principally regulated by functional regulators such as the FDIC
for state nonmember bank affiliates, and state insurance regulators for insurance affiliates. Certain specific activities, including
traditional bank trust and fiduciary activities, may be conducted in the bank without the bank being deemed a “broker” or a “dealer”
in securities for purposes of functional regulation. Although states generally must regulate bank insurance activities in a
nondiscriminatory manner, states may continue to adopt and enforce rules that specifically regulate bank insurance activities in
certain identifiable areas.
Acquisitions
The BHCA, the Bank Merger Act, West Virginia banking law, and other federal and state statutes regulate acquisitions of commercial
banks and their parent holding companies. The BHCA requires the prior approval of the Federal Reserve Board for the direct or
indirect acquisition by a bank holding company of more than 5.0% of the voting shares of a commercial bank or its parent holding
company. Under the Bank Merger Act, the prior approval of the FDIC or other appropriate bank regulatory authority is required for
a non-member bank to merge with another bank or purchase substantially all of the assets or assume any deposits of another bank.
In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities will consider,
among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization,
the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the Community Reinvestment
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Act (see the section captioned “Community Reinvestment Act” included elsewhere in this item) and its compliance with consumer
protection laws and the effectiveness of the subject organizations in combating money laundering activities.
Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation.
Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, subject to market
share limitations and any state requirement that the target bank shall have been in existence and operating for a minimum period of
time. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire
additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches
under applicable federal or state law. These regulatory considerations are applicable to privately negotiated acquisition transactions.
Other Safety and Soundness Regulations
The Federal Reserve Board has enforcement powers over bank holding companies and their nonbanking subsidiaries. The Federal
Reserve Board has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of law, rule,
regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through the issuance
of cease and desist orders, civil money penalties or other actions.
Federal and state banking regulators also have broad enforcement powers over the Bank, including the power to impose fines and
other civil and criminal penalties, and to appoint a receiver in order to conserve the assets of the Bank for the benefit of depositors
and other creditors. The West Virginia commissioner of banking also has the authority to take possession of a West Virginia state
bank in certain circumstances, including, among other things, when it appears necessary in order to protect or preserve the assets of
that bank for the benefit of depositors and other creditors.
Anti-Money Laundering and the USA PATRIOT Act
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and
terrorist financing. The USA PATRIOT Act of 2001, or the USA Patriot Act, substantially broadened the scope of United States anti-
money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes
and penalties and expanding the extra-territorial jurisdiction of the United States. The USA Patriot Act contains anti-money laundering
measures affecting insured depository institutions, broker-dealers and certain other financial institutions. Financial institutions are
prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence
procedures in their dealings with certain types of high-risk customers and implement a written customer identification program.
Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report
certain types of suspicious transactions. The USA Patriot Act includes the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001, which grants the Secretary of the U.S. Treasury broad authority to establish regulations and to impose
requirements and restrictions on financial institutions’ operations. The U.S. Treasury has issued a number of regulations to implement
the USA Patriot Act under this authority requiring financial institutions to maintain appropriate policies, procedures and controls to
detect, prevent and report money laundering and terrorist financing. Regulatory authorities routinely examine financial institutions
for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat
money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal and
reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or
acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these
obligations.
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Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions
against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals
and others. OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking
accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and
reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious legal and reputational
consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when
regulatory approval is required or to prohibit such transactions even if approval is not required.
Incentive Compensation
The Federal Reserve Board reviews, as part of its regular, risk-focused examination process, the incentive compensation arrangements
of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews are tailored to
each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation
arrangements. The findings of this supervisory initiative will be included in reports of examination. Deficiencies will be incorporated
into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-
management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not
taking prompt and effective measures to correct the deficiencies.
In June 2010, the Federal Reserve Board, Office of the Comptroller of the Currency (“OCC”), and FDIC issued comprehensive final
guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations
do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers
all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is
based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that
do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with
effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective
oversight by the organization’s board of directors.
In June 2016, the Federal Reserve Board, other federal banking agencies, and the SEC jointly published a proposed rulemaking
designed to strengthen the incentive-based compensation practices at covered institutions by better aligning the financial rewards
for covered persons with an institution's long-term safety and soundness. The proposed rule uses a tiered approach that applies
provisions to covered financial institutions according to three categories of average total consolidated assets: Level 1 ($250 billion
or more), Level 2 ($50 billion to $250 billion), and Level 3 ($1 billion to $50 billion). For all covered institutions, the proposed rule
would (i) prohibit types and features of incentive-based compensation arrangements that encourage inappropriate risks because they
are "excessive" or "could lead to material financial loss" at a covered institution, (ii) require incentive-based compensation
arrangements to adhere to three basic principles: (1) a balance between risk and reward; (2) effective risk management and controls;
and (3) effective governance, and (iii) require appropriate board or directors (or committee) oversight and record keeping and
disclosures to the appropriate agency. For Level 1 and Level 2 institutions, the proposed rule would (i) require the following: the
deferral of awards for senior executive officers and significant risk takers; the subjecting of unpaid and unvested incentive
compensation to the risk of downward adjustments or forfeiture; the subjecting of paid incentive compensation to the risk of
"clawback;" establishing a board compensation committee; expanded risk-management and control standards; additional record
keeping requirements for senior executive officers and significant risk takers; and detailed policies and procedures to ensure rule
compliance and (ii) prohibit certain inappropriate practices, including: the purchase of hedging instruments that offset decreases in
the value of incentive compensation; allowing a range of payouts that might encourage risk taking; and basing compensation solely
on comparison to peer and volume-driven incentives without regard to transaction quality or compliance with sound risk management.
The comment period ended in July 2016.
If these or other regulations are adopted in a form similar to that initially proposed, they will impose limitations on the manner in
which we may structure compensation for our executives.
In addition, SEC regulations require public companies, like the Company, to provide various disclosures about executive compensation
in annual reports and proxy statements and to present to their shareholders a non-binding vote on the approval of executive
compensation.
The scope and content of the U.S. banking regulators’ policies on incentive compensation and SEC rulemaking with respect to
executive compensation are continuing to develop.
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The Volcker Rule
The Volcker Rule implements section 619 of the Dodd-Frank Act and prohibits insured depository institutions and affiliated companies
(together, “banking entities”) from engaging in short-term proprietary trading of certain securities, derivatives, and commodity
futures, and options on these instruments, for their own account. The final rules adopted by federal financial regulatory agencies to
implement section 619 also impose limits on banking entities’ investments in, and other relationships with, hedge funds or private
equity funds. Like the Dodd-Frank Act, the rules provide exemptions for certain activities, including market making, underwriting,
hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds or private equity
funds. The rules also clarify that certain activities are not prohibited, including acting as agent, broker or custodian.
The compliance requirements under the rules vary based on the size of the banking entity and the scope of activities conducted.
Banking entities with significant trading operations will be required to establish a detailed compliance program, and their Chief
Executive Officers will be required to attest that the program is reasonably designed to achieve compliance with the final rules.
Independent testing and analysis of an institution's compliance program also will be required. The final rules reduce the burden on
smaller, less-complex institutions by limiting their compliance and reporting requirements. Additionally, a banking entity that does
not engage in covered trading activities will not need to establish a compliance program.
Banking entities must conform their proprietary trading activities to the final rule by July 21, 2015. The Federal Reserve Board has
extended the compliance deadline to July 21, 2017 for purposes of conforming investments in and relationships with covered funds
and foreign funds that were in place prior to December 31, 2013. These requirements are not expected to have a material impact on
the Company’s consolidated financial position, results of operations or cash flows. The Volcker Rule does not significantly impact
the operations of the Company and its subsidiary, as we do not have any significant engagement in the businesses prohibited by the
Volcker Rule.
Limit on Dividends
The Company is a legal entity separate and distinct from the Bank and the Bank's wholly-owned subsidiaries. The Company’s ability
to obtain funds for the payment of dividends and for other cash requirements largely depends on the amount of dividends the Bank
declares. However, the Federal Reserve Board expects the Company to serve as a source of financial and managerial strength to the
Bank to reduce potential loss exposure to the Bank’s depositors and to the FDIC insurance fund in the event the Bank becomes is
insolvent or is in danger of becoming insolvent. Under this requirement, the Company is expected to commit resources to support
the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by
the Company to the Bank would be subordinate in right of payment to depositors and to certain other indebtedness of the Bank. In
the event of the Company’s bankruptcy, any commitment by the Company to a federal bank regulatory agency to maintain the capital
of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Accordingly, the Federal Reserve Board may require the Company to retain capital for further investment in the Bank, rather than
pay dividends to its shareholders. The Bank may not pay dividends to the Company if, after paying those dividends, the Bank would
fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. The
Bank must have the approval from the West Virginia Division of Financial Institutions if a dividend in any year would cause the
total dividends for that year to exceed the sum of the current year’s net earnings as defined and the retained earnings for the preceding
two years as defined, less required transfers to surplus. These provisions could limit the Company’s ability to pay dividends on its
outstanding common shares.
In addition, the Company and the Bank are subject to other regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory minimums (See “Capital Requirements”, below). The
appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of
a bank holding company or a bank that the payment of dividends would be an unsafe or unsound practice and to prohibit payment
thereof. The appropriate federal regulatory authorities have stated that paying dividends that deplete a bank’s capital base to an
inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends
only out of current operating earnings. In addition, in the current financial and economic environment, the Federal Reserve Board
has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that
are at maximum allowable levels unless both asset quality and capital are very strong.
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Transactions with Affiliates
Transactions between the Bank and its subsidiaries, on the one hand, and the Company or any other subsidiary, on the other hand,
are regulated under federal banking law. The Federal Reserve Act, made applicable by section 8(j) of the FDIA, imposes quantitative
and qualitative requirements and collateral requirements on covered transactions by the Bank with, or for the benefit of, its affiliates,
and generally requires those transactions to be on terms at least as favorable to the Bank as if the transaction were conducted with
an unaffiliated third party. Covered transactions are defined by statute to include a loan or extension of credit, as well as a purchase
of securities issued by an affiliate, a purchase of assets (unless otherwise exempted by the Federal Reserve Board) from the affiliate,
certain derivative transactions that create a credit exposure to an affiliate, the acceptance of securities issued by the affiliate as
collateral for a loan, and the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In general, any such
transaction by the Bank or its subsidiaries must be limited to certain thresholds on an individual and aggregate basis and, for credit
transactions with any affiliate, must be secured by designated amounts of specified collateral.
Federal law also limits a bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to
entities controlled by such persons. Among other things, extensions of credit to insiders are required to be made on terms that are
substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons. Also, the terms of such extensions of credit may not involve more than the normal risk of non-
repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such
persons individually and in the aggregate.
Capital Requirements
The Company and the Bank are each required to comply with applicable capital adequacy standards established by the Federal
Reserve Board and the FDIC, respectively (“Capital Rules”). State chartered banks, such as the Bank, are subject to similar capital
requirements adopted by the West Virginia Division of Financial Institutions.
The Capital Rules, among other things, (i) include a “Common Equity Tier 1” (“CET1”) measure, (ii) specify that Tier 1 capital
consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by
requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of
capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.
Under the Capital Rules, the minimum capital ratios effective as of January 1, 2015 are:
•
•
•
•
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the leverage
ratio”).
The Capital Rules also include a new “capital conservation buffer”, composed entirely of CET1, on top of these minimum risk-
weighted asset ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and will
increase by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019. The Capital Rules also provide for a
“countercyclical capital buffer” that is only applicable to certain covered institutions and does not have any current applicability to
the Company or the Bank. The capital conservation buffer is designed to absorb losses during periods of economic stress and
effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted
assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer)
will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
When fully phased in on January 1, 2019, the Capital Rules will require the Company and the Bank to maintain an additional capital
conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii)
Tier 1 capital to risk-weighted assets of at least 8.5%, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 10.5%;
and (iv) a minimum leverage ratio of 4%. The Capital Rules also provide for a number of deductions from and adjustments to CET1.
The Capital Rules prescribe a standardized approach for risk weightings that expanded the risk-weighting categories from the general
risk-based capital rules to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally
ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk
weights for a variety of asset categories.
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In September 2017, the Federal Reserve Board, along with other bank regulatory agencies, proposed amendments to its capital
requirements to simplify aspects of the capital rules for community banks, including the Bank, in an attempt to reduce the regulatory
burden for such smaller financial institutions. Because the amendments were proposed with a request for comments and have not
been finalized, we do not yet know what effect the final rules will have on the Bank’s capital calculations. In November 2017, the
federal banking agencies extended for community banks the existing capital requirements for certain items that were scheduled to
change effective January 1, 2018, in light of the simplification amendments being considered.
With respect to the Bank, the Capital Rules also revise the “prompt corrective action” regulations pursuant to Section 38 of the
Federal Deposit Insurance Act, as discussed below under “Prompt Corrective Action.”
Prompt Corrective Action
The FDIA requires among other things, the federal banking agencies to take “prompt corrective action” in respect of depository
institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized,”
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository
institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other
factors, as established by regulation. The relevant capital measures, which reflect changes under the Capital Rules that became
effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio and the leverage ratio.
A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of
6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any
order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii)
“adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 4.5% or
greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii)
“undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio less than 4.5%, a
Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if the
institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less than 3.0%, a Tier 1 risk-based capital ratio
of less than 4.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the institution’s tangible equity is equal
to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category
that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an
unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of
applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s
overall financial condition or prospects for other purposes.
The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or
paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.”
“Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies
may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository
institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank
holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company
is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized
and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital
standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to
submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or
conservator.
The appropriate federal banking agency may, under certain circumstances, reclassify a well capitalized insured depository institution
as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency
determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution
to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or
undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not
treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital
levels of the institution.
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In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a
variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of
deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.
For further information regarding the capital ratios and leverage ratio of the Company and the Bank see the discussion under the
section captioned “Capital/Stockholders’ Equity” included in Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Note 14, “Regulatory Capital Requirements” of the Notes to the Consolidated Financial Statements
included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Safety and Soundness Standards
The FDIA requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal
controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset
growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial
standards as the agencies deem appropriate. Guidelines adopted by the federal bank regulatory agencies establish general standards
relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risk and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable
or disproportionate to the services performed by an executive officer, employee, director or principal stockholder. In addition, the
agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance
plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the
types to which an undercapitalized institution is subject under the “prompt corrective action” provisions of the FDIA. See “Prompt
Corrective Action” above. If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
Deposit Insurance
The Bank’s deposits are insured by the FDIC up to the limits set forth under applicable law. The FDIC imposes a risk-based deposit
premium assessment system that determines assessment rates for an insured depository institution based on an assessment rate
calculator, which is based on a number of elements to measure the risk each insured depository institution poses to the FDIC insurance
fund. The assessment rate is applied to total average assets less tangible equity, as defined under the Dodd-Frank Act. The assessment
rate schedule can change from time to time at the discretion of the FDIC, subject to certain limits. Under the current system, premiums
are assessed quarterly.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound
practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC.
Depositor Preference
The FDIA provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims of
depositors of the institution, including the claims of the FDIC as subrogee of insured depositors, and certain claims for administrative
expenses of the FDIC as a receiver, will have priority over other general unsecured claims against the institution. If an insured
depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured,
non-deposit creditors, including depositors whose deposits are payable only outside of the United States and the parent bank holding
company, with respect to any extensions of credit they have made to such insured depository institution.
Federal Home Loan Bank (“FHLB”) membership
The FHLB provides credit to its members in the form of advances. As a member of the FHLB of Pittsburgh, the Bank must maintain
an investment in the capital stock of that FHLB in an amount equal to 0.10% of the calculated Member Asset Value (“MAV”) plus
4.00% of outstanding advances and 0.75% of outstanding letters of credit. The MAV is determined by taking line item values for
various investment and loan classes and applying an FHLB haircut to each item. At December 31, 2017, the Bank held capital stock
of FHLB in the amount of $7.6 million.
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Federal and State Consumer Laws
The Company and the Bank are subject to a number of federal and state consumer protection laws that extensively govern our
relationship with our customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage
Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service
Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair
and deceptive acts and practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms
of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit
report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict our ability to raise
interest rates and subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result in
significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal
bank regulators, state attorneys general, and state and local consumer protection agencies may also seek to enforce consumer protection
requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and
local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection
requirements may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions
we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.
Consumer Financial Protection
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings
Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing
Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and
these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair, deceptive, and abusive acts and
practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms of deposit accounts,
provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information,
provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict our ability to raise interest rates and
subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result in significant potential
liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal financial regulators,
state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements
and obtain these and other remedies, including regulatory sanctions, customer rescission rights and civil money penalties. Failure to
comply with consumer protection requirements may also result in our failure to obtain any required bank regulatory approval for
merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is
not required.
The CFPB is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer protection
laws. The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including,
among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB can issue cease-and-desist
orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an
entity in violation of federal consumer financial law in order to impose a civil penalty or injunction. The Dodd-Frank Act permits
states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain
circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations. The CFPB
also has examination and enforcement authority over all banks with more than $10 billion in assets, as well as their affiliates, which
authority would not apply to the Company or the Bank.
The CFPB has concentrated much of its rulemaking efforts on a variety of mortgage-related topics required under the Dodd-Frank
Act, including mortgage origination disclosures, minimum underwriting standards and ability to repay, high-cost mortgage lending,
and servicing practices. The CFPB issued final rules changing the reporting requirements for lenders under the Home Mortgage
Disclosure Act. The new rules expand the range of transactions subject to these requirements to include most securitized residential
mortgage loans and credit lines. The rules also increase the overall amount of data required to be collected and submitted, including
additional data points about the loans and borrowers. The expanded data is being collected as of January 1, 2018.
Financial Privacy
Federal law currently contains extensive customer privacy protection provisions, including substantial customer privacy protections
provided under the Financial Services Modernization Act of 1999 (commonly known as the Gramm-Leach-Bliley Act). Under these
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provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter,
the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These
provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to
unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer
is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to
obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means. In December 2015, Congress
amended the Gramm-Leach-Bliley Act privacy provisions to include an exception under which if a financial institution meets certain
conditions, it is not required to provide annual privacy notices to customers. In August 2017, the CFPB finalized a rule implementing
this provision, and that rule became effective October 10, 2017, with a mandatory compliance date of October 1, 2018.
Automated Overdraft Payment Regulation
Federal regulators have adopted consumer protection regulations and guidance related to automated overdraft payment programs
offered by financial institutions. Regulation E prohibits financial institutions from charging consumers fees for paying overdrafts on
automated teller machine and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for
those types of transactions. Financial institutions must also provide consumers with a notice that explains the financial institution’s
overdraft services, including the fees associated with the service and the consumer’s choices. In addition, FDIC-supervised institutions
must monitor overdraft payment programs for “excessive or chronic” customer use and undertake “meaningful and effective” follow-
up action with customers that overdraw their accounts more than six times during a rolling 12-month period. Financial institutions
must also impose daily limits on overdraft charges, review and modify check-clearing procedures, prominently distinguish account
balances from available overdraft coverage amounts and ensure board and management oversight regarding overdraft payment
programs.
Community Reinvestment Act
The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their
market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet
the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities.
The CRA requires the Bank’s primary federal bank regulatory agency, the FDIC, to assess the bank’s record in meeting the credit
needs of the communities served by the bank, including low- and moderate-income neighborhoods and persons. Institutions are
assigned one of four ratings: “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.”
In order for a financial holding company to commence any new activity permitted by the BHCA, or to acquire any company engaged
in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must
have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take
into account CRA ratings when considering a request for an approval of a proposed transaction to consolidate with or acquire the
assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office.
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial
institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management
processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate
customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s
management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and
maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected
to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and
restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory
guidance, we could be subject to various regulatory sanctions, including financial penalties.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to
store sensitive data. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious
activity, as well as to report on any suspected advanced persistent threats. Notwithstanding our defensive measures, the threat from
cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive
measures. While to date, we are not aware that we have experienced a significant compromise, significant data loss or any material
financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under
constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity
attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats,
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as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and
our customers. For further discussion of risks related to cybersecurity, see Item 1A, Risk Factors, of this Annual Report on Form 10-
K.
Monetary Policy and Economic Conditions
The business of financial institutions is affected not only by general economic conditions, but also by the policies of various
governmental regulatory agencies, including the Federal Reserve Board. The Federal Reserve Board regulates money and credit
conditions and interest rates to influence general economic conditions primarily through open market operations in U.S. government
securities, changes in the discount rate on bank borrowings and changes in the reserve requirements against depository institutions’
deposits. These policies and regulations significantly affect the overall growth and distribution of loans, investments and deposits,
and the interest rates charged on loans, as well as the interest rates paid on deposit accounts.
The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of financial institutions in
the past and are expected to continue to have significant effects in the future. In view of the changing conditions in the economy and
the money markets and the activities of monetary and fiscal authorities, the Company cannot predict future changes in interest rates,
credit availability or deposit levels.
Effect of Environmental Regulation
The Company’s primary exposure to environmental risk is through its lending activities. In cases when management believes
environmental risk potentially exists, the Company mitigates its environmental risk exposures by requiring environmental site
assessments at the time of loan origination to confirm collateral quality as to commercial real estate parcels posing higher than normal
potential for environmental impact, as determined by reference to present and past uses of the subject property and adjacent sites.
Environmental assessments are typically required prior to any foreclosure activity involving non-residential real estate collateral.
With regard to residential real estate lending, management reviews those loans with inherent environmental risk on an individual
basis and makes decisions based on the dollar amount of the loan and the materiality of the specific credit.
The Company anticipates no material effect on anticipated capital expenditures, earnings or competitive position as a result of
compliance with federal, state or local environmental protection laws or regulations.
Other Regulatory Matters
The Company is subject to examinations and investigations by federal and state banking regulators, as well as the SEC, various
taxing authorities and various state regulators. The Company periodically receives requests for information from regulatory authorities
in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory
authorities, concerning the Company’s business and accounting practices. Such requests are considered incidental to the normal
conduct of business.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures
may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which
existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof,
cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate
and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital,
require modifications to our business strategy, and limit our ability to pursue business opportunities in an efficient manner. A change
in statutes, regulations or regulatory policies applicable to the Company or any of its subsidiaries could have a material, adverse
effect on our business, financial condition and results of operations.
Corporate and available information
We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and any other filings required by the SEC. We make available on our Investor Relations website, free of charge, our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website
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is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.
The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington,
DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
ITEM 1A. RISK FACTORS
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management
believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included or incorporated by reference in this Annual Report on Form 10-
K. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management
is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This Annual
Report on Form 10-K is qualified in its entirety by these risk factors.
If any of the following risks actually occur, our business, financial condition and results of operations could be materially and
adversely affected. If this were to happen, the market price of our common stock could decline significantly, and you could lose all
or part of your investment.
References to “we,” “us,” and “our” in this “Risk Factors” section refer to the Company and its subsidiary, including the Bank, unless
otherwise specified or unless the context otherwise requires.
Risks Related To Our Business
Our business depends upon the general economic conditions of the State of West Virginia and the Commonwealth of
Virginia, and may be adversely affected by downturns in these and the other local economies in which we operate.
In recent years, economic growth and business activity across a wide range of industries and regions in the U.S. has been slow and
uneven. Furthermore, there are continuing concerns related to the level of U.S. government debt and fiscal actions that may be taken
to address that debt. There can be no assurance that economic conditions will continue to improve, and these conditions could worsen.
In addition, oil price volatility, the level of U.S. debt and global economic conditions have had a destabilizing effect on financial
markets.
Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding
loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly
dependent upon the business environment in the markets where we operate, including the State of West Virginia and the
Commonwealth of Virginia and the United States as a whole. A favorable business environment is generally characterized by, among
other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence,
and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic
growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and
capital; increases in inflation or interest rates; high unemployment, natural disasters; or a combination of these or other factors.
While the U.S. economy experienced growth during 2017, with increasing exports, jobs, and manufacturing production, continued
economic pressure on consumers and uncertainty regarding continuing economic improvement may result in changes in consumer
and business spending, borrowing and savings habits. Such conditions, combined with continued oil price volatility, could have a
material adverse effect on the credit quality of our loans and our business, financial condition and results of operations.
A significant portion of our loans are secured by real estate concentrated in the State of West Virginia and the
Commonwealth of Virginia, which may adversely affect our earnings and capital if real estate values decline.
Nearly 78.4% of our total loans are real estate interests (residential, nonresidential including both owner-occupied and investment
real estate, and construction and land development) mainly concentrated in the State of West Virginia and the Commonwealth of
Virginia, a relatively small geographic area. As a result, declining real estate values in these markets could negatively impact the
value of the real estate collateral securing such loans. If we are required to liquidate a significant amount of collateral during a period
of reduced real estate values in satisfaction of any non-performing or defaulted loans, our earnings and capital could be adversely
affected.
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Our nonresidential real estate loans expose us to greater risks of nonpayment and loss than residential mortgage loans,
which may cause us to increase our allowance for loan losses which would reduce our net income.
At December 31, 2017, $796.7 million, or 72.1%, of our loan portfolio consisted of nonresidential real estate loans. Nonresidential
real estate loans generally expose a lender to greater risk of non-payment and loss than residential mortgage loans because repayment
of the loans often depends on the successful operation of the property and the income stream of the borrowers. Such loans expose
us to additional risks because they typically are made on the basis of the borrower’s ability to make repayments from the cash flow
of the borrower’s business and are secured by collateral that may depreciate over time. These loans typically involve larger loan
balances to single borrowers or groups of related borrowers compared to residential mortgage loans. Because such loans generally
entail greater risk than residential mortgage loans, we may need to increase our allowance for loan losses in the future to account
for the likely increase in probable incurred credit losses associated with the growth of such loans, which would reduce our net income.
Also, many of our nonresidential real estate borrowers have more than one loan outstanding with us. Consequently, an adverse
development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an
adverse development with respect to a residential mortgage loan.
Our allowance for loan losses could become inadequate and reduce earnings and capital.
The Bank maintains an allowance for loan losses that it believes is adequate for absorbing the estimated future losses inherent in its
loan portfolio. Management conducts a periodic review and consideration of the loan portfolio to determine the amount of the
allowance for loan losses based upon general market conditions, credit quality of the loan portfolio and performance of the Bank’s
clients relative to their financial obligations with it. The amount of future losses, however, is susceptible to changes in economic and
other market conditions, including changes in interest rates and collateral values, which are beyond the Bank’s control, and these
future losses may exceed its current estimates. Management performs stress tests on the loan portfolios to estimate future loan losses,
but additional provisions for loan losses could be required in the future, including as a result of changes in the economic assumptions
underlying management’s estimates and judgments, adverse developments in the economy on a national basis or in the Bank’s market
area, or changes in the circumstances of particular borrowers. We cannot predict with absolute certainty the amount of losses or
guarantee that the allowance for loan losses is adequate to absorb future losses in the loan portfolio. Excessive loan losses could
have a material adverse effect on the Company’s financial condition and results of operations.
The profitability of MVB Mortgage will be significantly reduced if we are not able to sell mortgages.
Currently, we generally sell all of the mortgage loans originated by MVB Mortgage. We only underwrite mortgages that we reasonably
expect will have more than one potential purchaser. The profitability of our Mortgage Subsidiary depends in large part upon our
ability to originate a high volume of loans and to sell them in the secondary market. Thus, we are dependent upon (i) the existence
of an active secondary market and (ii) our ability to sell loans into that market.
MVB Mortgage’s ability to sell mortgage loans readily is dependent upon the availability of an active secondary market for single-
family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by Fannie Mae and Freddie
Mac and other institutional and non-institutional investors. These entities account for a substantial portion of the secondary market
in residential mortgage loans. Some of the largest participants in the secondary market, including Fannie Mae and Freddie Mac, are
government-sponsored enterprises with substantial market influence whose activities are governed by federal law. Any future changes
in laws that significantly affect the activity of these government-sponsored enterprises and other institutional and non-institutional
investors or any impairment of our ability to participate in such programs could, in turn, adversely affect our operations.
Our largest source of revenue (net interest income) is subject to interest rate risk.
The Bank’s financial condition and results of operations are significantly affected by changes in interest rates. The Bank’s earnings
depend primarily upon its net interest income, which is the difference between its interest income earned on its interest-earning
assets, such as loans and investment securities, and its interest expense paid on its interest-bearing liabilities, consisting of deposits
and borrowings. Moreover, the loans included in our interest-earning assets are primarily comprised of variable and adjustable rate
loans. Net interest income is subject to interest rate risk in the following ways:
•
In general, for a given change in interest rates, the amount of change in value (positive or negative) is larger for assets and
liabilities with longer remaining maturities. The shape of the yield curve may affect new loan yields, funding costs and
investment income differently.
• The remaining maturity of various assets or liabilities may shorten or lengthen as payment behavior changes in response
to changes in interest rates. For example, if interest rates decline sharply, loans may pre-pay, or pay down, faster than
anticipated, thus reducing future cash flows and interest income. Conversely, if interest rates increase, depositors may cash
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in their certificates of deposit prior to maturity (notwithstanding any applicable early withdrawal penalties) or otherwise
reduce their deposits to pursue higher yielding investment alternatives.
• Re-pricing frequencies and maturity profiles for assets and liabilities may occur at different times. For example, in a falling
rate environment, if assets re-price faster than liabilities, there will be an initial decline in earnings. Moreover, if assets and
liabilities re-price at the same time, they may not be by the same increment. For instance, if the Federal Funds Rate increased
50 basis points, rates on demand deposits may rise by 10 basis points; whereas rates on prime-based loans will instantly
rise 50 basis points.
Financial instruments do not respond in a parallel fashion to rising or falling interest rates. This causes asymmetry in the magnitude
of changes to net interest income, net economic value and investment income resulting from the hypothetical increases and decreases
in interest rates. Interest rate risk is more fully described under the section captioned "Interest Rate Risk" in Item 1, Business, and
under the section captioned "Asset/Liability Management and Market Risk" in Item 7A, Quantitative and Qualitative Disclosures
About Market Risk, of this Annual Report on Form 10-K.
Our accounting policies and estimates are critical to how we report our financial condition and results of operations,
and any changes to such accounting policies and estimates could materially affect how we report our financial condition
and results of operations.
Accounting policies and estimates are fundamental to how we record and report our financial condition and results of operations.
Our management makes judgments and assumptions in selecting and adopting various accounting policies and in applying estimates
so that such policies and estimates comply with U.S. generally accepted accounting principles (“GAAP”).
Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain
the valuations of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained
either when earning income, recognizing an expense, recovering an asset, valuing an asset or liability or reducing a liability. Because
of the uncertainty surrounding our judgments and the estimates pertaining to these matters, actual outcomes may be materially
different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, the Bank could need to
significantly increase its allowance for loan losses if actual losses are more than the amount reserved. Any increase in its allowance
for loan losses or loan charge-offs could have a material adverse effect on our financial condition and results of operations. In addition,
we cannot guarantee that we will not be required to adjust accounting policies or restate prior financial statements. See the section
captioned “Allowance for Loan Losses” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, located elsewhere in this Annual Report on Form 10-K for further discussion related to our process for determining the
appropriate level of the allowance for loan losses.
Further, from time to time, the Financial Accounting Standards Board and SEC change the financial accounting and reporting standards
that govern the preparation of our financial statements. The ongoing economic recession has resulted in increased scrutiny of
accounting standards by legislators and our regulators, particularly as they relate to fair value accounting principles. In addition,
ongoing efforts to achieve convergence between GAAP and International Financial Reporting Standards may result in changes to
GAAP. These changes can be hard to predict and can materially impact how we record and report our financial condition and results
of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior
period financial statements or otherwise adversely affecting our financial condition or results of operations.
Our profitability depends significantly on economic conditions in the State of West Virginia and the Commonwealth of
Virginia and a decline in general economic conditions in the State of West Virginia and the Commonwealth of Virginia
could have a material adverse effect on our business, financial condition, and results of operations.
Our success depends primarily on the general economic conditions of the State of West Virginia and the Commonwealth of Virginia
and the specific local markets in which we operate. Unlike larger national or other regional banks that are more geographically
diversified, we provide banking and financial services primarily to customers across West Virginia and Virginia. The local economic
conditions in these areas have a significant impact on the demand for our products and services as well as the ability of our customers
to repay loans, the value of the collateral securing loans and the stability of our deposit funding sources. Moreover, approximately
37.5% of the securities in our municipal securities portfolio were issued by political subdivisions or agencies within the State of
West Virginia and the Commonwealth of Virginia. A significant decline in general economic conditions in State of West Virginia
and the Commonwealth of Virginia, whether caused by recession, inflation, unemployment, changes in oil prices, changes in securities
markets, acts of terrorism, outbreak of hostilities or other international or domestic occurrences or other factors could impact these
local economic conditions and, in turn, have a material adverse effect on our business, financial condition and results of operations.
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We may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure
to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services
industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions
expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the
collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative
exposure due to us. Any such losses could have a material adverse effect on our business, financial condition and results of operations.
Changes in tax laws, including those included in the Tax Cuts and Jobs Act, may adversely affect our performance and
create the risk that we may need to adjust our accounting for these changes.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad
valorem taxes. Changes to our taxes could have a material adverse effect on our performance. In addition, our customers are subject
to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase
homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative
effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities
in which we have invested.
On December 22, 2017, H.R.1, formally known as the “Tax Cuts and Jobs Act” (the “Tax Reform Act”) was enacted into law. This
new tax legislation made significant changes to U.S. tax laws and includes numerous provisions that affect businesses, such as ours.
Among other things, the Tax Reform Act (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates
the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable
year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense,
for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions
related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the
exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility
of deposit insurance premiums. The Tax Reform Act is unclear in certain respects and will require interpretations and implementing
regulations by the Internal Revenue Service, as well as state tax authorities, and could be subject to amendments and technical
corrections, any of which could lessen or increase the adverse (and positive) impacts of the Tax Form Act. The accounting treatment
of these tax law changes is complex, and some of the changes may affect both current and future periods. As discussed elsewhere
in this Annual Report on Form 10-K, as a result of the Tax Reform Act the Company was required to re-measure its deferred tax
asset, resulting in an income tax charge of $646 thousand for the year ended December 31, 2017. Any future adjustments or changes
resulting from the Tax Reform Act could affect our current or future financial statements, or both.
We operate in a highly competitive industry and market area and failure to effectively compete could have a material
adverse effect on our business, financial condition, and results of operations.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and
may have more financial resources. Such competitors primarily include national, regional, and community banks within the various
markets where we operate. We also face competition from many other types of financial institutions, including, without limitation,
savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The
financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and
continued consolidation. Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to
offer products and services traditionally provided by banks. For example, consumers can maintain funds that would have historically
been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills
and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as
“disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated
from those deposits. Further, many of our competitors have fewer regulatory constraints and may have lower cost structures.
Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader
range of products and services as well as better pricing for those products and services than we can.
Our ability to compete successfully depends on a number of factors, including, among other things:
• The ability to develop, maintain and build long-term customer relationships based on top quality service, high ethical
standards and safe, sound assets.
• The ability to expand our market position.
• The scope, relevance and pricing of products and services offered to meet customer needs and demands.
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• The rate at which we introduce new products and services relative to our competitors.
• Customer satisfaction with our level of service.
•
Industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth
and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
We are subject to extensive government regulation and supervision and possible enforcement and other legal actions
that could detrimentally affect our business.
We, primarily through the Bank and certain non-bank subsidiaries, are subject to extensive federal and state regulation and supervision,
which vests a significant amount of discretion in the various regulatory authorities. Banking regulations are primarily intended to
protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations
and supervisory guidance affect our lending practices, capital structure, investment practices, dividend policy and growth, among
other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.
The Dodd-Frank Act, enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes.
Other changes to statutes, regulations or regulatory policies or supervisory guidance, including changes in interpretation or
implementation of statutes, regulations, policies or supervisory guidance, could affect us in substantial and unpredictable ways. Such
changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability
of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations,
policies or supervisory guidance could result in enforcement and other legal actions by Federal or state authorities, including criminal
and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by regulatory agencies, civil
money penalties and/or reputational damage. In this regard, government authorities, including the bank regulatory agencies, are
pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which
heightens the risks associated with actual and perceived compliance failures. Any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.
For further detail, see the sections captioned “Supervision and Regulation” included in Item 1, Business, and Note 14, “Regulatory
Capital Requirements” of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary
Data, of this Annual Report on Form 10-K.
Failure to meet any of the various capital adequacy guidelines which we are subject to could adversely affect our
operations and could compromise the status of the Company as a financial holding company.
The Company and the Bank are required to meet certain regulatory capital adequacy guidelines and other regulatory requirements
imposed by the Federal Reserve Board, the FDIC and the U.S. Department of Treasury. If the Company or the Bank fails to meet
these minimum capital guidelines and other regulatory requirements, our financial condition and results of operations would be
materially and adversely affected and could compromise the status of the Company as a banking holding company. See the sections
captioned “Supervision and Regulation—Capital Requirements” in Item 1, Business, and Note 14, “Regulatory Capital Requirements”
of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K, for detailed capital guidelines for bank holding companies and banks.
Our accounting estimates and risk management processes rely on analytical and forecasting models which may prove
to be inadequate or inaccurate which could result in unexpected losses, insufficient allowances for loan losses, or
unexpected fluctuations in the value of our financial instruments.
The processes we use to estimate our inherent loan losses and to measure the fair value of financial instruments, as well as the
processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of
operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate,
particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may
prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest
rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest
rates or other market measures. If the models we use for determining our probable loan losses are inadequate, the allowance for loan
losses may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are
inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could
realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a
material adverse effect on our business, financial condition and results of operations.
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The value of the securities in our investment securities portfolio may be negatively affected by disruptions in securities
markets.
Due to credit and liquidity risks and economic volatility, making the determination of the value of a securities portfolio is less certain.
A decline in market value associated with these disruptions could result in other-than-temporary or permanent impairments of these
assets, which would lead to accounting charges which could have a material negative effect on our financial condition and results
of operations.
The value of our goodwill and other intangible assets may decline in the future.
As of December 31, 2017, we had $18.5 million of goodwill and other intangible assets. A significant decline in our expected future
cash flows, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the
price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible
assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the
appropriate charge, which could have a material adverse effect on our business, financial condition and results of operations.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully
developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and
resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not
be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations,
competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business
or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact
on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and
implementation of new lines of business or new products or services could have a material adverse effect on our business, financial
condition and results of operations.
The Company is a financial holding company, and its sources of funds are limited.
The Company is a financial holding company and its operations are primarily conducted by the Bank, which is subject to significant
federal and state regulation. Cash available to pay dividends to shareholders of the Company is derived primarily from dividends
paid by the Bank. As a result, the Company’s ability to receive dividends or loans from its subsidiary is restricted. Under federal law,
the payment of dividends by the Bank is subject to capital adequacy requirements. The Federal Reserve Board and/or the FDIC
prohibit a dividend payment by the Company or the Bank that would constitute an unsafe or unsound practice. See the sections
captioned “Supervision and Regulation – Limit on Dividends” in Item 1, Business, and Note 14, “Regulatory Capital Requirements”
of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K.
The inability of the Bank to generate profits and pay such dividends to the Company, or regulator restrictions on the payment of such
dividends to the Company even if earned, would have an adverse effect on the financial condition and results of operations of the
Company and the Company’s ability to pay dividends to its shareholders.
In addition, since the Company is a legal entity separate and distinct from the Bank, its right to participate in the distribution of assets
of the Bank upon the Bank’s liquidation, reorganization or otherwise will be subject to the prior claims of the Bank’s creditors, which
will generally take priority over the Bank’s shareholders.
Potential acquisitions may disrupt our business and dilute stockholder value.
We generally seek merger or acquisition partners that are culturally similar and have experienced management and possess either
significant market presence or have potential for improved profitability through financial management, economies of scale or
expanded services. Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions,
including, among other things:
Potential exposure to unknown or contingent liabilities of the target company.
•
• Exposure to potential asset quality issues of the target company.
•
Potential disruption to our business.
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Potential diversion of our management’s time and attention.
•
• The possible loss of key employees and customers of the target company.
• Difficulty in estimating the value of the target company.
•
Potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible
book value and net income per common share may occur in connection with any future transaction. Furthermore, failure to realize
the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an
acquisition could have a material adverse effect on our business, financial condition and results of operations.
The Company is subject to liquidity risk, which could disrupt our ability to meet our financial obligations.
Liquidity refers to the ability of the Company to ensure sufficient levels of cash to fund operations, such as meeting deposit withdrawals,
funding loan commitments, paying expenses and meeting quarterly payment obligations under certain subordinated debentures issued
by the Company in connection with the issuance of floating rate redeemable trust preferred securities. The source of the funds for
the Company’s debt obligations is dependent on the Bank.
Any significant restriction or disruption of the Company’s ability to obtain funding from these or other sources could have a negative
effect on the Company’s ability to satisfy its current and future financial obligations, which could materially affect the Company’s
financial condition.
Limited availability of borrowings and liquidity from the Federal Home Loan Bank system and other sources could
negatively impact earnings.
The Bank is currently a member bank of the FHLB of Pittsburgh. Membership in this system of quasi-governmental, regional home-
loan oriented agency banks allows us to participate in various programs offered by the FHLB. We borrow funds from the FHLB,
which are secured by a blanket lien on certain residential and commercial mortgage loans, and if applicable, investment securities
with collateral values in excess of the outstanding balances. Current and future earnings shortfalls and minimum capital requirements
of the FHLB may impact the collateral necessary to secure borrowings and limit the borrowings extended to their member banks,
as well as require additional capital contributions by member banks. Should this occur, our short-term liquidity needs could be
negatively impacted. If we were restricted from using FHLB advances due to weakness in the system or with the FHLB of Pittsburgh,
we may be forced to find alternative funding sources. If we are required to rely more heavily on higher cost funding sources, revenues
may not increase proportionately to cover these costs, which would adversely affect results of operations and financial position.
We may not be able to attract and retain the skilled people necessary to conduct our business.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities
engaged in by us can be intense and we may not be able to hire people or to retain them. Many of our branches are located in rural
areas and small towns where the competition for labor can be fierce, and where the pool of qualified employees may be small. The
unexpected loss of services of key personnel could have a material adverse impact on our business, financial condition and results
of operations because of their skills, knowledge of our market, years of industry experience and the difficulty of promptly finding
qualified replacement personnel.
Interruption to our information systems or breaches in security, including as a result of cyber attacks or other cyber
incidents, could adversely affect the Company’s operations or otherwise harm our business.
The Company relies on information systems and communications for operating and monitoring all major aspects of business, as well
as internal management functions. Any failure, interruption, intrusion or breach in security of these systems could result in failures
or disruptions in the customer relationship, management, general ledger, deposit, loan and other systems.
There have been several cyber-attacks on websites of large financial services companies. Even if not directed at the Company
specifically, attacks on other entities with whom we do business or on whom we otherwise rely or attacks on financial or other
institutions important to the overall functioning of the financial system could adversely affect, directly or indirectly, aspects of our
business.
Cyber-attacks on third party retailers or other business establishments that widely accept debit card or check payments could
compromise sensitive Bank customer information, such as debit card and account numbers. Such an attack could result in significant
costs to the Bank, such as costs to reimburse customers, reissue debit cards and open new customer accounts.
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In addition, there have been efforts on the part of third parties to breach data security at financial institutions, including through the
use of social engineering schemes such as “phishing.” The ability of our customers to bank remotely, including online and through
mobile devices, requires secure transmission of confidential information and increases the risk of data security breaches. Because
the techniques used to attack financial services company communications and information systems change frequently (and generally
increase in sophistication), attacks are often not recognized until launched against a target and we may be unable to address these
techniques in advance of attacks, including by implementing adequate preventative measures. We may also be unable to prevent
attacks that are supported by foreign governments or other well-financed entities and that may originate from less regulated and
remote areas of the world.
The occurrence of any such failure, disruption or security breach of our information systems, particularly if widespread or resulting
in financial losses to our customers, could damage our reputation and our relationships with our partners and customers, result in a
loss of customer business, subject us to additional regulatory scrutiny, and expose us to civil litigation and possible financial liability.
These risks could have a material effect on our business, results of operations and financial condition.
We continually encounter technological change and failure to continually adapt to such change could materially impact
our financial condition and results of operations.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-
driven products and services. Our future success depends, in part, upon our ability to address the needs of our customers by using
technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our
operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be
able to effectively implement new technology-driven products and services or be successful in marketing these products and services
to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a
material adverse effect on our business, financial condition and results of operations.
Our operations rely on certain external vendors who may not perform in a satisfactory manner.
We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations.
Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual
arrangements or service level agreements. We maintain a system of policies and procedures designed to monitor vendor risks including,
among other things, (i) changes in the vendor’s organizational structure, (ii) changes in the vendor’s financial condition and (iii)
changes in the vendor’s support for existing products and services. The failure of an external vendor to perform in accordance with
applicable contractual arrangements or the service level agreements could be disruptive to our operations, which could have a material
adverse impact on the our business and its financial condition and results of operations.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on
and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on
these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury
and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected
property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or
enforcement policies with respect to existing laws may increase our exposure to environmental liability. Environmental reviews of
real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation
costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business,
financial condition and results of operations.
Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our
business.
Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our
ability to conduct business. In addition, such events could affect the stability of our deposit base, impair the ability of borrowers to
repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue
and/or cause us to incur additional expenses. The occurrence of any such event in the future could have a material adverse effect on
our business, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
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Financial services companies depend on the accuracy and completeness of information about customers and
counterparties which, if inaccurate, could have a material adverse impact on our financial condition and results of
operations.
In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers
and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations
of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that
information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a
material adverse impact on our business, financial condition and results of operations.
Risks Associated With Our Common Stock
The trading volume in our common stock is less than that of other larger financial services companies.
Shares of our common stock began trading on the Nasdaq Capital Market on December 7, 2017 under the symbol “MVBF,” and
were previously traded on the OTC Bulletin Board. There has been limited trading in our shares over the last 12 months. If limited
trading in the common stock continues, it may be difficult for investors to sell such shares in the public market at any given time at
prevailing prices. Also, the sale of a large block of common stock could depress the market price of the common stock to a greater
degree than a company that typically has a higher volume of trading of its securities.
If we are unable to maintain compliance with Nasdaq listing requirements, our stock could be delisted, and the trading
price, volume and marketability of our stock could be adversely affected.
As of December 7, 2017, our common stock began trading on the Nasdaq Capital Market. Previously, our common stock was traded
on the OTC Bulletin Board. There can be no assurances, however, that we will be able to maintain compliance with Nasdaq’s present
listing standards, or that Nasdaq will not implement additional listing standards with which we will be unable to comply. Failure to
maintain compliance with Nasdaq listing requirements could result in the delisting of our shares from trading on the Nasdaq system,
which could have a material adverse effect on the trading price, volume and marketability of our common stock.
Our stock price can be volatile.
Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things:
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in quarterly results of operations;
recommendations by securities analysts;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the financial services industry;
perceptions in the marketplace regarding us and/or our competitors;
new technology used, or services offered, by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
changes in government regulations; and
geopolitical conditions such as acts or threats of terrorism or military conflicts.
General market fluctuations, including real or anticipated changes in the strength of the economies we serve; industry factors and
general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes, oil price
volatility or credit loss trends could also cause our stock price to decrease regardless of operating results.
Our ability to pay dividends is not certain and we may be unable to pay future dividends. As a result, capital appreciation,
if any, of our common stock may be your sole opportunity for gains on your investment for the foreseeable future.
Our ability to pay dividends in the future is not certain. Any future determination relating to dividend policy will be made at the
discretion of our Board of Directors and will depend on a number of factors, including our future earnings, capital requirements,
financial condition, future prospects, regulatory restrictions and other factors that our Board of Directors may deem relevant. The
holders of our common stock are entitled to receive dividends when, and if declared by our Board of Directors out of funds legally
29
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available for that purpose. As part of our consideration of whether to pay cash dividends, we intend to retain adequate funds from
future earnings to support the development and growth of our business. In addition, our ability to pay dividends is restricted by
federal policies and regulations and by the terms of our existing indebtedness. It is the policy of the Federal Reserve Board that bank
holding companies should pay cash dividends on common stock only out of net income available over the past year and only if
prospective earnings retention is consistent with the organization’s expected future needs and financial condition. For further
information, see the section captioned "Supervision and Regulation – Limit on Dividends" in Item 1, Business, of this Annual Report
on Form 10-K.
We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002. At December 31, 2017, we have no material
weaknesses in our internal controls over financial reporting but a material weakness could occur in the future. A “material weakness”
is a control deficiency, or combination of significant deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected. If we fail to maintain a system of internal
controls over financial reporting that meets the requirements of Section 404, we might be subject to sanctions or investigation by
regulatory authorities. Additionally, failure to comply with Section 404 or the report by us of a material weakness may cause investors
to lose confidence in our financial statements and our stock price may be adversely affected. If we fail to remedy any material
weakness, our financial statements may be inaccurate, we may not have access to the capital markets, and our stock price may be
adversely affected.
We may issue additional shares of our common stock that could result in dilution of an investor’s investment.
Our Board of Directors may determine from time to time that there is a need to obtain additional capital through the issuance of
additional shares of common stock. These issuances would likely dilute the ownership interests of our investors and may dilute the
per share book value of our common stock. In addition, the issuance of additional shares of common stock under our stock option
and equity incentive plans will further dilute each investor’s ownership of our common stock.
An investment in our common stock is not an insured deposit.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or
by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk
Factors” section and elsewhere in this Annual Report on Form 10-K and is subject to the same market forces that affect the price of
common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.
Certain banking laws may have an anti-takeover effect.
Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to
acquire us, even if doing so would be perceived to be beneficial to our shareholders. These provisions effectively inhibit a non-
negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company, through its Bank subsidiary, owns its main office located at 301 Virginia Avenue in Fairmont, West Virginia. The
Company’s subsidiary owns or leases various other offices in the counties and cities in which they operate. As of December 31, 2017,
the Company operated fourteen full-service banking branches, ten mortgage only offices, with locations as further described in Item
1, Business, of this Annual Report on Form 10-K. Nine of the fourteen full-service banking branches are owned and the remaining
five are leased. All mortgage locations are leased.
No one facility is material to the Company. Management believes that the facilities are generally in good condition and suitable for
the operations for which they are used. However, management continually looks for opportunities to upgrade its facilities and locations
and may do so in the future.
Additional information concerning the property and equipment owned or leased by the Company and its subsidiary is incorporated
herein by reference from Note 4, "Premises and Equipment” and Note 16, "Leases” of the Notes to the Consolidated Financial
30
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Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
From time to time in the ordinary course of business, the Company and its subsidiary are subject to claims, asserted or unasserted,
or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular,
can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with
any certainty and in the case of more complex legal proceedings, the results are difficult to predict at all. The Company is not aware
of any asserted or unasserted legal proceedings or claims that the Company believes would have a material adverse effect on the
Company’s financial condition or results of the Company’s operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the Nasdaq Capital Market under the symbol “MVBF.”
The table presented below provides the quarterly high and low sales prices, closing sales price and dividends declared for the last
two years. The information set forth in the table is based on knowledge of certain arms-length transactions in the stock. In addition,
dividends are subject to the restrictions described in Note 15, "Regulatory Restriction on Dividend" of the Notes to the Consolidated
Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Quarterly Market and Dividend Information:
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
Last
Dividend
$
20.40
$
18.26
$
20.10
$
18.90
13.25
14.00
13.05
12.55
12.70
18.80
13.20
12.75
$
13.05
$
11.50
$
12.80
$
13.50
14.00
13.99
11.95
12.06
9.50
12.31
12.95
13.40
0.025
0.025
0.025
0.025
0.02
0.02
0.02
0.02
MVB Financial Corp. had 1,091 stockholders of record at December 31, 2017.
Equity Compensation Plan Information as of December 31, 2017:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options
(a)
Weighted-average
exercise price of
outstanding options
(b)
910,647
n/a
910,647
$
$
13.00
n/a
13.00
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) (c)
1,173,575
n/a
1,173,575
During 2017, 49,400 stock options under the Company’s equity compensation plan were exercised.
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The following five-year performance graph compares the cumulative total shareholder return (assuming reinvestment of dividends)
on the Company’s common stock to the KBW Bank Index and the Russell 2000 Index. The stock performance graph assumes $100
was invested on December 31, 2010, and the cumulative return is measured as of each subsequent fiscal year end.
Index
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
MVB Financial Corp.
$
100.00
$
138.96
$
126.21
$
111.13
$
109.29
$
KBW Bank Index
Russell 2000
100.00
100.00
125.06
137.00
134.09
141.84
131.96
133.74
165.75
159.78
170.96
192.69
180.79
Recent Sales of Unregistered Securities
On March 13, 2017, the Company filed with the SEC a prospectus supplement and accompanying base prospectus (collectively, the
“Prospectus”) relating to the commencement of the Company’s rights offering (the “Rights Offering”), pursuant to which the Company
distributed, at no charge, non-transferable subscription rights to the holders of its common stock as of 5:00 p.m., Eastern time, on
March 10, 2017. The subscription rights were exercisable for up to a total of 434,783 shares of the Company’s common stock, subject
to such terms and conditions as further described in the Prospectus.
On March 13, 2017, the Company also entered into an Investment Agreement (the “Investment Agreement”) with its Chief Executive
Officer, Larry F. Mazza (“Mazza”). Pursuant to the Investment Agreement, Mazza committed to subscribe for and purchase, at a
price of $11.50 per common share, upon expiration of the Rights Offering, the number of shares of the Company’s common stock,
if any, equal to the amount by which 100,000 exceeds the number of shares purchased by Mazza in the Rights Offering. Pursuant to
the Investment Agreement, Mazza agreed not to sell or otherwise transfer any shares acquired in connection with the Investment
Agreement for a period of six months following the closing of the Rights Offering. Upon completion of the Rights Offering, on
April 14, 2017, Mazza purchased an additional 9,001 shares of common stock under the Investment Agreement, which purchase was
exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Purchases of Equity Securities by Issuer and Affiliated Purchasers
See discussion above under "Recent Sales of Unregistered Securities."
33
Table of Contents
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated summary sets forth the Company’s selected financial data that has been derived from the Company’s
audited consolidated financial statements for each of the periods and at the dates indicated
(Dollars in thousands except per share data)
Balance Sheet Data:
Assets
Investment securities
Loans, net
Loans held for sale
Deposits
Stockholders' equity
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
Income Statement Data:
Interest income
Interest expense
Net interest income
Provision for loan loss
Net interest income after provision for loan loss
Noninterest income
Gain on sale of securities
Noninterest expense
Income from continuing operations, before income taxes
Income tax expense - continuing operations
Net Income from continuing operations
Income (loss) from discontinued operations, before income taxes
Income tax expense (benefit) - discontinued operations
Net Income (loss) from discontinued operations
Net Income
Preferred dividends
Net Income available to common shareholders
Per Share Data:
Earnings per share from continuing operations - basic
Earnings per share from discontinued operations - basic
Earnings per share per common shareholder - basic
Earnings per share from continuing operations - diluted
Earnings per share from discontinued operations - diluted
Earnings per share per common shareholder - diluted
Cash dividends
Book value
Tangible book value
Asset Quality Ratios:
Nonperforming loans to gross loans
Nonperforming assets to total assets
Net charge-offs to gross loans
Allowance for loan losses to gross loans
Selected Ratios:
Return on average assets - continuing operations
Return on average assets - discontinued operations
Return on average equity - continuing operations
Return on average equity - discontinued operations
Dividend payout
Efficiency ratio
Equity to assets
Common equity tier 1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Leverage ratio
$
$
$
Years Ended December 31,
2015
2016
2014
1,418,804
162,368
1,043,764
90,174
1,107,017
145,625
8,212,021
10,068,733
54,123
11,132
42,991
3,632
39,359
43,205
1,082
69,209
13,355
4,378
8,977
6,346
2,411
3,935
12,912
1,128
11,784
0.96
0.48
1.44
0.92
0.39
1.31
0.08
12.93
11.01
0.59%
0.47
0.24
0.86
0.63%
0.28
7.30
3.20
5.00
80.29
10.26
10.11
11.92
15.36
9.54
$
$
$
$
$
$
1,384,476
123,115
1,024,164
102,623
1,012,314
114,712
8,014,316
8,140,116
44,100
9,225
34,875
2,493
32,382
34,955
130
57,848
9,489
2,886
6,603
353
140
213
6,816
575
6,241
0.75
0.03
0.78
0.74
0.03
0.77
0.08
12.20
9.81
0.99%
0.76
0.07
0.78
0.54%
0.02
5.89
0.19
9.40
82.84
8.29
7.59
9.47
12.91
7.77
$
$
$
1,110,459
122,751
792,074
69,527
823,227
109,438
7,905,468
8,102,117
36,168
7,511
28,657
2,582
26,075
22,022
413
45,194
2,903
248
2,655
(920)
(344)
(576)
2,079
332
1,747
0.29
(0.07)
0.22
0.29
(0.07)
0.22
0.08
11.59
9.44
1.16%
0.89
0.16
0.78
0.26%
(0.06)
2.57
(0.56)
30.59
89.18
9.86
n/a
12.03
16.40
8.98
2013
987,060
163,081
617,370
89,186
695,811
94,022
6,657,093
6,939,028
27,515
5,187
22,328
2,260
20,068
25,844
145
40,388
5,524
1,245
4,279
(522)
(262)
(260)
4,020
85
3,935
0.63
(0.04)
0.59
0.60
(0.03)
0.57
0.08
11.10
8.85
0.14%
0.12
0.23
0.79
0.54%
(0.03)
5.44
(0.33)
13.36
85.44
9.53
n/a
13.03
13.80
9.28
$
$
$
2017
1,534,302
231,507
1,096,063
66,794
1,159,580
150,192
10,308,738
10,440,228
56,598
12,301
44,297
2,173
42,124
40,706
731
70,500
12,330
4,755
7,575
—
—
—
7,575
498
7,077
0.69
—
0.69
0.68
—
0.68
0.10
13.63
11.80
0.88%
0.72
0.13
0.89
0.52%
—
5.23
—
13.64
82.94
9.79
10.55
11.54
14.87
9.27
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking Statements:
Statements in this Annual Report on Form 10-K that are based on other than historical data are forward-looking within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of
future events and include, among others:
•
•
statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial
condition, results of operations and performance of the Company and its subsidiary (collectively “we,” “our,” or “us),
including the Bank; and
statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,”
“estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or similar expressions.
These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing the
Company’s or the Bank management’s views as of any subsequent date. Forward-looking statements involve significant risks and
uncertainties (both known and unknown) and actual results may differ materially from those presented, either expressed or implied,
including, but not limited to, those presented in this Management’s Discussion and Analysis section. Factors that might cause such
differences include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the ability of the Company, the Bank, and MVB Mortgage to successfully execute business plans, manage risks, and achieve
objectives;
changes in local, national and international political and economic conditions, including without limitation changes in the
political and economic climate, continued recovery from the recent economic crisis, delay of recovery from that crisis,
economic conditions and fiscal imbalances in the United States and other countries, potential or actual downgrades in rating
of sovereign debt issued by the United States and other countries, and other major developments, including wars, natural
disasters, military actions, and terrorist attacks;
changes in financial market conditions, either internationally, nationally or locally in areas in which the Company, the Bank,
and MVB Mortgage conduct operations, including without limitation, reduced rates of business formation and growth,
commercial and residential real estate development and real estate prices;
fluctuations in markets for equity, fixed-income, commercial paper and other securities, including availability, market
liquidity levels, and pricing; changes in interest rates, the quality and composition of the loan and securities portfolios,
demand for loan products, deposit flows and competition;
the ability of the Company, the Bank, and MVB Mortgage to successfully conduct acquisitions and integrate acquired
businesses;
potential difficulties in expanding the businesses of the Company, the Bank, and MVB Mortgage in existing and new
markets;
increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;
changes in fiscal, monetary, regulatory, trade and tax policies and laws, including the recently enacted Tax Reform Act, and
regulatory assessments and fees, including policies of the U.S. Department of Treasury, the Federal Reserve, and the FDIC;
the impact of executive compensation rules under the Dodd-Frank Act and banking regulations which may impact the ability
of the Company and its subsidiaries, and other American financial institutions to retain and recruit executives and other
personnel necessary for their businesses and competitiveness;
the impact of the Dodd-Frank Act and of new international standards known as Basel III, and rules and regulations thereunder,
many of which have not yet been promulgated, on our required regulatory capital and liquidity levels, governmental
assessments on us, the scope of business activities in which we may engage, the manner in which the Company, the Bank,
and MVB Mortgage engage in such activities, the fees that the Company’s subsidiaries may charge for certain products and
services, and other matters affected by the Dodd-Frank Act and these international standards;
continuing consolidation in the financial services industry; new legal claims against the Company, the Bank, and MVB
Mortgage, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies, or changes
in existing legal matters;
success in gaining regulatory approvals, when required, including for proposed mergers or acquisitions;
changes in consumer spending and savings habits;
increased competitive challenges and expanding product and pricing pressures among financial institutions;
inflation and deflation;
technological changes and the implementation of new technologies by the Company and its subsidiaries;
35
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•
•
•
•
•
the ability of the Company, the Bank, and MVB Mortgage to develop and maintain secure and reliable information technology
systems;
legislation or regulatory changes which adversely affect the operations or business of the Company, the Bank, and MVB
Mortgage;
the ability of the Company, the Bank, and MVB Mortgage to comply with applicable laws and regulations; changes in
accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies;
costs of deposit insurance and changes with respect to FDIC insurance coverage levels; and
other risks and uncertainties detailed in Part I, Item 1A, Risk Factors, in this Annual Report on Form 10-K.
Except to the extent required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce
the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.
In Management’s Discussion and Analysis, we review and explain the general financial condition and the results of operations for
MVB Financial Corp. and its subsidiaries. We have designed this discussion to assist you in understanding the significant changes
in the Company’s financial condition and results of operations. We have used accounting principles generally accepted in the United
States to prepare the accompanying consolidated financial statements. We engaged Dixon Hughes Goodman, LLP to audit the
consolidated financial statements and their independent audit report is included herein.
Introduction
The following discussion and analysis of the Consolidated Financial Statements is presented to provide insight into management’s
assessment of the financial results and operations of the Company. You should read this discussion and analysis in conjunction with
the audited Consolidated Financial Statements and footnotes and the ratios and statistics contained elsewhere in this Annual Report
on Form 10-K.
Application of Critical Accounting Policies
The Company’s consolidated financial statements are prepared in accordance with U. S. generally accepted accounting principles
and follow general practices within the banking industry. Application of these principles requires management to make estimates,
assumptions, and judgments that affect the amounts reported in the consolidated financial statements; accordingly, as this information
changes, the consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain policies
inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of
producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary
when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the
consolidated financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when
an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results
in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and
liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party
information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal
forecasting techniques.
The most significant accounting policies followed by the Company are presented in Note 1, "Summary of Significant Accounting
Policies" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data,
of this Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and
in management’s discussion and analysis of operations, provide information on how significant assets and liabilities are valued in
the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity
of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified
the determination of the allowance for loan losses to be the accounting area that requires the most subjective or complex judgments,
and as such could be most subject to revision as new information becomes available.
Allowance for Loan Losses
The Allowance for Loan Losses ("ALL") represents management’s estimate of probable credit losses inherent in the loan portfolio.
Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant
judgment and the use of estimates related to the amount and timing of losses inherent in classifications of homogeneous loans based
on the Bank’s historical loss experience and consideration of current economic trends and conditions, all of which may be susceptible
to significant change. Non-homogeneous loans are specifically evaluated due to the increased risks inherent in those loans. The loan
portfolio also represents the largest asset type in the consolidated balance sheet. Note 1, "Summary of Significant Accounting Policies"
36
Table of Contents
of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K, describes the methodology used to determine the allowance for loan losses and a discussion of the
factors driving changes in the amount of the allowance for loan losses.
Investment Securities
Investment securities at the time of purchase are classified as one of the following:
Held-to-Maturity Securities - Includes securities that the Company has the positive intent and ability to hold to maturity. These
securities are reported at amortized cost.
Available-for-Sale Securities - Includes debt and equity securities not classified as held-to-maturity that will be held for indefinite
periods of time. These securities may be sold in response to changes in market interest or prepayment rates, needs for liquidity and
changes in the availability of and yield of alternative investments. Such securities are reported at fair value, with unrealized holding
gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of estimated income tax
effect.
The amortized cost of investment in debt securities is adjusted for amortization of premiums and accretion of discounts, computed
by a method that results in a level yield. Gains and losses on the sale of investment securities are computed on the basis of specific
identification of the adjusted cost of each security.
Securities are periodically reviewed for other-than-temporary impairment. For debt securities, management considers whether the
present value of future cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined
as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the
security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery
in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other
than temporary, if the Company does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell
the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any
remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other
comprehensive income, net of applicable taxes. For equity securities where the fair value has been significantly below cost for one
year, the Company’s policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other
than temporary and a recovery period can be predicted. A decline in value that is considered to be other-than-temporary is recorded
as a loss within noninterest income in the consolidated statement of income.
Common stock of the Federal Home Loan Bank represents ownership in an institution which is wholly owned by other financial
institutions. These equity securities are accounted for at cost and are classified as other assets.
See Note 2, "Investment Securities" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K for the Company’s policy regarding the other than temporary impairment
of investment securities.
Goodwill and Other Intangible Assets
As discussed in Note 1, "Summary of Significant Accounting Policies" of the Notes to the Consolidated Financial Statements included
in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K, the Company must assess goodwill
and other intangible assets each year for impairment. This assessment involves estimating the fair value of the Company’s reporting
units. If the fair value of the reporting unit is less than its carrying value including goodwill, the Company would be required to take
a charge against earnings to write down the assets to the lower value.
Deferred Tax Assets
The Company use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized.
If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may
be applied, the asset may not be realized and our net income will be reduced. Management also evaluates deferred tax assets to
determine if it is more likely than not that the deferred tax benefit will be utilized in future periods. If not, a valuation allowance is
recorded. Our deferred tax assets are described further in Note 8, "Income Taxes" of the Notes to the Consolidated Financial Statements
included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
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Recent Accounting Pronouncements and Developments
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. This update requires a reclassification from accumulated other comprehensive income ("AOCI") to
retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Reform Act,
which was enacted on December 22, 2017. The Tax Reform Act included a reduction to the corporate income tax rate from 34 percent
to 21 percent effective January 1, 2018. The amount of the reclassification is the difference between the historical corporate income
tax rate and the newly enacted 21 percent corporate income tax rate, which resulted in a decrease of $646 thousand. The amendments
in the ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early adoption is permitted and the Company plans to adopt in 2018.
In March 2017, the FASB issued ASU 2017-08, Receivables–Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium
Amortization on Purchased Callable Debt Securities. This ASU amends guidance on the amortization period of premiums on certain
purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased
callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities
that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium).
For public companies, this update will be effective for fiscal years effective for fiscal years beginning after December 15, 2018,
including all interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated
financial statements, as it is our current policy to amortize premiums of investment securities to the earliest call date.
In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. Topic 350, Intangibles—Goodwill and Other (Topic 350), currently requires an entity that has not elected the private
company alternative for goodwill to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an
entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting
unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of
that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the
reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting
unit To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this Update
remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment
as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the
reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. For public companies,
this update will be effective for fiscal years effective for fiscal years beginning after December 15, 2019, including all interim periods
within those fiscal years. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected
credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial
assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.
Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase
price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses,
with such allowance limited to the amount by which fair value is below amortized cost. The guidance is effective for fiscal years
beginning after December 15, 2019 and interim periods within those fiscal years. The Company's project management team and
Management Loan Committee ("MLC") engaged a third party to assist with a data gap analysis and will utilize the data to determine
the impact of the pronouncement. Additionally, the Company has researched and acquired software to assist with implementation
that will be tested throughout 2018.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Among other things, in the amendments in ASU 2016-02,
lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
(1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
(2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where
necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The
amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct
financing and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would
not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors
38
Table of Contents
may not apply a full retrospective transition approach. The Company established a project management team, which is currently
evaluating the impact of the new standard, and expects an increase to the Consolidated Balance Sheets for right-of-use assets and
associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease
liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases.
In January 2016, the FASB issued ASU 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement
(Subtopic 825-10). Amendments within ASU 2016-01 that relate to non-public entities have been excluded from this presentation.
The amendments in this ASU 2016-01 address the following: 1) require equity investments to be measured at fair value with changes
in fair value recognized in net income; 2) simplify the impairment assessment of equity investments without readily-determinable
fair values by requiring a qualitative assessment to identify impairment; 3) eliminate the requirement to disclose the method(s) and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized
cost on the balance sheet; 4) require entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; 5) require separate presentation in other comprehensive income for the portion of the total change in the fair
value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments; 6) require separate presentation of financial assets
and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the
balance sheet or the accompanying notes to the financial statements; and 7) clarify that an entity should evaluate the need for a
valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax
assets. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. The Company has performed a preliminary evaluation of these amendments. Based on this evaluation,
the Company has determined that this new standard is not expected to have a material impact on the Company's consolidated financial
statements as it relates to accounting for financial instruments, as the effect of this pronouncement would be a reclassification of
$219 thousand from accumulated other comprehensive income to retained earnings upon adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue pronouncement
creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue
guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or
services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or
services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the
contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and
(5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the
effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in
fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, which amends the principal versus
agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or
services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope
improvements and practical expedients to the revenue standard. The Company evaluated the impact of this standard on individual
customer contracts, while management evaluated the impact of this standard on the broad categories of its customer contracts and
revenue streams. The Company determined that this standard will not have a material impact on its consolidated financial statements
because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan
interest income, investment interest income, insurance services revenue and BOLI are accounted for under other U.S. GAAP standards
and out of scope of ASC 606 revenue standard. The Company completed its evaluation and review of this standard and determined
that this guidance will not have a material effect on the consolidated financial statements, and as such, adopted the revenue recognition
standard as of January 1, 2018.
Summary Financial Results
Excluding discontinued operations, the Company earned $7.6 million in 2017 compared to $9.0 million in 2016, a decrease of $1.4
million. The 2017 earnings equated to a return on average assets of 0.52% and a return on average equity of 5.23%, compared to
2016 results of 0.63% and 7.30%, respectively. Basic earnings per share were $0.69 in 2017 compared to $0.96 in 2016. Diluted
earnings per share were $0.68 in 2017 compared to $0.92 in 2016.
Excluding discontinued operations, the Company earned $9.0 million in 2016 compared to $6.6 million in 2015, an increase of $2.4
million. The 2016 earnings equated to a return on average assets of 0.63% and a return on average equity of 7.30%, compared to
2015 results of 0.54% and 5.89%, respectively. Basic earnings per share were $0.96 in 2016 compared to $0.75 in 2015. Diluted
earnings per share were $0.92 in 2016 compared to $0.74 in 2015.
39
Table of Contents
Net interest income increased $1.3 million, noninterest income decreased $2.5 million, and noninterest expenses increased by $1.3
million during 2017 compared to 2016. The Company’s yield on earning assets in 2017 was 4.17% compared to 4.05% in 2016.
Total loans increased by $53.1 million to $1.1 billion at December 31, 2017.
Net interest income increased $8.1 million, noninterest income increased $8.3 million and noninterest expenses increased by $11.4
million during 2016 compared to 2015. The Company’s yield on earning assets in 2016 was 4.05% compared to 3.88% in 2015.
Total loans increased to $1.1 billion at December 31, 2016, from $1.0 billion at December 31, 2015.
Deposits increased $52.6 million to $1.2 billion at December 31, 2017, from $1.1 billion at December 31, 2016. The Bank offers an
uncomplicated product design accompanied by a simple fee structure that is attractive to customers. The overall cost of interest-
bearing liabilities for the Company was 1.04% in 2017 compared to 0.93% in 2016. This cost of interest-bearing liabilities, combined
with the earning asset yield, resulted in a net interest margin of 3.27% in 2017 compared to 3.22% in 2016.
Deposits increased $94.7 million to $1.1 billion at December 31, 2016, from $1.0 billion at December 31, 2015. The overall cost of
interest-bearing liabilities for the Company was 0.93% in 2016 compared to 0.90% in 2015. Increasing the asset yield at a faster
pace than the cost of interest-bearing liabilities resulted in a net interest margin of 3.22% in 2016 compared to 3.07% in 2015.
Interest Income and Expense
Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing
liabilities. Interest-earning assets include loans, investment securities and certificates of deposit in other banks. Interest-bearing
liabilities include interest-bearing deposits and borrowed funds such as sweep accounts and repurchase agreements. Net interest
income remains the primary source of revenue for the Bank. Net interest income is also impacted by changes in market interest rates,
as well as the mix of interest-earning assets and interest-bearing liabilities. Net interest income is also impacted favorably by increases
in noninterest bearing demand deposits and equity.
Net interest margin is calculated by dividing net interest income by average interest-earning assets and serves as a measurement of
the net revenue stream generated by the Bank’s balance sheet. Net interest margin was 3.27% in 2017 compared to 3.22% and 3.07%
in 2016 and 2015, respectively. The net interest margin continues to face considerable pressure due rising interest rates and competitive
pricing of loans and deposits in the Bank’s markets. During 2017, the Federal Reserve raised its key interest rate from a range of
0.50% to 0.75% to a range of 1.25% to 1.50%. Management’s estimate of the impact of future changes in market interest rates is
shown in the section captioned “Interest Rate Risk.”
Company management continues to analyze methods to deploy assets into an earning asset mix which will result in a stronger net
interest margin. Loan growth continues to be strong and management anticipates that loan activity will remain strong in the near
term future.
During 2017, net interest income increased by $1.3 million or 3.0% to $44.3 million from $43.0 million in 2016. This increase is
largely due to the growth in average earning assets, primarily $49.3 million in taxable investment securities and $16.6 million in
commercial loans. Average total earning assets were $1.36 billion in 2017 compared to $1.34 billion in 2016. Average total loans
and loans held for sale declined to $1.15 billion in 2017 from $1.17 billion in 2016, primarily the result of a $24.0 million decrease
in average real estate loans held for sale. As a result of the increase in average total earning assets, total interest income increased
by $2.5 million, or 4.6%, to $56.6 million in 2017 from $54.1 million in 2016. Average investment securities increased $44.0 million,
the result of a $49.3 million increase in taxable investments and partially offset by a $5.3 million average decrease in tax-exempt
investments. Yield on tax-exempt securities increased 28 basis points and taxable securities yield increased 32 basis points. Average
interest-bearing liabilities decreased in 2017 by $9.9 million, primarily the result of a $52.1 million decrease in the average balance
of certificates of deposit, a $17.6 million decrease in the average balance of borrowings, and a $16.2 million decrease in the average
balance of NOW accounts, partially offset by a $76.0 million increase in the average balance of money market checking accounts.
Average interest-bearing deposits grew to $1.0 billion in 2017 from $992.7 million in 2016. Total interest expense increased by $1.2
million, caused primarily by a $546 thousand increase in deposit interest and a $604 thousand increase in interest on FHLB and other
borrowings. The result was a 11 basis point increase in the cost of interest bearing liabilities from 2016 to 2017.
During 2016, net interest income increased by $8.1 million or 23.3% to $43.0 million from $34.9 million in 2015. This increase is
largely due to the growth in average earning assets, primarily $179.0 million in loans and loans held for sale. Average total earning
assets were $1.34 billion in 2016 compared to $1.14 billion in 2015. Average total loans and loans held for sale grew to $1.2 billion
in 2016 from $987.7 million in 2015. Primarily as a result of this growth, total interest income increased by $10.0 million, or 22.7%,
to $54.1 million in 2016 from $44.1 million in 2015. Average investment securities increased $21.1 million, mainly the result of a
$10.7 million average increase in tax-exempt investments and a $10.4 million increase in taxable investments. Yield on tax-exempt
40
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securities remained flat, increasing only 1 basis point, while taxable securities increased 34 basis points. Average interest-bearing
liabilities, mainly deposits and borrowings, likewise increased in 2016 by $165.8 million. Average interest-bearing deposits grew to
$992.7 million in 2016 from $842.3 million in 2015. Total interest expense increased by $1.9 million, caused primarily by a $1.5
million increase in deposit interest and a $394 thousand increase in interest on FHLB and other borrowings. The result was a 3 basis
point increase in interest cost from 2015 to 2016.
The Company’s average earning assets increased $21.2 million and net interest income increased by $1.3 million during 2017. The
net interest margin continues to be pressured by rising rate, increased competition for high quality loan growth and the deposit volume
required to fund the growth.
The Bank’s yield on earning assets changed during 2017 as follows: The loan portfolio yield increased by 15 basis points and the
investment portfolio yield increased by 16 basis points while the cost of interest bearing liabilities increased by 11 basis points.
The cost of interest-bearing liabilities increased to 1.04% in 2017 from 0.93% in 2016. This increase is primarily the result of a 70
basis point increase in the cost of borrowings and a 22 basis point increase on deposits. Further discussion on borrowings is included
in Note 6, "Borrowed Funds" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and
Supplementary Data, of this Annual Report on Form 10-K.
41
CDs with other banks
Investment securities:
Taxable
Tax-exempt
Loans and loans held for sale: 1
Commercial
Tax exempt
Real estate
Consumer
Total loans
Total earning assets
Less: Allowance for loan losses
Cash and due from banks
Other assets
Total assets
Liabilities
Deposits:
NOW
Money market checking
Savings
IRAs
CDs
Repurchase agreements and federal funds
sold
FHLB and other borrowings
Subordinated debt
Table of Contents
Statistical Financial Information Regarding MVB Financial Corp.
The following tables provide further information about interest income and expense:
Average Balances and Analysis of Net Interest Income:
(Dollars in thousands)
Assets
2017
Interest
Income/
Expense
Average
Balance
Yield/
Cost
Average
Balance
2016
Interest
Income/
Expense
Yield/
Cost
Average
Balance
2015
Interest
Income/
Expense
Yield/
Cost
Interest-bearing deposits in banks
$
3,790
$
0.58% $
16,040
$
1.95
12,267
43
231
0.27%
1.88
14,619
125,797
58,786
751,444
15,064
373,360
13,660
1,153,528
1,356,520
(9,626)
16,287
90,585
52
288
2,658
1,863
33,896
520
16,612
709
51,737
56,598
94
228
1,366
1,853
32,620
564
16,594
804
50,582
54,123
1.37% $
16,347
$
1.97
11,694
2.11
3.17
4.51
3.45
4.45
5.19
4.49
4.17
76,525
64,108
734,829
16,326
398,766
16,762
1,166,683
1,335,357
(8,939)
13,765
87,815
958
1,537
26,264
689
13,586
792
41,331
44,100
1.79
2.89
4.44
3.45
4.16
4.80
4.34
4.05
66,110
53,376
616,057
19,678
334,538
17,383
987,656
1,135,449
(7,016)
14,465
83,520
$ 1,453,766
$ 1,427,998
$ 1,226,418
$ 438,123
$
239,632
47,034
16,678
262,417
23,559
122,144
33,524
2,608
1,781
78
217
3,610
75
1,690
2,242
Total interest-bearing liabilities
1,183,111
12,301
Noninterest bearing demand deposits
Other liabilities
Total liabilities
Stockholders’ equity
Preferred stock
Common stock
Paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
117,696
8,006
1,308,813
7,927
10,355
96,987
(1,084)
34,155
(3,387)
144,953
Total liabilities and stockholders’ equity
$ 1,453,766
0.60
0.74
0.17
1.30
1.38
0.32
1.38
6.69
1.04
$ 454,320
$
163,630
43,870
16,319
314,542
27,066
139,736
33,524
2,413
1,282
88
208
3,757
72
1,086
2,226
1,193,007
11,132
0.53
0.78
0.20
1.27
1.19
0.27
0.78
6.64
0.93
99,826
12,220
1,305,053
16,334
8,263
75,799
(1,084)
25,943
(2,310)
122,945
$ 1,427,998
$ 446,704
$
2,713
65,306
39,766
12,038
396
111
146
278,499
2,880
83
692
2,204
9,225
26,884
124,475
33,524
1,027,196
79,611
7,486
1,114,293
16,334
8,065
74,331
(1,084)
16,941
(2,462)
112,125
$ 1,226,418
Net interest spread
Net interest income-margin
3.13
3.12
2.98
$
44,297
3.27%
$
42,991
3.22%
$
34,875
3.07%
1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.
42
1.45
2.88
4.26
3.50
4.06
4.56
4.18
3.88
0.61
0.61
0.28
1.21
1.03
0.31
0.56
6.57
0.90
Table of Contents
Rate Volume Calculation: 2017 vs. 2016
(Dollars in thousands)
Earning Assets
Loans
Commercial
Tax exempt
Real estate
Consumer
Investment securities:
Taxable
Tax-exempt
Interest-bearing deposits in banks
CDs with other banks
Total earning assets
Interest bearing liabilities
NOW
Money market checking
Savings
IRAs
CDs
Repurchase agreements and federal funds sold
FHLB and other borrowings
Subordinated debt
Total interest bearing liabilities
Total
Change in
Volume
Change in Rate
Change in both
Rate & Volume
Total Change
738
(44)
(1,057)
(149)
880
(154)
(73)
57
198
(86)
595
6
5
(623)
(9)
(137)
—
(249)
447
526
—
1,148
66
250
179
130
2
2,301
291
(65)
(15)
4
570
14
847
16
1,662
639
12
—
(73)
(12)
162
(15)
(99)
1
(24)
(10)
(31)
(1)
—
(94)
(2)
(106)
—
(244)
220
1,276
(44)
18
(95)
1,292
10
(42)
60
2,475
195
499
(10)
9
(147)
3
604
16
1,169
1,306
43
Table of Contents
Rate Volume Calculation: 2016 vs. 2015
(Dollars in thousands)
Earning Assets
Loans
Commercial
Tax exempt
Real estate
Consumer
Investment securities:
Taxable
Tax-exempt
Interest-bearing deposits in banks
CDs with other banks
Total earning assets
Interest bearing liabilities
NOW
Money market checking
Savings
IRAs
CDs
Repurchase agreements and federal funds sold
FHLB and other borrowings
Subordinated debt
Total interest bearing liabilities
Total
Provision for Loan Losses
Change in
Volume
Change in Rate
Change in both
Rate & Volume
Total Change
5,064
(117)
2,608
(28)
151
309
1
(11)
1,083
(10)
336
41
222
6
49
8
7,977
1,735
46
596
11
52
373
1
85
—
1,164
6,813
(340)
116
(31)
7
446
(12)
275
22
483
1,252
209
2
64
(1)
35
1
1
—
311
(6)
174
(3)
3
58
—
34
—
260
51
6,356
(125)
3,008
12
408
316
51
(3)
10,023
(300)
886
(23)
62
877
(11)
394
22
1,907
8,116
The Company’s provision for loan losses for 2017, 2016, and 2015 was $2.2 million, $3.6 million and $2.5 million, respectively.
Provision for loan losses of $2.2 million and $3.6 million were made for the year ended December 31, 2017 and 2016, respectively.
The decrease in loan loss provision is most attributable to average historical loss rates that have declined substantially in 2017, while
net charge-offs were $1.1 million, or 45.0%, less in 2017 versus the prior year. The total decrease in provision would have been
greater if not for increased loan volume, and a greater level of ASC 310-10 specific loan loss allocations for impaired loans required
in 2017 compared to 2016. More specifically, total loan portfolio growth was 5.0% in 2017 versus 2.0% in 2016, while total specific
loan loss allocations for impaired loans increased by $645 thousand in 2017, versus a decrease of $470 thousand in 2016. The
provision for loan losses, which is a product of management’s formal quarterly analysis, is recorded in response to inherent losses
in the loan portfolio.
Provision for loan losses of $3.6 million and $2.5 million were made for the year ended December 31, 2016 and 2015, respectively.
The increase in loan loss provision is most attributable to a significantly higher level of net charge-offs recognized in 2016 versus
2015, which increased by $1.8 million or 257.3%. The total increase in provision would have been greater if not for decreased loan
portfolio growth and decreased ASC 310-10 specific loan loss allocations for impaired loans. More specifically, total loan portfolio
growth was 2.0% in 2016 versus 29.3% in 2015, while total specific loan loss allocations decreased by $470 thousand in 2016, versus
an increase of $323 thousand in 2015. The provision for loan losses, which is a product of management’s formal quarterly analysis,
is recorded in response to inherent losses in the loan portfolio.
Determining the appropriate level of the allowance for loan losses requires considerable management judgment. In exercising this
judgment, management considers numerous internal and external factors including, but not limited to, portfolio growth, national and
local economic conditions, trends in the markets served and guidance from the Bank’s primary regulators. Management seeks to
44
Table of Contents
maintain an allowance for loan losses that is appropriate in the circumstances and that complies with applicable accounting and
regulatory standards. Further discussion can be found earlier in this discussion under "Allowance for Loan Losses."
Noninterest Income
Mortgage fee income, gain (loss) on derivatives, interchange income, security sale gains, income on bank owned life insurance and
portfolio loan sales generate the core of the Company’s noninterest income. Also, service charges on deposit accounts continue to
be part of the core of the Company’s noninterest income and include mainly non-sufficient funds and returned check fees, allowable
overdraft fees and service charges on commercial accounts. The total of noninterest income for 2017, 2016 and 2015 was $40.7
million, $43.2 million and $35.0 million, respectively.
The decrease in noninterest income for 2017 compared to 2016 was primarily the result of a $4.2 million decrease in gain on
derivatives, due to a 39.0% decrease in the locked mortgage pipeline during 2017 compared to a 31.6% increase in the locked
mortgage pipeline in 2016. In addition, mortgage production volume decreased $102.2 million or 6.2% in 2017 and increased $303.6
million or 22.7% in 2016. Excluding the decrease in gain on derivatives, noninterest income for 2017 increased $1.7 million and
was primarily attributed to increases in mortgage fee income, commercial swap fee income and other operating income. Gain on
sale of securities and gain on sale of portfolio loans decreased $351 thousand and $504 thousand respectively, in 2017 compared to
2016.
In 2017 and 2016, mortgage fee income increased $1.5 million and $6.2 million, respectively. Production volume decreased by
$102.2 million or 6.2% in 2017 and increased $303.6 million or 22.7% in 2016. The greatest decrease in 2017 was due to the decrease
in refinance volume of $199.4 million, which was a result of increasing interest rates in 2017. This decrease was partially offset by
a $68.8 million increase in construction loans, a $13.5 million increase in purchase loans, and a $13.2 million increase in bridge
loans. The increase in 2016 was across all sectors: a $166.7 million increase in construction, a $124.7 million increase in refinance,
a $37.7 million increase in purchase, and a $15.6 million increase in bridge. The production volume increase in 2016 was related to
expansion into new market areas.
Commercial swap fee income increased $419 thousand from $84 thousand in 2016 to $503 thousand in 2017. This was primarily
the result of an increase in swap volume from $4.5 million in 2016 to $17.2 million in 2017.
Other operating income increased $425 thousand from $850 thousand in 2016 to $1.3 million in 2017. This increase was primarily
related to a gain on sale of fixed assets of $344 thousand related to the closure and sale of the land, building, and certain furniture
and equipment items from a branch located at 704 Foxcroft Avenue, Martinsburg, WV.
During the ordinary course of business in 2017, 2016 and 2015 the Company sold several investment securities at a gain of $731
thousand, $1.1 million and $130 thousand, respectively. All investments that were sold were classified as available-for-sale with the
exception of one held-to-maturity investment that was sold during 2015 due to a credit downgrade. The Company is always looking
at ways to improve yield while maintaining a high quality short-term investment portfolio.
Gain on sale of portfolio loans decreased $504 thousand from $1.0 million in 2016 to $538 thousand in 2017 and decreased $371
thousand from $1.4 million in 2015 to $1.0 million in 2016. The total volume of portfolio loans sold in 2017, 2016 and 2015 was
$52.9 million, $57.2 million, and $75.0 million, respectively.
The Company is continually searching for ways to increase noninterest income.
Noninterest Expense
Noninterest expense was $70.5 million, $69.2 million and $57.8 million in 2017, 2016 and 2015, respectively. Approximately 63%,
65% and 62% of noninterest expense for 2017, 2016 and 2015, respectively, related to personnel costs. Personnel are a critical
component of every service organization, which is why personnel costs are such a significant part of the expenditure mix. Salaries
and benefits decreased by $1.1 million in 2017 and increased $9.2 million in 2016. The 2017 decrease is primarily the result of
decreased commissions due to a 15.6% decrease in mortgage loan origination volume, a $1.2 million decrease in the earn out paid
to management of the mortgage company related to the 2012 acquisition, and due to operational efficiency gains during the year.
The 2016 increase related to the following: additional staffing related to organic growth, increased commissions due to a 26.4%
increase in origination volume and increases for existing staff, a $1.8 million increase in the earn out paid to management of the
mortgage company related to the 2012 acquisition, and increases for existing staff.
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Table of Contents
Equipment and occupancy expense increased by $951 thousand in 2017 and $735 thousand in 2016. The 2017 increase was mainly
the result of the two new full-service branches opened in 2017 and increased equipment expense related to depreciation and continued
maintenance of property and software. Two branches in Martinsburg, WV were consolidated in December 2017. The 2016 increase
was a full year's worth of expense related to the branch acquisitions during late August 2015, three new full-service branches opened
in 2015, and increased equipment expense related to depreciation and continued maintenance of property and software.
Travel, entertainment, dues, and subscriptions expense increased by $496 thousand in 2017 and $146 thousand in 2016. More
specifically, the 2017 increase was a result of a $144 increase in publications and subscriptions, a $121 thousand increase in meals
and entertainment, a $96 thousand increase in travel expense, a $60 thousand increase in dues and memberships, and a $30 thousand
increase in licenses and permits. The 2016 increase was a result of a $100 thousand increase in meals and entertainment and a $44
thousand increase in publications and subscriptions.
Professional fees increased by $423 thousand in 2017 and decreased by $512 thousand in 2016. The 2017 increase was related to
project management, core conversion and other efficiency implementations, and the Nasdaq listing and subsequent approval. The
2016 decrease was related to not having merger and acquisition related activity and $150 thousand related to a commercial lending
relationship.
Data processing increased by $152 thousand in 2017 and $1.0 million in 2016. Both increases were largely driven by the core
conversion completed in April 2017, along with overall growth in terms of personnel and office space company-wide and the usage
of additional products, services, and providers to better serve the client base.
Income Taxes
The Company incurred income tax expense of $4.8 million, $6.8 million, and $3.0 million in 2017, 2016, and 2015, respectively.
The Company’s effective tax rate was 39%, 34%, and 31% in 2017, 2016 and 2015, respectively. This increase in effective tax rate
during 2017 was primarily the result of the Tax Reform Act, signed into law on December 22, 2017, in which the Company was
required to re-measure its net deferred tax asset and resulted in a income tax charge of $646 thousand. Among other things, the new
law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum
tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net
interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new
investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment
expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based
compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. If
not for having to re-measure the net deferred tax asset, the Company's effective tax rate for 2017 would have been 33%. The Company's
effective tax rate is affected by certain permanent tax differences caused by statutory requirements in the tax code. The largest
permanent difference relates to tax-exempt interest income related to municipal investments and loans held by the Company. Other,
smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and
meals and entertainment expenses. The Company expects that the effective tax rate will be 13% lower under the new tax law than
would have been the case prior to enactment; however, there can be no assurance as to the actual amount of any reduction because
it will be dependent upon the nature and amount of future income and expenses as well as transactions with discrete tax effects.
Return on Assets
Excluding discontinued operations, the Company’s return on average assets from continuing operations was 0.52% in 2017, compared
to 0.63% in 2016 and 0.54% in 2015. The decreased return in 2017 is a direct result of a $1.4 million decrease in earnings from
continuing operations, while average total assets increased by $25.8 million, mainly the result of a $44.0 million increase in investment
securities. The increased return in 2016 is a direct result of a $2.4 million increase in earnings from continuing operations, while
average total assets increased by $201.6 million, mainly the result of a $179.0 million increase in average total loans.
Return on Equity
Excluding discontinued operations, the Company’s return on average stockholders’ equity from continuing operations was 5.23%
in 2017, compared to 7.30% in 2016 and 5.89% in 2015. The decreased return in 2017 is a direct result of a $1.4 million decrease
in earnings from continuing operations, while average equity increased by $22.0 million. The increased return in 2016 is a direct
result of a $2.4 million increase in earnings from continuing operations, while average equity increased by $10.8 million.
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Overview of the Statement of Condition
The greatest balance sheet changes from 2016 to 2017 were as follows: total assets increased by $115.5 million to $1.5 billion at
December 31, 2017, loans increased by $53.3 million to $1.1 billion, investment securities increased by $69.1 million, deposits
increased by $52.6 million, increased borrowings of $61.2 million, and stockholders’ equity increased $4.6 million.
Cash and Cash Equivalents
Cash and cash equivalents totaled $20.3 million at December 31, 2017, compared to $17.3 million at December 31, 2016. During
2016, a deposit reclassification program was implemented and allowed the Company to reduce its requirement of reserve balances
on hand in accordance with the Federal Reserve Board the daily Federal Reserve Requirement.
Management believes the current balance of cash and cash equivalents adequately serves the Company’s liquidity and performance
needs. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity demands.
Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to
traditional and non-traditional funding sources, and the portions of the investment and loan portfolios that mature within one year.
These sources of funds should enable the Company to meet cash obligations as they come due.
Investment Securities
Prior to the final determination of Basel III, investments were recorded as held-to-maturity due to the uncertainty of the capital
treatment of available-for-sale investments. Upon the issuance of the final ruling, the Company opted out of the Other Comprehensive
Income treatment of available-for-sale investments permitted under Basel III. Due to the change in capital treatment under the final
ruling of Basel III, the Company’s purpose of recording investments as held-to-maturity changed; therefore, during the period
ended March 31, 2016, the Company reclassified $52.4 million of the remaining held-to-maturity investments into available-for-
sale investments.
Investment securities totaled $231.5 million at December 31, 2017, compared to $162.4 million at December 31, 2016.
The following table sets forth a summary of the investment securities portfolio as of the dates indicated. Available for sale
securities are reported at estimated fair value:
December 31, (Dollars in thousands)
Available-for-sale securities:
U. S. Agency securities
U.S. Sponsored Mortgage-backed securities
Municipal securities
Equity and other securities
Total investment securities available-for-sale
Held-to-maturity securities:
Municipal securities
2017
2016
2015
80,945
$
28,816
$
58,154
75,842
16,566
54,732
70,796
8,024
231,507
$
162,368
$
29,351
33,714
1,798
5,393
70,256
— $
— $
52,859
$
$
$
At December 31, 2017, investment securities are all available-for-sale. Management believes the available-for-sale classification
provides flexibility in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities.
At December 31, 2017, the amortized cost of investment securities totaled $231.5 million, resulting in unrealized loss in the investment
portfolio of $7 thousand. Although these investments show an unrealized loss, management has the intent and ability to hold the
investments to maturity and they are all high quality investments with no other than temporary impairment. The municipal securities
continue to give the company the ability to pledge and to better the effective tax rate.
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The following table shows the maturities for the investment securities portfolio at December 31, 2017:
(Dollars in
thousands)
U. S. Agency
securities
U.S. Sponsored
Mortgage-backed
securities
Equity and other
securities
Municipal
securities
Total
Within one year
After one year, but
within five
After five years, but
within ten
After ten years
Total investment
securities
Amortized
Cost
Weighted
Avg. Yield
Amortized
Cost
Weighted
Avg. Yield
Amortized
Cost
Weighted
Avg. Yield
Amortized
Cost
Weighted
Avg. Yield
Amortized
Cost
Fair
Value
$
$
—
—
—
300
300
—% $
24,345
1.90% $
20,940
2.13% $
36,420
2.18% $
81,705
$
80,945
—
—
—
1,910
2.10
11,142
—
5.53
4.06
7,251
8,493
2,760
1.64
2.72
5.94
52,136
5,537
60,280
2.12
2.90
0.41
59,387
58,154
15,940
16,566
74,482
75,842
2.10% $
37,397
2.73% $
39,444
2.44% $ 154,373
1.49% $ 231,514
$ 231,507
Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through Asset and
Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in the management of interest
rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, sufficient
liquidity is maintained to satisfy depositor requirements and the various credit needs of its customers. Management believes the risk
characteristics inherent in the investment portfolio are acceptable based on these parameters.
Loans
The Company’s primary market areas are the Marion, Harrison, Jefferson, Berkeley, Monongalia, and Kanawha counties of West
Virginia and Fairfax and Loudoun counties of Virginia, with a secondary focus on the adjacent counties. The portfolio consists
principally of commercial lending, retail lending, which includes single-family residential mortgages and consumer lending. Loans
totaled $1.1 billion as of December 31, 2017 and December 31, 2016.
During 2017, the Bank experienced loan growth of $53.1 million. The growth primarily came from the commercial and non-residential
real estate area, which grew approximately $27.3 million, and from the residential real estate area, which grew $27.8 million.
Major classification of loans held for investment at December 31, are as follows:
(Dollars in thousands)
2017
2016
2015
2014
2013
Commercial and non-residential real estate
Residential real estate and home equity
Consumer and other
Total Loans
Deferred loan origination fees and costs, net
Loans receivable
$
$
$
$
783,909
$
756,619
$
728,202
$
559,387
$
308,614
12,783
1,105,306
635
1,105,941
$
$
$
280,838
14,511
1,051,968
897
1,052,865
$
$
$
285,490
17,361
1,031,053
1,117
1,032,170
$
$
$
220,442
17,103
796,932
1,365
798,297
$
$
$
455,926
146,001
18,916
620,843
1,462
622,305
At December 31, 2017, commercial loans represented the largest portion of the portfolio approximating 70.9% of the total loan
portfolio. Commercial loans totaled $783.9 million at December 31, 2017, compared to $756.6 million at December 31, 2016.
Management will continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate
underwriting standards and risk/price balance.
Residential real estate loans to retail customers (including home equity lines of credit) account for the second largest portion of the
loan portfolio, comprising 27.9% of the total loan portfolio. Residential real estate and home equity loans totaled $308.6 million at
December 31, 2017, compared to $280.8 million at December 31, 2016. Included in residential real estate loans are home equity
credit lines totaling $62.4 million at December 31, 2017, compared to $65.4 million at December 31, 2016. Management believes
the home equity loans are competitive products with an acceptable return on investment after risk considerations. Residential real
estate lending continues to represent a primary focus due to the lower risk factors associated with this type of loan and the opportunity
to provide service to those in the Marion, Harrison, Berkeley, Jefferson, Kanawha and Monongalia county markets of West Virginia
and Fairfax and Loudoun county markets of Virginia. Under the Tax Cuts and Jobs Act signed into law on December 22, 2017,
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interest on home equity loans and lines of credit is no longer deductible. This change could adversely impact the level of originations
and outstanding volumes of home equity loans and lines of credit in the future.
At December 31, 2017, consumer loan balances totaled $12.8 million compared to $14.5 million at December 31, 2016. The majority
of consumer loans are in the direct lending area. Management is pleased with the performance and quality of the consumer loan
portfolio, which can be attributed to the many years of experience of its consumer lenders. This is another important product necessary
to serve our market areas.
At December 31, 2017, loans identified by management as potential problem loans amounted to $3.6 million, which includes two
commercial relationships comprised of two loans in total. One of the two loans, with an outstanding balance of $3.2 million, is a
troubled debt restructured loan that has begun to pay slowly and is being monitored for improvement. These are loans where known
information about the borrowers' possible credit problems causes management to have doubts as to the borrowers' ability to comply
with the loan repayment terms. However, these loans are sufficiently collateralized and are not believed to present significant risk
of loss.
The following table provides additional information about loans:
Loan maturities at December 31, 2017:
(Dollars in thousands)
Commercial and non-residential real estate
Residential real estate and home equity
Consumer and other
Total Loans
One Year
or Less
One Through
Five Years
Due After Five
Years
151,938
$
307,994
$
323,977
$
149,877
1,464
20,644
3,910
138,093
7,409
Total
783,909
308,614
12,783
303,279
$
332,548
$
469,479
$
1,105,306
$
$
The preceding data has been compiled based upon the earlier of either contractual maturity or next repricing date.
The following table reflects the sensitivity of loans to changes in interest rates as of December 31, 2017 that mature after one year:
(Dollars in thousands)
Predetermined fixed interest rate
Floating or adjustable interest rate
Total as of December 31, 2017
Loan Concentration
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
Consumer and
Other
Total
$
$
358,961
273,010
631,971
$
$
98,061
60,676
158,737
$
$
4,981
6,338
11,319
$
$
462,003
340,024
802,027
At December 31, 2017, commercial loans comprised the largest component of the loan portfolio. A large portion of commercial loans
are real estate secured however, they are geographically and industry diverse. Loans that are non-real estate secured are typically
secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial
portfolio is comprised of loans to many different borrowers, in numerous different industries but primarily located in our market
areas.
Allowance for Loan Losses
Management continually monitors the risk in the loan portfolio through review of the monthly delinquency reports and the Loan
Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the allowance for loan
losses. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates
are derived for individual loans based on specific criteria such as current delinquent status, related deposit account activity, where
applicable, and changes in the local and national economy. When appropriate, Management also considers public knowledge and/
or verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.
The result of the evaluation of the adequacy at each period presented herein indicated that the allowance for loan losses was considered
adequate to absorb losses inherent in the loan portfolio.
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Table of Contents
At December 31, 2017 and 2016, impaired loans totaled $15.6 million and $12.2 million respectively. A portion of the allowance
for loan losses of $1.2 million and $543 thousand was allocated to cover any loss in these loans at December 31, 2017 and 2016,
respectively. Loans past due more than 30 days were $9.8 million and $7.7 million, respectively, at December 31, 2017 and 2016.
Loans past due more than 30 days to gross loans
Loans past due more than 90 days to gross loans
December 31,
2017
2016
2015
0.89%
0.25%
0.73%
0.39%
1.83%
0.97%
Net charge-offs of $1.4 million in 2017, $2.5 million in 2016, and $710 thousand in 2015 were incurred. The provision for loan
losses was $2.2 million in 2017, $3.6 million in 2016, and $2.5 million in 2015. Net charge-offs represented 0.13%, 0.24%, 0.07%,
0.16% and 0.23% in 2017, 2016, 2015, 2014 and 2013, respectively, compared to gross loans for the indicated period.
The following tables reflect the allocation of the allowance for loan losses as of December 31, 2017, 2016, 2015, 2014 and 2013:
(Dollars in thousands)
ALL balance at December 31, 2016
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2017
(Dollars in thousands)
ALL balance at December 31, 2015
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2016
(Dollars in thousands)
ALL balance at December 31, 2014
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2015
(Dollars in thousands)
ALL balance at December 31, 2013
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2014
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
7,181
$
1,718
$
(1,138)
39
1,722
(250)
44
312
7,804
$
1,824
$
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
6,066
$
1,810
$
(1,995)
8
3,102
(224)
11
121
7,181
$
1,718
$
Consumer and
Other
Total
202
$
(109)
18
139
250
$
Consumer and
Other
Total
130
$
(338)
1
409
202
$
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
Consumer and
Other
Total
4,363
$
1,653
$
207
$
(708)
20
2,391
(33)
6
184
(6)
11
(82)
6,066
$
1,810
$
130
$
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
Consumer and
Other
Total
3,609
$
1,073
$
253
$
(1,110)
7
1,857
(130)
3
707
(68)
4
18
4,363
$
1,653
$
207
$
$
$
$
$
$
$
$
$
9,101
(1,497)
101
2,173
9,878
8,006
(2,557)
20
3,632
9,101
6,223
(747)
37
2,493
8,006
4,935
(1,308)
14
2,582
6,223
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Table of Contents
(Dollars in thousands)
ALL balance at December 31, 2012
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2013
Commercial and
Non-Residential
Real Estate
Residential Real
Estate and Home
Equity
Consumer and
Other
Total
3,107
$
756
$
213
$
(1,458)
57
1,903
(38)
70
285
(33)
1
72
3,609
$
1,073
$
253
$
$
$
4,076
(1,529)
128
2,260
4,935
(Dollars in thousands)
2017
2016
2015
2014
2013
December 31,
Amount
% of
loans in
each
category
to total
loans
Amount
% of
loans in
each
category
to total
loans
Amount
% of
loans in
each
category
to total
loans
Amount
% of
loans in
each
category
to total
loans
Amount
% of
loans in
each
category
to total
loans
Commercial and non-
residential real estate
Residential real estate and
home equity
Consumer and other
$ 7,804
71% $ 7,181
72% $ 6,066
70% $ 4,363
70% $ 3,609
74%
1,824
250
28
1
1,718
202
27
1
1,810
130
28
2
1,653
207
28
2
1,073
253
23
3
Total
$ 9,878
100% $ 9,101
100% $ 8,006
100% $ 6,223
100% $ 4,935
100%
Non-performing assets consist of loans that are no longer accruing interest, loans that have been renegotiated to below market rates
based upon financial difficulties of the borrower, and real estate acquired through foreclosure. When interest accruals are suspended,
accrued interest income is reversed with current year accruals charged to earnings and prior year amounts generally charged off as
a credit loss. When, in management’s judgment, the borrower’s ability to make periodic interest and principal payments resumes
and collectability is no longer in doubt, which is evident by the receipt of six consecutive months of regular, on-time payments, the
loan is eligible to be returned to accrual status. For 2017, interest income on loans would have increased by approximately $423
thousand if loans had performed in accordance with their terms.
Non-performing assets and past due loans:
(Dollars in thousands)
Non-accrual loans
Commercial
Real estate and home equity
Consumer and other
Total non-accrual loans
Accruing loan past due 90 days or more
Total non-performing loans
Other real estate, net
Total non-performing assets
Allowance for loan losses
2017
2016
2015
2014
2013
$
$
$
8,350
1,170
179
9,699
—
9,699
1,346
11,045
9,878
$
$
$
4,975
1,176
78
6,229
—
6,229
414
6,643
9,101
$
8,195
$
3,462
$
839
371
9,405
848
10,253
239
10,492
8,006
$
$
$
$
487
—
3,949
5,306
9,255
575
9,830
6,223
$
$
284
29
76
389
460
849
375
1,224
4,935
Non-performing loans to gross loans
Allowance for loan losses to non-performing loans
Non-performing assets to total assets
0.88%
0.59%
101.85%
146.11%
0.72%
0.47%
0.99%
78.08%
0.76%
1.16%
67.24%
0.89%
0.14%
581.27%
0.12%
Impaired loans have increased by $3.4 million, or 28%, during 2017. This change is the net effect of multiple factors, including the
identification of $7.6 million of recently impaired loans, principal curtailments of $2.1 million, partial charge-offs of $360 thousand,
foreclosure and reclassification to other real estate owned of $1.3 million, reclassification of $150 thousand of previously reported
impaired loans to performing loans, and normal loan amortization of $213 thousand.
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The $7.6 million total of recently identified impaired loans includes $6.7 million, or 88.2%, of commercial loans, $783 thousand,
or 10.3%, of residential mortgage loans, and $129 thousand, or 1.5%, of consumer loans. The commercial loans are primarily
concentrated in three relationships, including a $3.4 million purchased participation note secured by a senior healthcare facility, a
$1.2 million commercial real estate loan, net of a $579 thousand sold participation, secured by a retail strip center, and a $810 thousand
development loan secured by a developed commercial pad site. These three loans represent 80.0% of the recently impaired commercial
loans, while the remaining $1.3 million represent fifteen additional commercial loans ranging from $6 thousand to $457 thousand
in outstanding balances.
Funding Sources
The Bank considers a number of alternatives, including but not limited to deposits, short-term borrowings, and long-term borrowings
when evaluating funding sources. Traditional deposits continue to be the most significant source of funds, totaling $1.2 billion, or
84.8% of funding sources at December 31, 2017. This same information at December 31, 2016 reflected $1.1 billion in deposits
representing 88.1% of such funding sources. Repurchase agreements, which are available to large corporate customers, represented
1.6% and 2.0% of funding sources at December 31, 2017 and 2016, respectively. FHLB and other borrowings and subordinated debt
represented the remainder of such funding sources.
Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source for MVB.
At December 31, 2017, noninterest-bearing balances totaled $126.0 million compared to $115.7 million at December 31, 2016 or
10.9% and 10.5% of total deposits respectively. Interest-bearing deposits totaled $1.0 billion at December 31, 2017, compared to
$991.3 million at December 31, 2016 or 89.1% and 89.5% of total deposits respectively.
(Dollars in thousands)
2017
2016
2015
Demand deposits of individuals, partnerships, and corporations
Noninterest bearing demand
Interest bearing demand
Savings and money markets
Time deposits including CDs and IRAs
Total deposits
Time deposits that meet or exceed the FDIC insurance limit
$
125,963
$
115,692
$
436,303
284,795
312,519
414,031
280,533
296,761
80,423
473,459
128,622
329,810
$
$
1,159,580
$
1,107,017
$
1,012,314
18,832
$
18,727
$
21,690
The following table sets forth the average balance and average rate paid on each of the deposit categories for the years ended
December 31, 2017, 2016 and 2015:
(Dollars in thousands)
Average
Balance
Average Rate
Average
Balance
Average Rate
Average
Balance
Average Rate
Noninterest bearing demand deposits
$
117,696
$
99,826
$
79,611
2017
2016
2015
Interest-bearing demand deposits:
NOW
Money market checking
Savings
IRAs
CDs
Total interest-bearing deposits
438,123
239,632
47,034
16,678
262,417
1,003,884
0.60%
0.74%
0.17%
1.30%
1.38%
0.83%
454,320
163,630
43,870
16,319
314,542
992,681
0.53%
0.78%
0.20%
1.27%
1.19%
0.78%
446,704
65,306
39,766
12,038
278,499
842,313
0.61%
0.61%
0.28%
1.21%
1.03%
0.74%
Total deposits
$ 1,121,580
$ 1,092,507
$
921,924
Average interest-bearing deposits totaled $1.0 billion during 2017 compared to $992.7 million during 2016. Average noninterest
bearing deposits totaled $117.7 million during 2017 compared to $99.8 million during 2016.
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Maturities of time deposits that meet or exceed the FDIC insurance limit:
(Dollars in thousands)
Under 3 months
Over 3-12 months
Over 1 to 3 years
Over 3 years
Total
2017
1,327
8,878
7,155
1,472
18,832
$
$
Along with traditional deposits, the Bank has access to both short-term borrowings from FHLB and overnight repurchase agreements
to fund its operations and investments.
Short-term borrowings:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
Repurchase agreements:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
In addition, the Company holds subordinated debt as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
Capital/Stockholders’ Equity
2017
2016
2015
$
149,596
$
87,733
$
100,969
220,097
1.16%
1.61%
137,822
210,600
0.51%
0.74%
179,917
121,425
179,917
0.34%
0.44%
$
$
2017
2016
2015
$
22,403
25,160
25,972
0.30%
0.34%
$
25,160
27,066
29,561
0.27%
0.28%
27,437
26,884
32,470
0.31%
0.30%
2017
2016
2015
$
33,524
33,524
33,524
6.69%
6.70%
$
33,524
33,524
33,524
6.64%
6.63%
33,524
33,524
33,524
6.57%
6.57%
During the year ended December 31, 2017, stockholders’ equity increased approximately $4.6 million to $150.2 million. This increase
consists of net income for the year of $7.6 million, along with dividends paid totaling $1.5 million, net proceeds from a common
stock issuance totaling $4.9 million, and an increase in equity due to a change in accumulated other comprehensive income of $1.3
million, offset by a $8.5 million decrease related to the redemption of SBLF preferred stock. Although stockholders’ equity increased
as noted above, the equity to assets ratio decreased 0.47% to 9.79% due to the $115.5 million increase in total assets during 2017.
The Company paid dividends to common shareholders of $1.0 million in 2017 and $646 thousand in 2016 and earned $7.6 million
in 2017 versus $12.9 million in 2016, resulting in the dividend payout ratio increasing from 5.00% in 2016 to 13.64% in 2017.
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At December 31, 2017, accumulated other comprehensive loss totaled $3.0 million, a decrease in the loss of $1.3 million from
December 31, 2016. This change is primarily the result of the increase in the market value of the investment portfolio from 2016 to
2017, principally in the area of local municipal bonds.
The Company and the Bank are also 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 consolidated financial statements. Under capital
adequacy guidelines the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts
and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios
reflect the relative risks of various assets companies hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%,
100% or 150% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning the Company’s
risk-based capital ratios can be found in Note 14, "Regulatory Capital Requirements" of the Notes to the Consolidated Financial
Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K; and see also
"Supervision and Regulation" in Item 1, Business, of this Annual Report on Form 10-K.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and
ratios of Total capital, Tier 1 capital and Tier 1 common equity to risk-weighted assets, and of Tier 1 capital to average assets, as
defined. As of December 31, 2017 and 2016, the Company meets all capital adequacy requirements to which it is subject.
At December 31, 2017, the Company’s consolidated risk-based capital ratios were above the minimum standards for a well capitalized
institution. The total risk-based capital ratio of 14.9% at December 31, 2017, is above the well capitalized standard of 10%. The Tier
1 risk-based capital ratio of 11.5% also exceeded the well capitalized minimum of 8%. The common equity tier 1 capital ratio of
10.5% is above the well capitalized standard of 6.5%. The leverage ratio at December 31, 2017, was 9.3% and was also above the
well capitalized standard of 5%. Management believes that capital continues to provide a strong base for profitable growth.
Liquidity and Interest Rate Sensitivity
The objective of the asset/liability management function is to structure the balance sheet in ways that maintain consistent growth in
net interest income and minimize exposure to market risks within its policy guidelines. This objective is accomplished through
management of balance sheet liquidity and interest rate risk exposure based on changes in economic conditions, interest rate levels,
and customer preferences. The Company manages balance sheet liquidity through the investment portfolio, sales of commercial and
residential real estate loans, and through the utilization of diversified funding sources, including retail deposits, a variety of wholesale
funding sources and borrowings through the FHLB. Interest rate risk is managed through the use of interest rate caps, commercial
loan swap transactions and interest rate lock commitments on mortgage loans held for sale, as well as the structuring of loan terms
that provide cash flows to be consistently re-invested along the rate cycle.
Interest Rate Risk
Our primary market risk is interest rate fluctuation. Interest rate risk results from the traditional banking activities in which the Bank
engages, such as gathering deposits and extending loans. Many factors, including economic conditions, financial conditions,
movements in interest rates, and consumer preferences affect the difference between interest earned on our assets and interest paid
on our liabilities. The Company's interest rate risk represents the levels of exposure our income and market values have to fluctuations
in interest rates. Interest Rate Risk is measured as the change in earnings and the theoretical market value of equity that results from
changes in interest rates. The Asset/Liability Committee (ALCO) oversees the management of interest rate risk. ALCO’s objective
is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs, and protect the
Company from any material financial consequences associated with changes in interest rates.
Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from
changing rate relationships across yield curves that affect bank activities (basis risk); from changing rate relationships across the
spectrum of maturities (yield curve risk); and from interest rate related options embedded in certain bank products (option risk).
Changes in interest rates may also affect a bank’s underlying economic value. The values of a bank’s assets, liabilities, and interest-
rate related, off-balance sheet contracts are affected by changes in rates because the present values of future cash flows, and in some
cases the cash flows themselves, are changed when discounting by different rates.
The Company believes that accepting some level of interest rate risk is necessary in order to achieve realistic profit goals. Management
and the Board have chosen an interest rate risk profile that is consistent with our strategic business plan.
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The Company’s Board of Directors has established a comprehensive interest rate risk management policy, which is administered by
our ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a
measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity or “EVE” at risk)
resulting from a hypothetical change in interest rates. The Company measures the potential adverse impacts that changing interest
rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of
computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded
in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent
in the interest rate modeling methodology we employ. When interest rates change, actual movements in different categories of interest-
earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly
from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on
adjustable-rate loan customers’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.
A base case forecast is prepared using Global Insight’s Most Likely rate forecast and alternative simulations reflecting more and less
extreme behavior of rates each quarter. The analysis gets presented to the ALCO and the Board of Directors. In addition, more
frequent forecasts are produced when interest rates are particularly uncertain, when other business conditions so dictate, or when
necessary to model potential balance sheet changes.
The balance sheet is subject to quarterly testing for interest rate shock possibilities to indicate the inherent interest rate risk. Average
interest rates are shocked by +/ - 100, 200, 300, and 400 basis points (“bp”). The goal is to structure the balance sheet so that net
interest-earnings at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the
various interest rate shock levels.
At December 31, 2017, the Company is shown in a liability sensitive position for the first year after rate shocks. Management
continuously strives to reduce higher costing fixed rate funding instruments, while increasing assets that are more fluid in their
repricing. An asset sensitive position, theoretically, is more favorable in a rising rate environment since more assets than liabilities
will reprice in a given time frame as interest rates rise. Similarly, a liability sensitive position, theoretically, is favorable in a declining
interest rate environment since more liabilities than assets will reprice in a given time frame as interest rates decline. Management
works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of
interest rates.
Estimated Changes in Net Interest Income
Change in interest rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
December 31, 2017
December 31, 2016
25.0 %
(4.3)%
16.0 %
20.0 %
(3.9)%
11.2 %
15.0 %
(3.2)%
6.5 %
10.0 %
(1.6)%
3.8 %
10.0 %
(0.3)%
(5.8)%
15.0 %
(11.6)%
(12.8)%
20.0 %
(19.2)%
(15.4)%
25.0 %
(22.8)%
(15.9)%
As shown above, measures of net interest income at risk in a rising rate environment were less favorable at December 31, 2017 than
at December 31, 2016 at all interest rate shock levels and less favorable in a falling rate environment for the same time periods. All
measures remained well within prescribed policy limits. This reflects rising liability costs in an environment in which we expect
short-term market rates to rise faster than long-term rates.
The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in
interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and
liabilities. The difference between these discounted values of the assets and liabilities is the economic value of equity, which, in
theory, approximates the fair value of the Company’s net assets.
Estimated Changes in Economic Value of Equity (EVE)
Change in interest rates
+400 bp
+300 bp
+200 bp
+100 bp
-100 bp
-200 bp
-300 bp
-400 bp
Policy Limit
December 31, 2017
December 31, 2016
35.0 %
(6.3)%
6.3 %
25.0 %
(4.7)%
5.7 %
17.0 %
(3.2)%
4.7 %
12.0 %
(1.7)%
3.2 %
12.0 %
(1.9)%
(10.4)%
17.0 %
(16.1)%
(24.9)%
25.0 %
(29.7)%
(36.4)%
35.0 %
(29.7)%
(30.5)%
The EVE at risk in down rate scenarios decreased at December 31, 2017, when compared to December 31, 2016, while we expect
economic value of equity to decline during rising rate environments. This is due to operating in an environment expecting a relatively
flattening yield curve.
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Table of Contents
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes have been prepared in accordance with GAAP, which generally requires the
measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates
have a greater impact on performance than the effects of inflation.
Liquidity
Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability
to meet anticipated operating cash needs, loan demand, and deposit withdrawals, without incurring a sustained negative impact on
net interest income. It is MVB’s policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow
funds under emergency conditions.
The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from
investment maturities, principal payments from loans, and income from loans and investment securities. During the year ended
December 31, 2017, cash provided by financing activities totaled $105.9 million, while outflows from investing activity totaled
$136.1 million. When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the
Federal Home Loan Bank (FHLB), national market certificate of deposit issuance programs, the Federal Reserve discount window,
brokered deposits and CDARS. These external sources often provide attractive interest rates and flexible maturity dates that enable
the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-
for-sale and can be utilized as an additional source of liquidity.
The Company has an effective shelf registration covering $75 million of debt and equity securities, of which approximately $70
million remains available, subject to Board authorization and market conditions, to issue equity or debt securities at our discretion.
While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would
permit us to sell securities on acceptable terms at any given time or at all.
Contractual Obligations
The following table reflects the contractual maturities of our term liabilities as of December 31, 2017. The amounts shown do not
reflect contractual interest, early withdrawal or prepayment assumptions.
(Dollars in thousands)
Certificates of deposit and individual retirement accounts 1
Securities sold under agreement to repurchase
Operating leases
FHLB short-term advances
FHLB long-term advances
Less than one
year
One to three
years
Three to five
years
More than
five years
Total
$
169,220
$
98,012
$
45,287
$
— $
312,519
22,403
1,822
149,596
81
—
2,543
—
175
—
2,469
—
2,317
—
5,185
—
—
22,403
12,019
149,596
2,573
Total
343,122
1 Certificates of deposit give customers rights to early withdrawal. Early withdrawals may be subject to penalties. The penalty amount
depends on the remaining time to maturity at the time of early withdrawal.
100,730
499,110
50,073
5,185
$
$
$
$
$
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Off-Balance Sheet Commitments
The Bank has entered into certain agreements that represent off-balance sheet arrangements that could have a significant impact on
the consolidated financial statements and could have a significant impact in future periods. Specifically, the Bank has entered into
agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit. In addition, the
Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds deposits. Further discussion of these agreements,
including the amounts outstanding at December 31, 2017, is included in Note 7, "Commitments and Contingent Liabilities" of the
Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K.
Commitments to extend credit, including loan commitments, standby letters of credit, and commercial letters of credit do not
necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.
Fourth Quarter
Fourth quarter 2017 net income was $1.4 million compared to $2.3 million in the fourth quarter of 2016. This equated to basic
earnings per share, on a quarterly basis, of $0.12 in 2017 and $0.23 in 2016. Diluted earnings per share for the fourth quarter of 2017
and 2016 were $0.12 and $0.22, respectively. Net interest income increased during the fourth quarter and was $11.7 million in the
fourth quarter of 2017 compared to $10.8 million in 2016. Noninterest income was $10.2 million in the fourth quarter of 2017
compared to $10.1 million in 2016. Noninterest expense increased to $17.7 million for the fourth quarter of 2017 from $16.8 million
in 2016. Loan loss provision was $1.0 million for the fourth quarter of 2017, an increase of $379 thousand over the fourth quarter
of 2016.
The commercial and retail banking segment of the Company showed a decrease in earnings in the fourth quarter of 2017 by $713
thousand from the same period one year prior due to an increase in noninterest expenses. Net interest margin increased $584 thousand
due to the Company’s strong balance sheet growth, namely loan growth of $27.4 million and deposit growth of $51.1 million.
Noninterest income increased $576 thousand, primarily the result of a $225 thousand increase in mortgage fee income, a $181
thousand increase in other operating income, a $58 thousand increase in Visa debit card and interchange income, and a $50 thousand
increase in insurance and investment services income. Noninterest expenses increased by $959 thousand, mostly the result of a $366
thousand increase in other operating expenses, a $298 thousand increase in salaries and employee benefits, a $137 thousand increase
in data processing and communications expense, and $135 thousand increase in occupancy and equipment expense.
Additionally, fourth quarter 2017 income tax expense increased by $570 thousand to $1.9 million versus the fourth quarter 2016.
The increase in tax expense was primarily the result of tax reform in which the Company was required to re-measure its net deferred
tax asset and resulted in a income tax charge of $646 thousand.
The mortgage segment of the Company showed an increase in fourth quarter earnings of $115 thousand as a result of the following
items. Mortgage fee income decreased by $452 thousand and gain on derivative decreased by $371 thousand. Salaries and benefits
decreased $504 thousand as a result of decreased commission expense. In addition, there was an income tax expense increased of
$63 thousand due to the larger fourth quarter 2017 earnings versus the prior year.
The financial holding company segment of the company showed an earnings decrease of $286 thousand in the fourth quarter of 2017
compared to the same period in 2016. The earnings decrease was primarily related to a $498 thousand increase in professional fees
and a $507 thousand increase in salaries and employee benefits. Additionally, the fourth quarter income tax benefit increased $79
thousand due to the decrease in earnings.
Future Outlook
Three significant factors contributed to the Company's 2017 performance results compared to 2016. These were the $3.9 million
after-tax gain on the asset sale of a wholly-owned subsidiary, MVB Insurance, in 2016; the $1.5 million decrease in net income
within MVB Mortgage created by the continued market pressure within the mortgage industry; and a $646 thousand charge associated
with the new tax law changes passed in late 2017. The Company has invested in infrastructure to support anticipated future growth
in each key area, including personnel, technology and processes to meet the growing compliance requirements in the industry. The
Company believes it is well positioned in some of the finest markets in the State of West Virginia and the Commonwealth of Virginia
and will continue to focus on the following: margin improvement; leveraging capital; organic portfolio loan growth; and operating
efficiency. The key challenge for the Company in the future is to attract core deposits to fund growth in the new markets through
continued delivery of outstanding customer service coupled with high quality products and technology.
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Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s market risk is composed primarily of interest rate risk. The Asset and Liability Committee (“ALCO”) is responsible
for reviewing the interest rate sensitivity position and establishes policies to monitor and coordinate the Company’s sources, uses,
and pricing of funds.
Interest Rate Sensitivity Management
The Company uses a simulation model to analyze, manage and formulate operating strategies that address net interest income
sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios
over a twenty-four month period. The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and
liabilities. The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing
interest rates and the prepayment assumption of certain assets and liabilities as of December 31, 2017. The model assumes changes
in interest rates without any management intervention to change the composition of the balance sheet. According to the model run
for the period ended December 31, 2017, over a twelve-month period, an immediate 100 basis point increase in interest rates would
result in a decrease in net interest income by 1.6%. An immediate 200 basis point increase in interest rates would result in a decrease
in net interest income by 3.2%. A 100 basis point decrease in interest rates would result in a decrease in net interest income of 0.3%.
While management carefully monitors the exposure to changes in interest rates and takes actions as warranted to decrease any adverse
impact, there can be no assurance about the actual effect of interest rate changes on net interest income.
The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest
rates. The Company manages its exposure to fluctuations in interest rates through policies established by its ALCO. The ALCO
meets quarterly and has responsibility for formulating and implementing strategies to improve balance sheet positioning and reviewing
interest rate sensitivity.
We have counter-party risk which may arise from the possible inability of the Company’s third-party investors to meet the terms of
their forward sales contracts. The Company works with third-party investors that are generally well capitalized, are investment grade
and exhibit strong financial performance to mitigate this risk. We do not expect any third-party investor to fail to meet its obligation.
We monitor the financial condition of these third parties on an annual basis. We do not expect these third parties to fail to meet their
obligations.
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Table of Contents
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MVB Financial Corp. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands except per share data)
December 31, 2017 and 2016
ASSETS
Cash and cash equivalents:
Cash and due from banks
Interest bearing balances with banks
Total cash and cash equivalents
Certificates of deposit with other banks
Investment Securities:
Securities available-for-sale
Loans held for sale
Loans receivable:
Less: Allowance for loan losses
Net Loans
Premises and equipment
Bank owned life insurance
Accrued interest receivable and other assets
Goodwill
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing
Interest bearing
Total deposits
Accrued interest payable and other liabilities
Repurchase agreements
FHLB and other borrowings
Subordinated debt
Total liabilities
STOCKHOLDERS’ EQUITY
2017
2016
$
16,345
$
3,960
20,305
14,778
231,507
66,794
14,846
2,494
17,340
14,527
162,368
90,174
1,105,941
1,052,865
(9,878)
(9,101)
1,096,063
1,043,764
26,686
32,666
27,023
18,480
25,081
22,970
24,100
18,480
$
1,534,302
$
1,418,804
$
125,963
$
1,033,617
1,159,580
16,434
22,403
152,169
33,524
115,692
991,325
1,107,017
16,557
25,160
90,921
33,524
1,384,110
1,273,179
Preferred stock, par value $1,000; 20,000 authorized; 783 and 9,283 issued in 2017 and 2016, respectively
(See Footnote 12)
7,834
16,334
Common stock, par value $1; 20,000,000 shares authorized; 10,495,704 issued and 10,444,627 shares
outstanding in 2017; 10,047,621 shares issued and 9,996,544 shares outstanding in 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury Stock, 51,077 shares, at cost
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
10,496
98,698
37,236
(2,988)
(1,084)
10,048
93,412
31,192
(4,277)
(1,084)
150,192
145,625
$
1,534,302
$
1,418,804
See Notes to Consolidated Financial Statements
59
Table of Contents
MVB Financial Corp. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands except per share data)
Years ended December 31, 2017, 2016 and 2015
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
NONINTEREST INCOME
Service charges on deposit accounts
Income on bank owned life insurance
Visa debit card and interchange income
Mortgage fee income
Gain on sale of portfolio loans
Insurance and investment services income
Gain on sale of securities
Gain (loss) on derivatives
Commercial swap fee income
Other operating income
Total noninterest income
NONINTEREST EXPENSES
Salary and employee benefits
Occupancy expense
Equipment depreciation and maintenance
Data processing and communications
Mortgage processing
Marketing, contributions and sponsorships
Professional fees
Printing, postage and supplies
Insurance, tax and assessment expense
Travel, entertainment, dues and subscriptions
Other operating expenses
Total noninterest expense
Income from continuing operations, before income taxes
Income tax expense - continuing operations
Net Income from continuing operations
Income from discontinued operations, before income taxes
Income tax expense - discontinued operations
Net Income from discontinued operations
Net Income
Preferred dividends
Net Income available to common shareholders
60
2017
2016
2015
$
$
$
51,217
340
2,658
2,383
56,598
8,294
75
1,690
2,242
12,301
44,297
2,173
42,124
765
646
1,258
37,149
538
563
731
(2,722)
503
1,275
40,706
44,108
4,084
3,005
5,116
3,207
1,179
3,143
988
1,797
2,221
1,652
70,500
12,330
4,755
7,575
—
—
—
7,575
498
7,077
$
$
$
50,018
322
1,366
2,417
54,123
7,748
72
1,086
2,226
11,132
42,991
3,632
39,359
764
638
1,185
35,673
1,042
420
1,082
1,467
84
850
43,205
45,225
3,686
2,452
4,964
3,355
1,253
2,720
767
1,528
1,725
1,534
69,209
13,355
4,378
8,977
6,346
2,411
3,935
12,912
1,128
11,784
$
$
$
40,642
274
958
2,226
44,100
6,246
83
692
2,204
9,225
34,875
2,493
32,382
646
653
987
29,472
1,413
338
130
675
382
259
34,955
36,073
3,390
2,013
4,010
3,158
1,352
3,232
762
1,394
1,579
885
57,848
9,489
2,886
6,603
353
140
213
6,816
575
6,241
Table of Contents
Earnings per share from continuing operations - basic
Earnings per share from discontinued operations - basic
Earnings per common shareholder - basic
Earnings per share from continuing operations - diluted
Earnings per share from discontinued operations - diluted
Earnings per common shareholder - diluted
Cash dividends declared
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
$
$
$
$
$
$
$
0.69
$
— $
$
0.69
0.68
$
— $
$
0.68
0.96
0.48
1.44
0.92
0.39
1.31
0.10
10,308,738
10,440,228
$
0.08
8,212,021
10,068,733
$
$
$
$
$
$
$
0.75
0.03
0.78
0.74
0.03
0.77
0.08
8,014,316
8,140,116
See Notes to Consolidated Financial Statements
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Table of Contents
MVB Financial Corp. and Subsidiary
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Years ended December 31, 2017, 2016 and 2015
Net Income
Other comprehensive income (loss):
2017
2016
2015
$
7,575
$
12,912
$
6,816
Unrealized holding gains (losses) on securities available-for-sale
3,387
(2,802)
202
Unrealized holding gains during the year related to reclassified held-to-maturity securities
—
1,825
—
Income tax effect
(1,355)
391
(81)
Reclassification adjustment for gain recognized in income
(731)
(813)
(130)
Reclassification adjustment for gain recognized in income related to reclassified held-to-maturity securities
—
(269)
Income tax effect
292
433
—
52
Change in defined benefit pension plan
(507)
(181)
(556)
Income tax effect
203
72
222
Total other comprehensive income (loss)
1,289
(1,344)
(291)
Comprehensive income
$
8,864
$
11,568
$
6,525
See Notes to Consolidated Financial Statements
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Table of Contents
MVB Financial Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders’ Equity
(Dollars in thousands except per share data)
Years ended December 31, 2017, 2016 and 2015
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)
Treasury
Stock
Total
Stockholders'
Equity
Balance December 31, 2014
$
16,334
$
8,034
$
74,342
$
14,454
$
(2,642) $
(1,084) $
109,438
Net Income
Other comprehensive loss
Cash dividends paid ($0.08 per share)
Dividends on preferred stock
Stock based compensation
Common stock options exercised
—
—
—
—
—
—
—
—
—
—
—
79
—
—
—
—
413
(527)
6,816
—
(641)
(575)
—
—
—
(291)
—
—
—
—
—
—
—
—
—
—
6,816
(291)
(641)
(575)
413
(448)
Balance December 31, 2015
16,334
8,113
74,228
20,054
(2,933)
(1,084)
114,712
Net Income
Other comprehensive loss
Cash dividends paid ($0.08 per share)
Dividends on preferred stock
Common stock issuance, net of
issuance costs
Stock based compensation
Common stock options exercised
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,913
18,606
—
22
568
10
12,912
—
(646)
(1,128)
—
—
—
—
(1,344)
—
—
—
—
—
—
—
—
—
—
—
—
12,912
(1,344)
(646)
(1,128)
20,519
568
32
Balance December 31, 2016
16,334
10,048
93,412
31,192
(4,277)
(1,084)
145,625
Net Income
Other comprehensive income
Cash dividends paid ($0.10 per share)
Dividends on preferred stock
—
—
—
—
Redemption of preferred stock
(8,500)
Common stock issuance, net of
issuance costs
Stock based compensation
Common stock options exercised
—
—
—
—
—
—
—
—
444
—
4
—
—
—
—
—
4,487
813
(14)
7,575
—
(1,033)
(498)
—
—
—
—
—
1,289
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,575
1,289
(1,033)
(498)
(8,500)
4,931
813
(10)
Balance December 31, 2017
$
7,834
$
10,496
98,698
37,236
$
(2,988) $
(1,084) $
150,192
See Notes to Consolidated Financial Statements
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Table of Contents
MVB Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31, 2017, 2016 and 2015
OPERATING ACTIVITIES
Net Income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization and accretion of investments
Net amortization of deferred loan fees
Provision for loan losses
Depreciation and amortization
Stock based compensation
Loans originated for sale
Proceeds of loans sold
Mortgage fee income
Gain on sale of securities
Loss on sale of securities
Gain on sale of portfolio loans
Gain on sale of subsidiary
Income on bank owned life insurance
Deferred taxes
Other, net
Net cash (used in) / provided by operating activities
INVESTING ACTIVITIES
Purchases of investment securities available-for-sale
Purchases of investment securities held-to-maturity
Maturities/paydowns of investment securities available-for-sale
Maturities/paydowns of investment securities held-to-maturity
Sales of investment securities available-for-sale
Sales of investment securities held-to-maturity
Purchases of premises and equipment
Disposals of premises and equipment
Disposals of premises and equipment from sale of subsidiary
Net increase in loans
Purchases of restricted bank stock
Redemptions of restricted bank stock
Proceeds from sale of certificates of deposit with banks
Purchases of certificates of deposit with banks
Proceeds from sale of other real estate owned
Proceeds from sale of subsidiary
Branch acquisition, net cash acquired
Purchase of bank owned life insurance
Net cash (used in) investing activities
FINANCING ACTIVITIES
Net increase in deposits
Net (decrease) in repurchase agreements
Net change in short-term FHLB borrowings
Principal payments on FHLB borrowings
Proceeds from new FHLB borrowings
Proceeds from stock offering, net of issuance costs
Preferred stock redemption
Common stock options exercised
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Loans transferred to other real estate owned
Cashless stock options exercised
Cash payments for:
Interest on deposits, repurchase agreements and borrowings
Income taxes
2017
2016
2015
$
7,575
$
12,912
$
6,816
1,166
26
2,173
2,691
813
(1,367,531)
1,428,060
(37,149)
(1,103)
372
(538)
—
(646)
1,349
(4,137)
33,121
(139,127)
—
19,011
—
53,198
—
(4,496)
307
—
(53,960)
(20,712)
18,980
1,978
(2,229)
—
—
—
(9,050)
(136,100)
52,563
(2,757)
49,663
(15,097)
26,682
4,931
(8,500)
(10)
(1,033)
(498)
105,944
2,965
17,340
20,305
1,164
4
12,399
6,026
$
$
$
$
$
1,001
55
3,632
3,407
568
(1,643,450)
1,691,572
(35,673)
(1,084)
2
(1,042)
(6,926)
(638)
707
221
25,264
(114,612)
—
17,790
400
55,191
—
(1,668)
—
581
(22,245)
(23,933)
26,684
6,717
(8,094)
159
7,047
—
—
(55,983)
94,703
(2,277)
(92,184)
(93)
—
20,519
—
32
(646)
(1,128)
18,926
(11,793)
29,133
17,340
332
16
10,890
6,922
$
$
$
$
$
765
203
2,493
2,908
413
(1,341,965)
1,338,341
(29,472)
(130)
—
(1,413)
—
(653)
(395)
(812)
(22,901)
(39,552)
(700)
24,412
1,580
12,912
421
(2,153)
—
—
(215,173)
(24,344)
20,972
248
(1,491)
1,132
—
48,292
—
(173,444)
120,390
(5,236)
84,088
(2,177)
—
—
—
(448)
(641)
(575)
195,401
(944)
30,077
29,133
174
1,180
11,124
2,400
$
$
$
$
$
See Notes to Consolidated Financial Statements
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Table of Contents
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Organization
MVB Financial Corp. (“the Company”) is a financial holding company and was organized in 2003. MVB operates principally through
it’s wholly-owned subsidiary, MVB Bank, Inc. (“MVB Bank”). MVB Bank’s operating subsidiaries include MVB Mortgage, MVB
Insurance, LLC (“MVB Insurance”), and MVB Community Development Corporation (“CDC”).
MVB Bank was chartered in 1997 and commenced operations in 1999.
In 2012, MVB Bank acquired Potomac Mortgage Group, Inc. (“PMG” which began doing business under the registered trade name
“MVB Mortgage”), a mortgage company in the northern Virginia area, and fifty percent (50%) interest in a mortgage services
company, Lender Service Provider, LLC (“LSP”). In 2013, this fifty percent interest (50%) in LSP was reduced to a twenty-five
percent (25%) interest and in 2017, a forfeiture of a partial interest occurred, which increased the interest owned to thirty-three
percent (33%). At this time, LSP began doing business as Lenderworks.
MVB Insurance was originally formed in 2000. In 2013, MVB Insurance became a direct subsidiary of the Company. In 2016, the
Company entered into an Asset Purchase Agreement with USI Insurance Services (“USI”), in which USI purchased substantially all
of the assets and assumed certain liabilities of MVB Insurance, which resulted in a pre-tax gain of $6.9 million and was reported in
discontinued operations. MVB Insurance retained the assets related to, and continues to operate, its title insurance business, which
is immaterial in terms of revenue. The Company reorganized MVB Insurance as a subsidiary of the Bank in 2016.
MVB Community Development Corporation was formed in 2017 to house significant CRA investments that the Bank participates
in to better the communities it serves.
A summary of significant accounting and reporting policies applied in the presentation of the accompanying consolidated financial
statements follows:
Basis of Presentation
The financial statements are consolidated to include the accounts of the Company, its subsidiary, MVB Bank, and the Bank's wholly-
owned subsidiaries, MVB Mortgage and MVB Insurance. These statements have been prepared in accordance with U.S. generally
accepted accounting principles. All significant inter-company accounts and transactions have been eliminated in the consolidated
financial statements.
In preparing the consolidated financial statements, management makes estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change relate to determination of the allowance for loan losses, derivative
instruments, goodwill and deferred tax assets and liabilities.
Operating Segments
An operating segment is defined as a component of an enterprise that engages in business activities that generates revenue and incurs
expense, and the operating results of which are reviewed by the chief operating decision maker in the determination of resource
allocation and performance. While the Company’s chief decision makers monitor the revenue streams of the various Company’s
products and services, operations are managed and financial performance is evaluated on a Company-wide basis. The Company has
identified three reportable segments: commercial and retail banking; mortgage banking; and financial holding company. Insurance
services was previously identified as a reportable segment until entering into an Asset Purchase Agreement, as discussed below and
in Note 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K.
Cash and Cash Equivalents
Cash equivalents include cash on hand, deposits in banks and interest-earning deposits. Interest-earning deposits with original
maturities of 90 days or less are considered cash equivalents. Net cash flows are reported for loans, deposits and short term borrowing
transactions.
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Table of Contents
Management Estimates
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates, such as the allowance
for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and
circumstances change. Actual results could differ from these estimates.
Investment Securities
Investment securities at the time of purchase are classified as one of the following:
Held-to-Maturity Securities - Includes securities that the Company has the positive intent and ability to hold to maturity. These
securities are reported at amortized cost.
Available-for-Sale Securities - Includes debt and equity securities not classified as held-to-maturity that will be held for indefinite
periods of time. These securities may be sold in response to changes in market interest or prepayment rates, needs for liquidity and
changes in the availability of and yield of alternative investments. Such securities are reported at fair value, with unrealized holding
gains and losses excluded from earnings and reported as a separate component of stockholders’ equity, net of estimated income tax
effect.
The amortized cost of investment in debt securities is adjusted for amortization of premiums and accretion of discounts, computed
by a method that results in a level yield. Gains and losses on the sale of investment securities are computed on the basis of specific
identification of the adjusted cost of each security.
Securities are periodically reviewed for other-than-temporary impairment. For debt securities, management considers whether the
present value of future cash flows expected to be collected are less than the security’s amortized cost basis (the difference defined
as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company’s intent to sell the
security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery
in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other
than temporary, if the Company does not intend to sell the security, and it is more-likely-than-not that it will not be required to sell
the security, before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any
remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other
comprehensive income, net of applicable taxes. For equity securities where the fair value has been significantly below cost for one
year, the Company’s policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other
than temporary and a recovery period can be predicted. A decline in value that is considered to be other-than-temporary is recorded
as a loss within noninterest income in the consolidated statement of income.
Common stock of the Federal Home Loan Bank represents ownership in an institution which is wholly owned by other financial
institutions. These equity securities are accounted for at cost and are classified as other assets.
Loans Held for Sale
Through multiple secondary market investors, MVB Mortgage has the ability to offer customers long-term fixed rate and variable
rate mortgage products without holding these instruments in the Bank’s loan portfolio. MVB Mortgage elected the fair value option
and therefore records loans held for sale at fair value. Occasionally the Bank will sell portfolio loans and have them classified as
loans held for sale. These loans are recorded at lower of cost or market.
The Company has a loan indemnification reserve for loans sold that may be subject to repurchase in the event of specific default by
the borrower or subsequent discovery that underwriting standards were not met. The reserve amount was $200 thousand as of
December 31, 2017 and 2016.
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 non-accrual when
scheduled principal or interest payments are 90 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
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serves as the primary means by which the Company evaluates the adequacy of the allowance for loan losses, and is based upon
periodic review of the collectability of loans in light of historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more
information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are impaired. The general
component covers all loans that are not impaired, and is based upon historical loss experience adjusted for qualitative factors.
The Company allocates the allowance based on the factors described below, which conform to the Company’s loan classification
policy. In reviewing risk within the Bank and Mortgage Company’s loan portfolio, management has determined there to be several
different risk categories within the loan portfolio. The allowance for loan losses consists of amounts applicable to: (i) residential real
estate loans; (ii) commercial and commercial real estate secured loans; (iii) home equity loans; (iv) consumer and other loans. Factors
considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical
loss percentages for each loan category are calculated and used as the basis for calculating allowance allocations. Certain qualitative
factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical
loss percentages. These factors are then added to the historical allocation percentages to get the adjusted factor to be applied to non-
classified loans on a weighted basis, by risk grade. The following qualitative factors are analyzed:
• Lending policies and procedures
• Nature and volume of the portfolio
• Experience and ability of lending management and staff
• Volume and severity of problem credits
• Conclusions of loan reviews, audits and exams
• National, state, regional and local economic trends and business conditions
General economic conditions
Unemployment rates
Inflation / CPI
• Value of underlying collateral
• Existence and effect of any credit concentrations
• Consumer sentiment
• Other external factors
The Company analyzes its loan portfolio each quarter to determine the appropriateness of its allowance for loan losses.
A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough
review is presented to the Chief Credit Officer and or the Management Loan Committee ("MLC"), as required with respect to any
loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The
placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be
placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make
scheduled principal or interest payments, when full repayment of principal and interest is not expected, or when the loan displays
potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless
Management believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to principal.
To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of
future satisfactory payment performance. Usually, this requires a six-month recent history of payments due. Removal of a loan from
non-accrual status requires the approval of the Chief Credit Officer and or MLC.
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,
loans past due for longer than 90 days and troubled debt restructurings.
The Company defers loan origination and commitment fees and direct loan origination costs and the net amount is amortized as an
adjustment of the related loan’s yield.
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Troubled Debt Restructurings (TDRs)
A restructuring of debt constitutes a TDR if the creditor for economic or legal reasons related to the debtor’s financial difficulties
grants a concession to the debtor that it would not otherwise consider. The determination of whether a concession has been granted
includes an evaluation of the debtor’s ability to access funds at a market rate for debt with similar risk characteristics and among
other things, the significance of the modification relative to unpaid principal or collateral value of the debt, and/or the significance
of a delay in the timing of payments relative to the frequency of payments, original maturity date or the expected duration of the
loan. The most common concessions granted generally include one or more modifications to the terms of the debt such as a reduction
in the interest rate for the remaining life of the debt, an extension of the maturity date at an interest rate lower than the current market
rate for new debt with similar risk, or reduction of the unpaid principal or interest. All TDRs are considered impaired loans.
Derivative Instruments
Interest Rate Lock Commitments and Hedges
The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to
funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be
derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 30
days 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. The correlation between the rate lock commitments and hedges is very high due
to their similarity. As a result of these strategies, the Company limits the exposure of losses with these arrangements and will not
realize significant gains related to its rate lock commitments due to changes in interest rates. For loans not originated on a best effort
basis, the Company also uses mortgage-backed security hedges and pair-offs to mitigate interest rate risk by entering securities and
mortgage-backed securities trades with brokers.
The fair value of rate lock commitments and hedges is not readily ascertainable with precision because rate lock commitments and
hedges are not actively traded in stand-alone-markets. The Company determines the fair value of rate lock commitments and hedges
by measuring the change in the value of the underlying asset while taking into consideration the probability that the rate lock
commitments will close. Fair value changes are recorded in noninterest income in the Company’s consolidated statement of income.
At December 31, 2017 and 2016, the balance of interest rate lock commitments was $1.4 million and $1.5 million, respectively.
There were no forward sales commitments as of December 31, 2017 and 2016.
Interest Rate Cap
The Company has entered into a rate protection transaction through SMBC Capital Markets, Inc. covering the period November 26,
2014 through December 1, 2019. The notional amount is $100 million and 3 month LIBOR is the underlying rate and the strike price
is 3%. The 5 year coverage is broken into 20 quarterly caps. The Company’s fixed cost in the interest rate cap was $1.5 million. The
credit support provider must maintain a long-term senior unsecured debt rating of A or better by S&P and A2 or better by Moody’s.
The interest rate cap agreement is a free-standing derivative and is recorded at fair value on the Company’s consolidated balance
sheet. Fair value changes are recorded in noninterest income in the Company’s consolidated net income statement. At December 31,
2017 and 2016, the fair value of the interest rate cap was $33 thousand and $268 thousand, respectively.
Interest Rate Swap
Beginning in 2015, the Company entered into interest rate swap agreements to facilitate the risk management strategies of a small
number of commercial banking clients. The Company mitigates this risk by entering into equal and offsetting interest rate swap
agreements with highly rated third-party financial institutions. The interest rate swap agreements are free-standing derivatives and
are recorded at fair value on the Company’s consolidated balance sheet. Fair value changes are recorded in noninterest income in
the Company’s consolidated net income statement. At December 31, 2017 and 2016, the fair value of interest rate swap agreements
was $268 thousand and $250 thousand, respectively.
Mortgage Servicing Rights
Mortgage servicing rights (MSRs) are recorded when the Bank 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
MSR’s value, which is then recorded as an asset and amortized over the period of estimated net servicing revenues. The balance of
MSR’s is evaluated for impairment quarterly, and was determined not to be impaired at December 31, 2017 or 2016. Servicing loans
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for others generally consists of collecting mortgage payments from borrowers, maintaining escrow accounts, remitting payments to
third party investors and when necessary, foreclosure processing. Serviced loans are not included in the Consolidated Balance Sheets.
At December 31, 2017 and 2016, the MSR's value was $182 thousand and $190 thousand, respectively.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Depreciation expense 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 and Goodwill
Goodwill is reviewed for potential impairment at least annually at the reporting unit level. In addition to the annual impairment
evaluation, the Company evaluates for impairment when events or circumstances indicate that it is more likely than not an impairment
loss has occurred. The Company performs its annual impairment test during the fourth quarter. The Company first assesses qualitative
factors to determine whether it is necessary to perform the two-step goodwill impairment test discussed below. The Company assesses
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
including goodwill. Examples of qualitative factors include: economic conditions; industry and market considerations; increases in
raw materials, labor, or other costs; overall financial performance such as negative or declining cash flows; relevant entity-specific
events such as changes in management, key personnel, strategy, or customers; and regulatory or political developments.
If, based on its assessment of the qualitative factors, the Company determines that it is not more likely than not that the fair value
of a reporting unit is less than its carrying amount, then the first and second steps of the goodwill impairment test are not necessary.
If determined to be necessary, a two-step impairment test is performed to identify potential goodwill impairment and measure the
amount of a goodwill impairment loss to be recognized (if any). The first step requires the estimation of the reporting unit’s fair
value. If the fair value of the reporting unit exceeds the carrying value, including goodwill, no further testing is required. If the
carrying value exceeds the fair value, a second step is performed to determine whether an impairment charge must be recorded, and
if so, the amount of such change.
It was decided that the Company would early adopt ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. Topic 350, Intangibles—Goodwill and Other (Topic 350) and did so for the period ended December 31,
2017. As such, the Company began using the one-step process for the annual impairment evaluation.
The Company’s assessment of qualitative factors determined that it is not more likely than not that the fair value of each reporting
unit is less than its carrying amount and therefore, goodwill is not impaired as of December 31, 2017 and 2016. As of December 31,
2017 and 2016, the Company had goodwill of $18.5 million, respectively.
Intangible Assets include core deposit intangibles which are amortized over their useful life of ten years using the double-declining
balance method. Net core deposit intangibles are included in accrued interest receivable and other assets on the consolidated balance
sheet and totaled $646 thousand and $744 thousand as of December 31, 2017 and 2016, respectively.
Restricted Bank Stock
The Bank is a member of the FHLB of Pittsburgh and as such, is required to maintain a minimum investment in stock of the FHLB
that varies with the level of advances outstanding with the FHLB. As of December 31, 2017 and 2016, the Bank holds $7.6 million
and $5.8 million, respectively. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not
have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated by management. The
stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The
determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) A significant
decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b)
commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating
performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of
the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.
Management considered that the FHLB’s regulatory capital ratios have improved in the most recent quarters, liquidity appears
adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of
excess capital stock from its members during 2017 and 2016.
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Foreclosed Assets Held for Resale
Foreclosed assets held for resale acquired in satisfaction of mortgage obligations and in foreclosure proceedings are recorded at fair
value less estimated selling costs at the time of foreclosure, with any valuation adjustments charged to the allowance for loan losses.
In subsequent periods, foreclosed assets are recorded at the lower of cost or fair value less any costs to sell. Any gains or losses on
sale are then recorded in other noninterest expense. At December 31, 2017 and 2016, the Company held other real estate of $1.3
million and $414 thousand.
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 noninterest income.
Income Taxes
The Company and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are computed based on
the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rates.
Deferred income tax expenses or benefits are based on the changes in the net deferred tax asset or liability from period to period.
Stock Based Compensation
Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of grant.
A Black-Scholes model is utilized to estimate the fair value of stock options. Compensation cost is recognized over the required
service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-
line basis over the requisite service period for the entire award.
Earnings Per Share
The Company determines basic earnings per share by dividing net income less preferred stock dividends by the weighted average
number of common shares outstanding during the period. Diluted earnings per share is determined by dividing net income less
dividends on convertible preferred stock plus interest on convertible subordinated debt by the weighted average number of shares
outstanding increased by both the number of shares that would be issued assuming the exercise of stock options under the Company’s
2003 and 2013 Stock Incentive Plans and the conversion of preferred stock and subordinated debt if dilutive.
The 2015 dilutive earnings per share has been modified with the calculation of continuing and discontinued operations to use the
denominator of shares from continuing operations for continuing, discontinuing, and total earnings per share. The subordinated debt
was considered anti-dilutive for continuing operations and excluded from the calculation for year ending December 31, 2015. This
changed the reported 2015 earnings per share.
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(Dollars in thousands except shares and per share data)
2017
2016
2015
For the years ended
December 31,
Numerator for basic earnings per share:
Net Income from continuing operations
Less: Dividends on preferred stock
Net Income from continuing operations available to common shareholders - basic
Net Income from discontinued operations available to common shareholders - basic and
diluted
Net Income available to common shareholders
Numerator for diluted earnings per share:
Net Income from continuing operations available to common shareholders - basic
Add: Dividends on preferred stock
Add: Interest on subordinated debt (tax effected)
Net Income available to common shareholders from continuing operations - diluted
Denominator:
Total average shares outstanding
Effect of dilutive convertible preferred stock
Effect of dilutive convertible subordinated debt
Effect of dilutive stock options
Total diluted average shares outstanding
Earnings per share from continuing operations - basic
Earnings per share from discontinued operations - basic
Earnings per common shareholder - basic
Earnings per share from continuing operations - diluted
Earnings per share from discontinued operations - diluted
Earnings per common shareholder - diluted
Comprehensive Income
$
7,575
$
8,977
$
498
7,077
—
1,128
7,849
3,935
7,077
$
11,784
$
6,603
575
6,028
213
6,241
7,077
$
7,849
$
6,028
—
—
—
1,390
—
—
7,077
$
9,239
$
6,028
10,308,738
8,212,021
8,014,316
—
—
—
1,837,500
—
—
131,490
19,212
125,800
10,440,228
10,068,733
8,140,116
0.69
$
— $
0.69
0.68
$
$
— $
0.68
$
0.96
0.48
1.44
0.92
0.39
1.31
$
$
$
$
$
$
0.75
0.03
0.78
0.74
0.03
0.77
$
$
$
$
$
$
$
$
$
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 Consolidated Balance Sheet, such items, along with net
income, are components of comprehensive income.
In 2018, the Company will be required to perform a reclassification from AOCI to retained earnings for stranded tax effects resulting
from the newly enacted federal corporate income tax rate in the Tax Reform Act, which was enacted on December 22, 2017. As
discussed previously, the Tax Reform Act included a reduction to the corporate income tax rate from 34 percent to 21 percent effective
January 1, 2018. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly
enacted 21 percent corporate income tax rate, which resulted in a decrease of $646 thousand.
Marketing Costs
Marketing costs are expensed as incurred. Marketing expense was $1.2 million, $1.3 million and $1.4 million for 2017, 2016 and
2015, respectively.
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Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when (i) the assets have been isolated from the company, (ii) the transferee obtains the right (free
of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company
does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Reclassifications
Certain amounts in the 2016 and 2015 consolidated financial statements have been reclassified to conform to the 2017 financial
statement presentation.
Recent Accounting Pronouncements
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated
Other Comprehensive Income. This update requires a reclassification from accumulated other comprehensive income ("AOCI") to
retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Reform Act,
which was enacted on December 22, 2017. The Tax Reform Act included a reduction to the corporate income tax rate from 34 percent
to 21 percent effective January 1, 2018. The amount of the reclassification is the difference between the historical corporate income
tax rate and the newly enacted 21 percent corporate income tax rate, which resulted in a decrease of $646 thousand. The amendments
in the ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early adoption is permitted and the Company plans to adopt in 2018.
In March 2017, the FASB issued ASU 2017-08, Receivables–Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium
Amortization on Purchased Callable Debt Securities. This ASU amends guidance on the amortization period of premiums on certain
purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased
callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities
that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium).
For public companies, this update will be effective for fiscal years effective for fiscal years beginning after December 15, 2018,
including all interim periods within those fiscal years. The adoption of this guidance is not expected to be material to the consolidated
financial statements, as it is our current policy to amortize premiums of investment securities to the earliest call date.
In January 2017, the FASB issued ASU 2017-04, Intangibles–Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. Topic 350, Intangibles—Goodwill and Other (Topic 350), currently requires an entity that has not elected the private
company alternative for goodwill to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an
entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting
unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of
that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the
reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting
unit To address concerns over the cost and complexity of the two-step goodwill impairment test, the amendments in this Update
remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment
as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the
reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. For public companies,
this update will be effective for fiscal years effective for fiscal years beginning after December 15, 2019, including all interim periods
within those fiscal years. The adoption of this guidance did not have a material impact on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected
credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial
assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.
Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase
price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses,
with such allowance limited to the amount by which fair value is below amortized cost. The guidance is effective for fiscal years
beginning after December 15, 2019 and interim periods within those fiscal years. The Company's project management team and
Management Loan Committee ("MLC") engaged a third party to assist with a data gap analysis and will utilize the data to determine
the impact of the pronouncement. Additionally, the Company has researched and acquired software to assist with implementation
that will be tested throughout 2018.
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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Among other things, in the amendments in ASU 2016-02,
lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
(1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
(2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where
necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The
amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct
financing and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would
not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors
may not apply a full retrospective transition approach. The Company established a project management team, which is currently
evaluating the impact of the new standard, and expects an increase to the Consolidated Balance Sheets for right-of-use assets and
associated lease liabilities, as well as resulting depreciation expense of the right-of-use assets and interest expense of the lease
liabilities in the Consolidated Statements of Income, for arrangements previously accounted for as operating leases.
In January 2016, the FASB issued ASU 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement
(Subtopic 825-10). Amendments within ASU 2016-01 that relate to non-public entities have been excluded from this presentation.
The amendments in this ASU 2016-01 address the following: 1) require equity investments to be measured at fair value with changes
in fair value recognized in net income; 2) simplify the impairment assessment of equity investments without readily-determinable
fair values by requiring a qualitative assessment to identify impairment; 3) eliminate the requirement to disclose the method(s) and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized
cost on the balance sheet; 4) require entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes; 5) require separate presentation in other comprehensive income for the portion of the total change in the fair
value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments; 6) require separate presentation of financial assets
and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the
balance sheet or the accompanying notes to the financial statements; and 7) clarify that an entity should evaluate the need for a
valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax
assets. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. The Company has performed a preliminary evaluation of these amendments. Based on this evaluation,
the Company has determined that this new standard is not expected to have a material impact on the Company's consolidated financial
statements as it relates to accounting for financial instruments, as the effect of this pronouncement would be a reclassification of
$219 thousand from accumulated other comprehensive income to retained earnings upon adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue pronouncement
creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue
guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or
services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or
services. The five steps are, (1) identify the contract with the customer, (2) identify the separate performance obligations in the
contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and
(5) recognize revenue when each performance obligation is satisfied. On July 9, 2015, the FASB approved a one-year deferral of the
effective date of the update. The update is effective for interim and annual reporting periods in fiscal years beginning after
December 15, 2017. Early adoption is now permitted as of the original effective date for interim and annual reporting periods in
fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, which amends the principal versus
agent guidance in the revenue standard. In April 2016, the FASB issued ASU 2016-10, which clarifies when promised goods or
services are separately identifiable in the revenue standard. In May 2016, FASB issued ASU 2016-12, which provides narrow-scope
improvements and practical expedients to the revenue standard. The Company evaluated the impact of this standard on individual
customer contracts, while management evaluated the impact of this standard on the broad categories of its customer contracts and
revenue streams. The Company determined that this standard will not have a material impact on its consolidated financial statements
because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan
interest income, investment interest income, insurance services revenue and BOLI are accounted for under other U.S. GAAP standards
and out of scope of ASC 606 revenue standard. The Company completed its evaluation and review of this standard and determined
that this guidance will not have a material effect on the consolidated financial statements, and as such, adopted the revenue recognition
standard as of January 1, 2018.
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NOTE 2. INVESTMENT SECURITIES
Prior to the final determination of Basel III, investments were recorded as held-to-maturity due to the uncertainty of the capital
treatment of available-for-sale investments. Upon the issuance of the final ruling, the Company opted out of the Other Comprehensive
Income treatment of available-for-sale investments permitted under Basel III. Due to the change in capital treatment under the final
ruling of Basel III, the Company’s purpose of recording investments as held-to-maturity changed; therefore, during the period
ended March 31, 2016, the Company reclassified $52.4 million, with unrealized holding gains of $1.8 million, of the remaining held-
to-maturity investments into available-for-sale investments.
There were no held-to-maturity securities at December 31, 2017 or December 31, 2016.
Amortized cost and fair values of investment securities available-for-sale at December 31, 2017 are summarized as follows:
(Dollars in thousands)
U. S. Agency securities
U.S. Sponsored Mortgage-backed securities
Municipal securities
Total debt securities
Equity and other securities
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair Value
$
81,705
$
59,387
74,482
215,574
15,940
81
31
1,733
1,845
644
$
(841) $
(1,264)
(373)
(2,478)
(18)
80,945
58,154
75,842
214,941
16,566
Total investment securities available-for-sale
$
231,514
$
2,489
$
(2,496) $
231,507
Amortized cost and fair values of investment securities available-for-sale at December 31, 2016 are summarized as follows:
(Dollars in thousands)
U. S. Agency securities
U.S. Sponsored Mortgage-backed securities
Municipal securities
Total debt securities
Equity and other securities
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Fair Value
$
29,234
$
56,080
72,075
157,389
7,643
7
14
744
765
381
$
(425) $
(1,362)
(2,023)
(3,810)
—
28,816
54,732
70,796
154,344
8,024
Total investment securities available-for-sale
$
165,032
$
1,146
$
(3,810) $
162,368
The following table summarizes amortized cost and fair values of debt securities by maturity:
(Dollars in thousands)
Within one year
After one year, but within five
After five years, but within ten
After ten years
Total
December 31, 2017
Available for sale
Amortized Cost
Fair Value
$
$
300
$
37,208
31,768
146,298
215,574
$
302
37,210
31,258
146,171
214,941
Investment securities with a carrying value of $113.3 million and $82.7 million at December 31, 2017 and 2016, 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, 2017, the details
of which are included in the following table. Although these securities, if sold at December 31, 2017 would result in a pretax loss
of $2.5 million, the Company has no intent to sell the applicable securities at such fair values, and maintains the Company has the
ability to hold these securities until all principal has been recovered. It is more likely than not that the Company will not sell any
securities at a loss for liquidity purposes. Declines in the fair 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
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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, 2017, 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 fair value.
The following table discloses investments in an unrealized loss position at December 31, 2017:
(Dollars in thousands)
Description and number of positions
U.S. Agency securities (45)
U.S. Sponsored Mortgage-backed securities (39)
Municipal securities (47)
Equity and other securities (2)
$
$
$
Less than 12 months
12 months or more
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
61,834
$
(659) $
7,709
$
16,825
8,826
1,034
88,519
$
$
(159)
(48)
37,427
16,781
(18) $
— $
(182)
(1,105)
(325)
—
(884) $
61,917
$
(1,612)
The following table discloses investments in an unrealized loss position at December 31, 2016:
(Dollars in thousands)
Description and number of positions
U.S. Agency securities (16)
U.S. Sponsored Mortgage-backed securities (29)
Municipal securities (86)
Less than 12 months
12 months or more
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
$
28,814
$
(425) $
— $
33,209
42,727
(1,040)
(2,023)
13,919
—
$
104,750
$
(3,488) $
13,919
$
—
(322)
—
(322)
The Company sold investments available-for-sale of $53.2 million, $55.2 million and $12.9 million in 2017, 2016 and 2015,
respectively. These sales resulted in gross gains of $1.1 million, $1.1 million and $125 thousand and gross losses of $372 thousand,
$2 thousand, and $0 in 2017, 2016 and 2015, respectively.
During 2015, the Company sold held-to-maturity investments of $421 thousand, resulting in gross gains of $5 thousand. The held-
to-maturity investments were sold due to a credit downgrade, indicating significant deterioration of the issuer’s creditworthiness.
The Company sold no held-to-maturity investments in during the years of 2017 or 2016.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company routinely generates 1-4 family mortgages for sale into the secondary market. During 2017, 2016 and 2015, the Company
recognized sales proceeds of $1.4 billion, $1.7 billion and $1.3 billion, resulting in mortgage fee income of $37.1 million, $35.7
million and $29.5 million, respectively.
The components of loans in the Consolidated Balance Sheet at December 31, were as follows:
(Dollars in thousands)
Commercial and Non-Residential Real Estate
Residential Real Estate
Home Equity
Consumer
Total Loans
Deferred loan origination fees and costs, net
Loans receivable
2017
2016
$
783,909
$
246,214
62,400
12,783
756,619
215,452
65,386
14,511
1,105,306
1,051,968
635
897
$
1,105,941
$
1,052,865
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The following table summarizes the primary segments of the loan portfolio as of December 31, 2017 and 2016:
(Dollars in thousands)
December 31, 2017
Individually evaluated for impairment
Collectively evaluated for impairment
Total Loans
December 31, 2016
Individually evaluated for impairment
Collectively evaluated for impairment
Total Loans
Commercial
Residential
Home
Equity
Consumer
Total
$
$
$
$
13,796
770,113
783,909
10,781
745,838
756,619
$
$
$
$
1,569
244,645
246,214
1,161
214,291
215,452
$
$
$
$
13
62,387
62,400
132
65,254
65,386
$
$
$
$
178
12,605
12,783
78
14,433
14,511
$
$
$
$
15,556
1,089,750
1,105,306
12,152
1,039,816
1,051,968
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 loans for impairment. The Chief Credit
Officer identifies these loans individually by monitoring the delinquency status of the Bank’s portfolio. Once identified, the Bank’s
ongoing communications with the borrower allow Management to evaluate the significance of the payment delays and the
circumstances surrounding the loan and the borrower.
Once the determination has been made that a loan is impaired, the amount of the impairment is measured using one of three valuation
methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable
market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management
primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance
and whether a loan can be removed from impairment status is made on a quarterly basis.
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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, 2017 and 2016:
(Dollars in thousands)
December 31, 2017
Commercial
Commercial Business
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
Impaired Loans with
Specific Allowance
Impaired
Loans with
No Specific
Allowance
Total Impaired Loans
Recorded
Investment
Related
Allowance
Recorded
Investment
Recorded
Investment
Unpaid
Principal
Balance
$
3,283
$
22
$
979
$
4,262
$
4,603
—
7,886
—
—
69
1,150
—
1,172
—
—
16
2,814
2,117
5,910
1,569
13
109
7,417
2,117
13,796
1,569
13
178
4,275
7,921
4,090
16,286
1,601
13
475
Total Impaired Loans
$
7,955
$
1,188
$
7,601
$
15,556
$
18,375
December 31, 2016
Commercial
Commercial Business
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
$
— $
— $
3,342
$
3,342
$
2,757
264
3,021
783
62
16
302
74
376
122
36
9
892
3,526
7,760
378
70
62
3,649
3,790
10,781
1,161
132
78
4,102
3,676
6,059
13,837
1,166
135
285
Total Impaired Loans
$
3,882
$
543
$
8,270
$
12,152
$
15,423
Impaired loans have increased by $3.4 million, or 28%, during 2017, primarily the result of the net impact of multiple factors including
increases due to the identification of $7.6 million of recently impaired loans less, principal curtailments of $2.1 million, partial
charge-offs of $360 thousand, foreclosure and reclassification to other real estate owned of $1.3 million, reclassification of $150
thousand of previously reported impaired loans to performing loans, and normal loan amortization of $213 thousand.
The $7.6 million total of recently identified impaired loans includes $6.7 million, or 88.2%, of commercial loans, $783 thousand,
or 10.3%, of residential mortgage loans, and $129 thousand, or 1.5%, of consumer loans. The commercial loans are primarily
concentrated in just three relationships, including a $3.4 million purchased participation note secured by a senior healthcare facility,
a $1.2 million commercial real estate loan, net of a $579 thousand sold participation, secured by a retail strip center, and a $810
thousand development loan secured by a developed commercial pad site. These three loans represent 80.0% of the recently impaired
commercial loans, while the remaining $1.3 million represent fifteen additional commercial loans ranging from $6 thousand to $457
thousand in outstanding balances.
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The following table presents the average recorded investment in impaired loans and related interest income recognized for the
years ended:
December 31, 2017
December 31, 2016
December 31, 2015
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
Average
Investment
in
Impaired
Loans
Interest
Income
Recognized
on Accrual
Basis
Interest
Income
Recognized
on Cash
Basis
$
3,718
$
155
$
113
$
4,027
$
155
$
104
$
3,153
$
156
$
114
3,199
3,429
10,346
1,424
538
187
100
9
264
13
1
—
98
13
3,590
3,983
224
11,600
53
1
—
928
50
245
100
9
264
20
1
—
75
112
291
28
1
—
6,618
2,408
12,179
920
28
1
63
9
228
12
1
—
61
10
185
13
1
—
$
12,495
$
278
$
278
$
12,823
$
285
$
320
$
13,128
$
241
$
199
(Dollars in
thousands)
Commercial
Commercial
Business
Commercial Real
Estate
Acquisition &
Development
Total Commercial
Residential
Home Equity
Consumer
Total
As of December 31, 2017, the Bank held sixteen foreclosed residential real estate properties representing $1.0 million, or 78%, of
the total balance of other real estate owned. These properties are held as a result of the foreclosures of primarily two commercial
loan relationships, one of which included six properties for a total of $538 thousand, while the other included seven properties for
a total of $178 thousand. The three remaining properties, totaling $329 thousand, were result of the foreclosure of three unrelated
borrowers. There is one additional consumer mortgage loan collateralized by residential real estate property in the process of
foreclosure. The total recorded investment in this loan was $132 thousand as of December 31, 2017. This loan is included in the
table above and has a total of $0 in specific allowance allocated to it.
Bank 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. Any portion of a loan that has been or is expected to
be 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 past due status, 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 ensures that a review of all
commercial relationships of one million dollars or greater is performed annually.
Review of the appropriate risk grade is included in both the internal and external loan review process, and on an ongoing basis. The
Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an
external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger
commercial relationships or criticized relationships. The Bank’s 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.
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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, 2017 and 2016:
(Dollars in thousands)
December 31, 2017
Commercial
Commercial Business
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
Total Loans
December 31, 2016
Commercial
Commercial Business
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
Total Loans
Pass
Special
Mention
Substandard
Doubtful
Total
$
371,041
$
4,816
$
4,506
$
— $
380,363
271,751
96,712
739,504
242,823
61,037
12,453
22,995
931
28,742
3,036
1,311
174
5,961
2,230
12,697
223
52
25
1,149
1,817
2,966
132
—
131
301,856
101,690
783,909
246,214
62,400
12,783
$ 1,055,817
$
33,263
$
12,997
$
3,229
$ 1,105,306
$
376,734
$
2,933
$
6,833
$
69
$
386,569
240,851
90,875
708,460
212,869
64,706
14,134
26,340
1,905
31,178
1,664
582
302
3,532
2,584
12,949
787
98
13
737
3,226
4,032
132
—
62
271,460
98,590
756,619
215,452
65,386
14,511
$ 1,000,169
$
33,726
$
13,847
$
4,226
$ 1,051,968
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.
A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough
review is presented to the Chief Credit Officer and or the Management Loan Committee ("MLC"), as required with respect to any
loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The
placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be
placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make
scheduled principal or interest payments, when full repayment of principal and interest is not expected, or when the loan displays
potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless
Management believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to principal.
To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of
future satisfactory payment performance. Usually, this requires a six-month recent history of payments due. Removal of a loan from
non-accrual status will require the approval of the Chief Credit Officer and or MLC.
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The following table presents the classes of the loan portfolio summarized by aging categories of performing loans and nonaccrual
loans as of December 31, 2017 and 2016:
(Dollars in thousands)
December 31, 2017
Commercial
Current
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
Total Past
Due
Total
Loans
Non-
Accrual
90+ Days
Still
Accruing
Commercial Business
$
377,901
$
512
$
1,368
$
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
300,282
99,573
777,756
243,177
61,907
12,634
45
—
557
1,879
240
11
1,149
874
3,391
707
240
—
582
380
1,243
2,205
451
13
138
$
2,462
$
380,363
$
1,027
$
1,574
2,117
6,153
3,037
493
149
301,856
101,690
783,909
246,214
62,400
12,783
5,206
2,117
8,350
1,157
13
179
Total Loans
$ 1,095,474
$
2,687
$
4,338
$
2,807
$
9,832
$ 1,105,306
$
9,699
$
December 31, 2016
Commercial
Commercial Business
$
386,311
$
15
$
169
$
74
$
258
$
386,569
$
74
$
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
270,339
96,014
752,664
212,502
64,791
14,354
229
—
244
2,067
525
55
—
—
169
419
—
34
892
2,576
3,542
464
70
68
1,121
2,576
3,955
2,950
595
157
271,460
98,590
756,619
215,452
65,386
14,511
1,375
3,526
4,975
1,072
104
78
Total Loans
$ 1,044,311
$
2,891
$
622
$
4,144
$
7,657
$ 1,051,968
$
6,229
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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.
Interest income on loans would have increased by approximately $423 thousand, $396 thousand and $639 thousand for 2017, 2016
and 2015, respectively, if loans had performed in accordance with their terms.
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. As of the quarter ended September 30, 2017, the Bank adjusted its methodology to
allow for the analysis of certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below
specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit,
and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from
the Bank’s historical losses specific to impaired loans and the reserve totaled $1.3 million and $0 as of December 31, 2017 and 2016.
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 qualified factors.
The segments described above, which are based on the Federal call code assigned to each loan, provide the starting point for the
ALL analysis. Company and bank 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. All pools currently utilize a rolling 12 quarters.
“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools,
which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management
and subject to additional qualitative factors.
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Table of Contents
Company and Bank management have 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: lending policies and procedures, nature and volume of the portfolio, experience
and ability of lending management and staff, volume and severity of problem credits, conclusion of loan reviews, audits, and exams,
changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint,
changes in economic and business conditions, consumer sentiment, and other external factors. The combination of historical charge-
off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood
of loss as a loan risk grading deteriorates.
To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-
revolving lines of credit, and revolving lines of credit, and based its calculation on the expectation of future advances of each loan
category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various
forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of
the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly
likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies
with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the
revolving line of credit portfolio as a whole.
Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and
qualitative environmental factors, was applied in the similar manner as those used for the allowance for loan loss calculation. The
resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which
Management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding.
The liability for unfunded commitments was $284 thousand as of December 31, 2017 and 2016.
Bank 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.
The following tables summarize 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, 2017, 2016, and 2015.
Activity in the allowance is presented for the periods indicated:
(Dollars in thousands)
Commercial
Residential
Home
Equity
Consumer
Total
ALL balance at December 31, 2016
$
7,181
$
990
$
728
$
202
$
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2017
Individually evaluated for impairment
Collectively evaluated for impairment
(1,138)
39
1,722
7,804
1,172
6,632
$
$
$
$
$
$
(141)
40
230
1,119
$
— $
1,119
$
(109)
(109)
4
82
705
$
— $
705
$
18
139
250
16
234
$
$
$
9,101
(1,497)
101
2,173
9,878
1,188
8,690
(Dollars in thousands)
Commercial
Residential
Home
Equity
Consumer
Total
ALL balance at December 31, 2015
$
6,066
$
1,095
$
715
$
130
$
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2016
Individually evaluated for impairment
Collectively evaluated for impairment
(1,995)
(124)
(100)
(338)
8
3,102
7,181
376
6,805
$
$
$
$
$
$
2
17
990
122
868
$
$
$
9
104
728
36
692
$
$
$
1
409
202
9
193
$
$
$
8,006
(2,557)
20
3,632
9,101
543
8,558
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Table of Contents
(Dollars in thousands)
Commercial
Residential
Home
Equity
Consumer
Total
ALL balance at December 31, 2014
$
4,363
$
962
$
691
$
207
$
Charge-offs
Recoveries
Provision
ALL balance at December 31, 2015
Individually evaluated for impairment
Collectively evaluated for impairment
(708)
20
2,391
6,066
708
5,358
$
$
$
(28)
2
159
1,095
276
819
$
$
$
$
$
$
(5)
4
25
715
28
687
$
$
$
(6)
11
(82)
130
1
129
$
$
$
6,223
(747)
37
2,493
8,006
1,013
6,993
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 (“TDR”) 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. At
December 31, 2017 and 2016, the Bank had specific reserve allocations for TDR’s of $439 thousand and $348 thousand, respectively.
Loans considered to be troubled debt restructured loans totaled $6.4 million and $8.8 million as of December 31, 2017 and
December 31, 2016, respectively. Of these totals, $5.9 million and $5.9 million, respectively, represent accruing troubled debt
restructured loans and represent 38% and 49%, respectively of total impaired loans. Meanwhile, as of December 31, 2017, $432
thousand represent two loans to one borrower that have defaulted under the restructured terms. Both loans are commercial acquisition
and development loans that were considered TDR's due to extended interest only periods and/or unsatisfactory repayment structures
once transitioned to principal and interest payments. These borrowers have experienced continued financial difficulty and are
considered non-performing loans as of December 31, 2017. These two loans, in addition to a third loan to a second borrower that
defaulted under the restructured terms, totaled $2.3 million as of December 31, 2016. All three loans are commercial acquisition and
development loans that were considered TDR's due to extended interest only periods and/or unsatisfactory repayment structures once
transitioned to principal and interest payments. These borrowers have experienced continued financial difficulty and are considered
non-performing loans as of December 31, 2016. Two additional restructured loans, a $214 thousand commercial real estate loan and
a $348 thousand mortgage loan, were considered non-performing as of December 31, 2016. Both of these were also considered
TDR's due to interest only periods and/or unsatisfactory repayment structures.
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Table of Contents
The following table presents details related to loans identified as Troubled Debt Restructurings during the years ended December 31,
2017 and 2016.
New TDR's 1
December 31, 2017
December 31, 2016
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Contracts
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
Number of
Contracts
1
—
—
1
—
—
—
$
147
$
—
—
147
—
—
—
147
—
—
147
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(Dollars in thousands)
Commercial
Commercial Business
Commercial Real Estate
Acquisition & Development
Total Commercial
Residential
Home Equity
Consumer
Total
1 The pre-modification and post-modification balances represent the balances outstanding immediately before and after modification
of the loan.
— $
— $
147
147
—
1
$
$
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment at December 31, were as follows:
(Dollars in thousands)
Land
Buildings and improvements
Furniture, fixtures and equipment
Construction in progress
Leasehold improvements
Accumulated depreciation
Net premises and equipment
2017
2016
$
3,901
$
17,358
14,864
855
1,530
38,508
(11,822)
$
26,686
$
3,965
16,906
12,127
608
1,345
34,951
(9,870)
25,081
In December 2017, the Bank closed and sold the land, building and certain furniture and equipment items from a branch located at
704 Foxcroft Avenue, Martinsburg, WV for a gain on sale of fixed assets of $343 thousand, which is included in other operating
income on the Consolidated Statements of Income.
Depreciation expense amounted to $2.6 million, $2.0 million and $2.0 million for 2017, 2016 and 2015, respectively.
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NOTE 5. DEPOSITS
Deposits at December 31, were as follows:
(Dollars in thousands)
Demand deposits of individuals, partnerships, and corporations
Noninterest bearing demand
Interest bearing demand
Savings and money markets
Time deposits including CDs and IRAs
Total deposits
Time deposits that meet or exceed the FDIC insurance limit
Maturities of time deposits at December 31, 2017 were as follows (Dollars in thousands):
2018
2019
2020
2021
2022
Total
2017
2016
125,963
$
436,303
284,795
312,519
115,692
414,031
280,533
296,761
1,159,580
$
1,107,017
18,832
$
18,727
169,220
61,254
36,758
12,268
33,019
312,519
$
$
$
$
$
NOTE 6. BORROWED FUNDS
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, 2017 was approximately $199.8 million. At December 31, 2017 and 2016 the Bank had
borrowed $152.2 million and $90.9 million. As of December 31, 2017, our maximum borrowing capacity with the FHLB was $434.0
million.
Short-term borrowings
Along with traditional deposits, the Bank has access to short-term borrowings from FHLB to fund its operations and investments.
Short-term borrowings from FHLB totaled $149.6 million at December 31, 2017, compared to $87.7 million at year-end 2016.
Information related to short-term borrowings is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
2017
2016
2015
$
149,596
$
87,733
$
100,969
220,097
1.16%
1.61%
137,822
210,600
0.51%
0.74%
179,917
121,425
179,917
0.34%
0.44%
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Repurchase agreements
Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase “repurchase agreements” with
customers represent funds deposited by customers, on an overnight basis, that are collateralized by investment securities owned by
the Company. Repurchase agreements with customers are included in borrowings section on the consolidated balance sheets. All
repurchase agreements are subject to terms and conditions of repurchase/security agreements between the Company and the client
and are accounted for as secured borrowings. The Company's repurchase agreements reflected in liabilities consist of customer
accounts and securities which are pledged on an individual security basis.
The Company monitors the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected at the
amount of cash received in connection with the transaction and included in Securities sold under agreements to repurchase on the
consolidated balance sheets. The primary risk with our repurchase agreements is market risk associated with the investments securing
the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments.
Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.
All of the Company’s repurchase agreements were overnight agreements at December 31, 2017 and December 31, 2016. These
borrowings were collateralized with investment securities with a carrying value of $23.1 million and $26.0 million at December 31,
2017 and December 31, 2016, respectively, and were comprised of U.S. Government Agencies and Mortgage backed securities.
Declines in the value of the collateral would require the Company to increase the amounts of securities pledged.
Repurchase agreements totaled $22.4 million at December 31, 2017, compared to $25.2 million in 2016.
Information related to repurchase agreements is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
$
2017
2016
2015
$
22,403
25,160
25,972
0.30%
0.34%
$
25,160
27,066
29,561
0.27%
0.28%
27,437
26,884
32,470
0.31%
0.30%
Long-term notes from the FHLB as of December 31, were as follows:
(Dollars in thousands)
Fixed interest rate notes, originating between October 2006 and April 2007, due between October 2021
and April 2022, interest of between 5.18% and 5.20% payable monthly
Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly
installments of $5 thousand, including interest of 5.22%
2017
2016
$
$
1,798
$
775
2,573
$
2,390
798
3,188
Subordinated Debt
Information related to subordinated debt is summarized as follows:
(Dollars in thousands)
Balance at end of year
Average balance during the year
Maximum month-end balance
Weighted-average rate during the year
Weighted-average rate at December 31
$
2017
2016
2015
$
33,524
33,524
33,524
6.69%
6.70%
$
33,524
33,524
33,524
6.64%
6.63%
33,524
33,524
33,524
6.57%
6.57%
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
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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 1 capital.
The Trust Preferred Securities and the Debentures mature in 2037 and have been redeemable by the Company since 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 obligations of the Company with respect to the issuance of the trust preferred securities constitute a
full and unconditional guarantee by the Company of the Trust's obligations with respect to the trust preferred securities to the extent
set forth in the related guarantees.
On June 30, 2014, the Company issued its Convertible Subordinated Promissory Notes Due 2024 (the “Notes”) to various investors
in the aggregate principal amount of $29,400,000. The Notes were issued in $100,000 increments per Note subject to a minimum
investment of $1,000,000. The Notes expire 10 years after the initial issuance date of the Notes (the “Maturity Date”).
Interest on the Notes accrues on the unpaid principal amount of each Note (paid quarterly in arrears on January 1, April 1, July 1
and October 1 of each year) which rate shall be dependent upon the principal invested in the Notes and the holder’s ownership of
common stock in the Company. For investments of less than $3,000,000 in Notes, an ownership of Company common stock
representing at least 30% of the principal of the Notes acquired, the interest rate on the Notes is 7% per annum. For investments of
$3,000,000 or greater in Notes and ownership of the Company’s common stock representing at least 30% of the principal of the
Notes acquired, the interest rate on the Notes is 7.5% per annum. For investments of $10,000,000 or greater, the interest rate on the
Notes is 7% per annum, regardless of whether the holder owns or acquires MVB common stock. The principal on the Notes shall
be paid in full at the Maturity Date. On the fifth anniversary of the issuance of the Notes, a holder may elect to continue to receive
the stated fixed rate on the Notes or a floating rate determined by LIBOR plus 5% up to a maximum rate of 9%, adjusted quarterly.
The Notes are unsecured and subject to the terms and conditions of any senior debt and after consultation with the Board of Governors
of the Federal Reserve System, the Company may, after the Notes have been outstanding for five years, and without premium or
penalty, prepay all or a portion of the unpaid principal amount of any Note together with the unpaid interest accrued on such portion
of the principal amount of such Note. All such prepayments shall be made pro rata among the holders of all outstanding Notes.
At the election of a holder, any or all of the Notes may be converted into shares of common stock during the 30 day period after the
first, second, third, fourth, and fifth anniversaries of the issuance of the Notes or upon a notice to prepay by the Company. On
December 28, 2017, the Company distributed notices to the holders of the Notes that provide that the Company has elected to waive
the timing requirements associated with when a conversion may occur and, instead, the Company will accept notices of conversion
at any time prior to July 1, 2019, which is the final conversion date for the Notes. The Notes will convert into common stock based
on $16 per share of the Company’s common stock. The conversion price will be subject to anti-dilution adjustments for certain events
such as stock splits, reclassifications, non-cash distributions, extraordinary cash dividends, pro rata repurchases of common stock,
and business combination transactions. The Company must give 20 days’ notice to the holders of the Company’s intent to prepay
the Notes, so that holders may execute the conversion right set forth above if a holder so desires.
Repayment of the Notes is subordinated to the Company’s outstanding senior debt including (if any) without limitation, senior secured
loans. No payment will be made by the Company, directly or indirectly, on the Notes, unless and until all of the senior debt then due
has been paid in full. Notwithstanding the foregoing, so long as there exists no event of default under any senior debt, the Company
would make, and a holder would receive and retain for the holder’s account, regularly scheduled payments of accrued interest and
principal pursuant to the terms of the Notes.
The Company must obtain a consent of the holders of the Notes prior to issuing any new senior debt in excess of $15,000,000 after
the date of issuance of the Notes and prior to the Maturity Date.
An event of default will occur upon the Company’s bankruptcy or any failure to pay interest, principal, or other amounts owing on
the Notes when due. Upon the occurrence and during the continuance of an event of default (but subject to the subordination provisions
of the Notes) the holders of a majority of the outstanding principal amount of the Notes may declare all or any portion of the outstanding
principal amount of the Notes due and payable and demand immediate payment of such amount.
The Notes are redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be
redeemed on any interest payment date after a date five years from the original issue date.
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The Company reflects subordinated debt in the amount of $33.5 million as of December 31, 2017 and December 31, 2016 and interest
expense of $2.2 million for each of the years ended December 31, 2017, 2016 and 2015.
A summary of maturities of borrowings and subordinated debt over the next five years is as follows (dollars in thousands):
Year
2018
2019
2020
2021
2022
Thereafter
Amount
149,677
85
90
886
1,431
33,524
185,693
$
NOTE 7. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements
of financial condition.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments
to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount
and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management’s
credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third
party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The
Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making
commitments to extend credit.
Specifically, the Bank has entered into agreements to extend credit or provide conditional payments pursuant to standby and
commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds
deposits.
Total contractual amounts of the commitments as of December 31, were as follows:
(Dollars in thousands)
Available on lines of credit
Stand-by letters of credit
Other loan commitments
2017
2016
327,647
$
255,469
12,297
1,396
13,387
1,819
341,340
$
270,675
$
$
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Concentration of Credit Risk
The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers throughout
the Marion, Harrison, Monongalia, Kanawha, Jefferson and Berkeley County areas of West Virginia as well as the Northern Virginia
area 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.
Regulatory
The Company is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements.
The average balance maintained in accordance with such requirements was $0 on December 31, 2017 and 2016. During 2016, a
deposit reclassification program was implemented and allowed the Company to reduce its requirement of reserve balances on hand
in accordance with the Federal Reserve Board the daily Federal Reserve Requirement.
Contingent Liability
The subsidiary bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management
and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.
NOTE 8. INCOME TAXES
The amount reflected as income taxes represents federal and state income taxes on financial statement income. Certain items of
income and expense, primarily the provision for possible loan losses, allowance for losses on foreclosed assets held for resale,
depreciation, and accretion of discounts on investment securities are reported in different accounting periods for income tax purposes.
The provisions for income taxes for the years ended December 31, were as follows:
(Dollars in thousands)
2017
2016
2015
Current:
Federal
State
Deferred expense (benefit)
Federal
State
Income tax expense (benefit)
$
$
$
$
$
$
$
2,635
771
3,406
1,268
81
1,349
$
$
$
4,885
1,197
6,082
665
42
707
4,755
$
6,789
$
2,830
591
3,421
(371)
(24)
(395)
3,026
Income tax expense for 2017 was impacted by the adjustment of the Company's deferred tax asset related to the reduction in U.S.
federal statutory income tax rate to 21% under the Tax Reform Act, which was signed into law on December 22, 2017. The Company
was required to revalue its net deferred tax asset to this lower rate, resulting in a income tax charge of $646 thousand.
Following is a reconciliation of income taxes at federal statutory rates to recorded income taxes for the year ended December 31:
(Dollars in thousands)
Tax at Federal tax rate
Tax effect of:
State income tax
Tax exempt earnings
Impact of deferred tax rate change
$
$
$
2017
2016
2015
Amount
%
Amount
%
Amount
%
4,369
34 % $
6,689
34 % $
3,346
34 %
771
(1,031)
646
4,755
6.0 %
(6.4)%
5.0 % $
38.6 % $
1,197
(1,097)
—
6,789
6.0 %
(5.5)%
— % $
246
(566)
—
34.5 % $
3,026
2.5 %
(5.8)%
— %
30.7 %
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Deferred tax assets and liabilities are the result of timing differences in recognition of revenue and expense for income tax and
financial statement purposes. As a result of the Tax Reform Act signed into law on December 22, 2017, deferred taxes as of December
31, 2017 are based on the newly enacted U.S. statutory federal income tax rate of 21%. Deferred taxes as of December 31, 2016 are
based on the previously enacted U.S. statutory federal income tax rate of 34%.
Deferred income tax assets and (liabilities) were comprised of the following at December 31:
(Dollars in thousands)
Allowance for loan losses
Minimum pension liability
Unrealized loss on securities available-for-sale
Gross deferred tax assets
Depreciation
Pension
Goodwill
Gross deferred tax liabilities
Net deferred tax asset
2017
2016
$
2,798
$
1,342
2
4,142
(1,137)
(21)
(1,523)
(2,681)
2,641
1,786
1,066
5,493
(1,352)
(6)
(465)
(1,823)
$
1,461
$
3,670
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.
Among other things, the new tax law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the
corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year,
(iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for
tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related
to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception
for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit
insurance premiums.
As stated above, as a result of the enactment of the Tax Reform Act on December 22, 2017, the Company remeasured its net deferred
tax asset based upon the newly enacted U.S. statutory federal income tax rate of 21%, which is the tax rate at which this asset is
expected to reverse in the future. Notwithstanding the foregoing, the Company is still analyzing certain aspects of the new law and
refining its calculations, which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts.
Nonetheless, the Company recognized an income tax charge of $646 thousand in 2017. The remeasurement of the deferred tax asset
related to items that are charged or credited directly to AOCI was a component of 2017 income tax expense and recognized in
continuing operations as required by ASC Topic 740.
The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial
statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing
authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition
threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent
financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-
than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is
no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited
exception, the Company’s federal and state income tax returns for taxable years through 2014 have been closed for purposes of
examination by the federal and state taxing jurisdictions.
NOTE 9. RELATED PARTY TRANSACTIONS
The Company has granted loans to officers and directors of the Company and to their associates as well as loans to related companies.
These related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the
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time for comparable transactions with unrelated parties and do not involve more than normal risk of collectability. Set forth below
is a summary of the related loan activity.
(Dollars in thousands)
December 31, 2017
December 31, 2016
Balance at
Beginning of
Year
Borrowings
Repayments
Balance at
End of Year
28,536
$
129,947
(525) $
(139,300) $
18,658
Executive
Officer and
Director
Retirements
$
42,840
$
251,708
$
(7,194) $
(258,818) $
28,536
$
$
The Company held related party deposits of $17.1 million and $17.8 million at December 31, 2017 and December 31, 2016,
respectively.
The Company held no related party repurchase agreements at December 31, 2017 and December 31, 2016.
NOTE 10. PENSION PLAN
The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all full-time
employees. Benefits are based on years of service and the employee's compensation. Accruals under the Plan were frozen as of
May 31, 2014. Freezing the plan resulted in a re-measurement of the pension obligations and plan assets as of the freeze date. The
pension obligation was re-measured using the discount rate based on the Citigroup Above Median Pension Discount Curve in effect
on May 31, 2014 of 4.46%.
On June 19, 2017, the Company and MVB Mortgage approved a Supplemental Executive Retirement Plan (“SERP”), pursuant to
which the Chief Executive Office of MVB Mortgage is entitled to receive certain supplemental nonqualified retirement benefits.
The SERP shall take effect on December 31, 2017.
Pension expense was $256 thousand, $273 thousand and $256 thousand in 2017, 2016 and 2015, respectively.
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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, 2017 and 2016 is as follows:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss
Assumption changes
Curtailment impact
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Unrecognized prior service cost
Prepaid pension cost recognized
Accumulated benefit obligation
2017
2016
$
9,021
$
8,662
—
360
95
775
—
(193)
10,058
$
4,573
$
467
319
(193)
5,166
$
(4,892) $
4,972
—
80
$
—
367
4
179
—
(191)
9,021
4,486
96
182
(191)
4,573
(4,448)
4,464
—
16
10,058
$
9,021
$
$
$
$
$
$
At December 31, 2017, 2016 and 2015, the weighted average assumptions used to determine the benefit obligation are as follows:
Discount rate
Rate of compensation increase
The components of net periodic pension cost are as follows:
(Dollars in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of net actuarial loss
Net periodic pension cost
2017
2016
2015
3.55%
n/a
4.05%
n/a
4.30%
n/a
2017
2016
2015
— $
— $
360
(345)
—
241
256
$
367
(330)
—
236
273
$
—
315
(316)
—
257
256
$
$
For the years December 31, 2017, 2016 and 2015, the weighted average assumptions used to determine net periodic pension cost
are as follows:
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
91
2017
2016
2015
4.05%
6.75%
n/a
4.30%
6.75%
n/a
3.90%
6.75%
n/a
Table of Contents
The Company’s pension plan asset allocations at December 31, 2017 and 2016, as well as target allocations for 2017 are as follows:
Plan Assets
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Total
12/31/2017
12/31/2016
9%
23%
13%
32%
23%
100%
16%
28%
9%
28%
19%
100%
The 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 is $306 thousand.
The following table sets forth by level, within the fair value hierarchy, as defined in Note 18, "Fair Value Measurements" of the
Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K, the Plan’s assets at fair value as of December 31, 2017.
(Dollars in thousands)
Level I
Level II
Level III
Total
Assets:
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Total assets at fair value
$
$
465
$
— $
— $
1,188
—
1,653
1,188
—
—
—
—
—
672
—
—
465
1,188
672
1,653
1,188
4,494
$
— $
672
$
5,166
The following table sets forth by level, within the fair value hierarchy, as defined in Note 18, "Fair Value Measurements" of the
Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual
Report on Form 10-K, the Plan’s assets at fair value as of December 31, 2016.
(Dollars in thousands)
Level I
Level II
Level III
Total
Assets:
Cash
Fixed income
Alternative investments
Domestic equities
Foreign equities
Total assets at fair value
$
$
732
$
— $
— $
1,280
—
1,280
869
—
—
—
—
—
412
—
—
732
1,280
412
1,280
869
4,161
$
— $
412
$
4,573
Investment in government securities and short-term investments are valued at the closing price reported on the active market on
which the individual securities are traded. Alternative investments and investment in debt securities are valued at quoted prices which
are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can
be directly observed. 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.
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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.
(Dollars in thousands)
Contributions for the period of 01/01/18 through 12/31/18
Estimated future benefit payments reflecting expected future service
2018
2019
2020
2021
2022
2023 through 2027
Cash Flow
416
251
259
283
299
308
2,129
$
$
$
$
$
$
$
NOTE 11. GOODWILL AND OTHER INTANGIBLE ASSETS
The table below summarizes the changes in carrying amounts of goodwill and other intangibles (core deposit intangibles) for the
periods presented:
(Dollars in thousands)
Balance at January 1, 2017
Amortization expense
Balance at December 31, 2017
Balance at January 1, 2016
Amortization expense
Balance at December 31, 2016
Balance at January 1, 2015
Goodwill and core deposit intangible resulting from branch acquisition
Amortization expense
Balance at December 31, 2015
Core Deposit Intangible
Goodwill
Gross
Accumulated
Depreciation
Net
$
$
$
$
18,480
—
18,480
18,480
—
18,480
$
$
$
$
$
17,779
$
701
—
$
$
$
$
$
1,006
—
1,006
1,006
—
1,006
128
878
—
(262) $
(98)
(360) $
(161) $
(101)
(262) $
(127) $
—
(34)
$
18,480
$
1,006
$
(161) $
744
(98)
646
845
(101)
744
1
878
(34)
845
Goodwill represents the excess of the purchase price over the fair value of acquired net assets under the acquisition method of
accounting. The value of the acquired core deposit relationships was determined using the present value of the difference between
a market participant’s cost of obtaining alternative funds and the cost to maintain the acquired deposit base. The core deposit intangibles
are being amortized over a ten-year period using an accelerated method. Goodwill in the amount of $701 thousand and core deposit
intangibles in the amount of $878 thousand resulted from the branch acquisitions as discussed in Note 22, "Mergers and Acquisitions"
of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this
Annual Report on Form 10-K.
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The table below presents estimated amortization expense for the Company’s other intangible assets (dollars in thousands):
2018
2019
2020
2021
2022
Thereafter
$
$
96
93
90
87
83
197
646
The Company’s assessment of qualitative factors determined that it is not more likely than not that the fair value of each reporting
unit is less than its carrying amount and therefore, goodwill is not impaired as of December 31, 2017 and 2016. The Company has
not identified any triggering events since the impairment evaluation that would indicate potential impairment.
Core deposit intangibles are evaluated for impairment if events and circumstances indicate a potential for impairment. Such an
evaluation of other intangible assets is based on undiscounted cash flow projections. No impairment charges were recorded for other
intangible assets in any of the periods presented.
NOTE 12. STOCK OFFERING
On March 13, 2017, the Company entered into an Investment Agreement (the “Investment Agreement”) with its Chief Executive
Officer, Larry F. Mazza (“Mazza”). Pursuant to the Investment Agreement, Mazza committed to subscribe for and purchase, at the
Subscription Price, upon expiration of the Rights Offering, the number of shares of the Company’s common stock, if any, equal to
the amount by which 100,000 exceeds the number of shares purchased by Mazza in the Rights Offering. Pursuant to the Investment
Agreement, Mazza agreed not to sell or otherwise transfer any shares acquired in connection with the Investment Agreement for a
period of six months following the closing of the Rights Offering.
Larry F. Mazza purchased 100,000 shares of the Company's common stock: 90,999 under the rights offering and 9,001 shares under
the Investment Agreement.
On March 13, 2017, the Company filed with the SEC a prospectus supplement and accompanying base prospectus (collectively, the
“Prospectus”) relating to the commencement of the Company’s rights offering (the “Rights Offering”), pursuant to which the Company
distributed, at no charge, non-transferable subscription rights to the holders of its common stock as of 5:00 p.m., Eastern time,
on March 10, 2017. The subscription rights were exercisable for up to a total of 434,783 shares of the Company’s common stock,
subject to such terms and conditions as further described in the Prospectus.
On April 20, 2017, the Company announced the completion of the rights offering, which expired at 5:00 p.m. Eastern time on April 14,
2017. All 434,783 shares offered in the rights offering were subscribed for, resulting in new capital of approximately $5.0 million.
Computershare, who served as subscription agent, completed its review and tabulation of subscriptions on April 19, 2017.
Computershare issued the shares acquired in the rights offering by book entry in the Company's stock ownership records, which are
maintained by Computershare, as transfer agent, on or about April 20, 2017.
On December 5, 2016, the Company entered into Securities Purchase Agreements with certain accredited investors. Pursuant to the
Purchase Agreements, the Investors agreed to purchase an aggregate of 1,913,044 shares of the Company’s common stock, par value
$1.00 per share, at a price of $11.50 per share, as part of a private placement (the “Private Placement”). The Private Placement closed
on December 6, 2016. The gross proceeds to the Company from the Private Placement were approximately $22 million or $20.5
million after stock issuance costs. The proceeds from the Private Placement were used by the Company to pay related transaction
fees and expenses and for general corporate purposes. A portion of the proceeds were used for the redemption of the preferred stock
issued to the United States Department of Treasury in connection with the Company’s participation in the Small Business Lending
Fund.
The Purchase Agreements contain representations and warranties and covenants of the Company and the Investors that are customary
in private placement transactions. The provisions of the Purchase Agreements also include an agreement by the Company to indemnify
the Investors against certain liabilities.
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The Purchase Agreements required the Company to file a registration statement with the Securities and Exchange Commission (the
“SEC”) to register for resale the 1,913,044 shares of common stock issued to the Investors in the Private Placement. The registration
statement was declared effective by the SEC on December 27, 2016.
On June 30, 2014, the Company filed Certificates of Designations for its Convertible Noncumulative Perpetual Preferred Stock,
Series B (“Class B Preferred”) and its Convertible Noncumulative Perpetual Preferred Stock, Series C (“Class C Preferred”). The
Class B Preferred Certificate designated 400 shares of preferred stock as Class B Preferred shares. The Class B Preferred shares
carry an annual dividend rate of 6% and are convertible into shares of Company common stock within thirty days after the first,
second, third, fourth and fifth anniversaries of the original issue date, based on a common stock price of $16 per share, as adjusted
for future corporate activities. On December 28, 2017, the Company distributed a notice to each of the holders of the Class B Preferred
Stock regarding the Company's agreement to waive the timing requirements associated with when a conversion may occur and,
instead, the Company will accept notices of conversion at any time prior to July 30, 2019, which is the final conversion date for the
Preferred Stock. The Class B Preferred shares are redeemable by the Company on or after the fifth anniversary of the original issue
date for Liquidation Amount, as defined therein, plus declared and unpaid dividends. Redemption is subject to any necessary regulatory
approvals. In the event of liquidation of the Company, shares of Class B Preferred stock shall be junior to creditors of the Company
and to the shares of Senior Noncumulative Perpetual Preferred Stock, Series A. Holders of Class B Preferred shares shall have no
voting rights, except for authorization of senior shares of stock, amendment to the Class B Preferred shares, share exchanges,
reclassifications or changes of control, or as required by law.
The Class C Preferred Certificate designated 383.4 shares of preferred stock as Class C Preferred shares. The Class C Preferred
shares carry an annual dividend rate of 6.5% and are convertible into shares of Company common stock within 30 days after the
first, second, third, fourth and fifth anniversaries of the original issue date, based on a common stock price of $16 per share, as
adjusted for future corporate activities. On December 28, 2017, the Company distributed a notice to each of the holders of the Class
C Preferred Stock regarding the Company's agreement to waive the timing requirements associated with when a conversion may
occur and, instead, the Company will accept notices of conversion at any time prior to July 30, 2019, which is the final conversion
date for the Preferred Stock. The Class C Preferred shares are redeemable by the Company on or after the fifth anniversary of the
original issue date for Liquidation Amount, as defined therein, plus declared and unpaid dividends. Redemption is subject to any
necessary regulatory approvals. In the event of liquidation of the Company, shares of Class C Preferred stock shall be junior to
creditors of the Company and to the shares of Senior Noncumulative Perpetual Preferred Stock, Series A and the Class B Preferred
shares. Holders of Class C Preferred shares shall have no voting rights, except for authorization of senior shares of stock, amendment
to the Class C Preferred shares, share exchanges, reclassifications or changes of control, or as required by law. The proceeds of these
preferred stock offerings will be used to support continued growth of the Company and its subsidiary.
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. MVB's
loan production qualified for the lowest dividend rate possible of 1%. MVB may continue to utilize the SBLF capital through March 8,
2016 at the 1% dividend rate. After that time, if the SBLF is not retired, the dividend rate increases to 9%. On January 5, 2017, the
Company redeemed all of the 8,500 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series A, liquidation
amount $1,000 per share (“Series A Preferred Stock”). The aggregate redemption price of the Series A Preferred Stock was $8,508,500,
including dividends accrued, but unpaid through, but not including the redemption date. The Series A Preferred Stock was redeemed
from the Company’s surplus capital and approved by the Company’s primary federal regulator. The redemption terminates the
Company’s participation in the SBLF program. After the redemption, the Company’s capital ratios remained well in excess of those
required for well capitalized status.
NOTE 13. STOCK OPTIONS
The MVB Financial Corp. Incentive Stock Plan (the "Plan") provides for the issuance of stock options to selected employees and
directors. 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. During 2017, the companies shareholders amended the Plan to increase the total number of shares of stock
available for grant of awards by 1.0 million. As of December 31, 2017, the Plan had 3.2 million shares authorized and 1,173,575
shares remaining available for issuance.These options also expire 10 years from the date of the grant. With the exception of 22,000
shares granted in 2010 that vest in 3 years and expire 10 years from the date of grant, and 125,000 shares granted in 2017 that vest
in 4 years and expire in 10 years, all options granted vest in 5 years and expire 10 years from the date of the grant.
Total compensation expense recorded on stock options during 2017, 2016 and 2015 was $813 thousand, $568 thousand and $413
thousand, respectively. Proceeds from stock options exercised were $(10) thousand, $32 thousand and $(448) thousand during 2017,
2016 and 2015 respectively. During 2017, 2016 and 2015, certain options were exercised in cashless transactions. Shares were
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forfeited related to exercise price and tax withholdings and the Company paid tax authorities amounts due resulting in a net cash
outflow.
The following summarizes MVB’s stock options as of and for the year ended December 31, 2017, and the changes for the year then
ended:
Outstanding at beginning of year
Granted
Exercised
Forfeited/expired
2017
2016
Number of
Shares
Weighted
Average
Exercise Price
Number of
Shares
Weighted
Average
Exercise Price
1,499,795
$
321,750
(49,400)
(94,500)
13.11
15.12
12.24
8.41
1,190,295
$
432,000
(55,000)
(67,500)
13.15
12.72
9.02
14.59
Outstanding at end of year
1,677,645
$
13.46
1,499,795
$
13.11
Exercisable at end of year
910,647
$
13.00
768,598
$
12.75
Weighted-average fair value of options granted during 2017
Weighted-average fair value of options granted during 2016
Weighted-average fair value of options granted during 2015
$
$
$
4.05
2.98
2.72
The intrinsic value of options exercised during 2017, 2016 and 2015 was $8 thousand, $108 thousand and $1.6 million, respectively.
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 2.29%, 1.31% and 2.16% for 2017, 2016 and 2015, respectively, and a weighted average expected life of the options
of 7 years for all three years. The expected volatility of MVB’s stock price used for 2017 options was 22.76%, while for the 2016
options it was 19.07% and 2015 options it was 13.90%. The expected dividend yield used was 0.60% for 2017, 0.43% for 2016 and
0.51% for 2015.
The following summarizes information related to the total outstanding and exercisable options at December 31, 2017:
Options Outstanding
Options Exercisable
Total Options
Weighted-
Average
Exercise Price
Intrinsic Value
Weighted-
Average
Remaining Life
Total Options
Weighted-
Average
Exercise Price
Intrinsic Value
Weighted-
Average
Remaining Life
1,677,645
$
13.46
11,145,745
6.63
910,647
$
13.00
6,465,272
5.28
NOTE 14. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are 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 consolidated financial statements. Under capital
adequacy guidelines the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts
and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Capital adequacy guidelines have recently changed as a result of the Dodd-Frank Act and a separate, international capital initiative
known as “Basel III.” Regulators have issued rules implementing these requirements (“Revised Capital Rules”). Among other things,
the Revised Capital Rules raise the minimum thresholds for required capital and revise certain aspects of the definitions and elements
of the capital that can be used to satisfy these required minimum thresholds. While the rules became effective on January 1, 2014
for certain large banking organizations, most banking organizations, including MVB Financial Corp and the Bank, were required to
begin complying with these new requirements on January 1, 2015.
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Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and
ratios of Total capital, Tier 1 capital and Tier 1 common equity to risk-weighted assets, and of Tier 1 capital to average assets, as
defined. As of December 31, 2017 and 2016, the Company 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 1 risk-based, Tier 1 common equity risk-based and Tier 1 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.
(Dollars in thousands)
As of December 31, 2017
Total Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier 1 Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
$
$
$
$
Common Equity Tier 1 Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier 1 Capital (to average assets)
Consolidated
Subsidiary Bank
As of December 31, 2016
Total Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier 1 Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
$
$
$
$
$
$
$
$
Common Equity Tier 1 Capital (to risk-weighted assets)
Consolidated
Subsidiary Bank
Tier 1 Capital (to average assets)
Consolidated
Subsidiary Bank
$
$
$
$
Actual
Minimum to be Well
Capitalized
Minimum for Capital
Adequacy Purposes
Amount
Ratio
Amount
Ratio
Amount
Ratio
178,147
169,536
14.9%
n/a
14.2% $
119,231
n/a
$
10.0% $
95,948
95,385
138,308
159,097
11.5%
n/a
13.3% $
95,385
n/a
$
8.0% $
71,886
71,539
126,350
159,097
10.6%
n/a
13.3% $
77,500
n/a
$
6.5% $
53,915
53,654
138,308
159,097
9.3%
n/a
10.7% $
73,119
n/a
$
5.0% $
58,667
58,495
174,093
163,394
15.4%
n/a
14.5% $
113,027
n/a
$
10.0% $
90,699
90,422
135,100
153,737
11.9%
n/a
13.6% $
90,422
n/a
$
8.0% $
68,025
67,816
114,642
153,737
10.1%
n/a
13.6% $
73,468
n/a
$
6.5% $
51,018
50,862
135,100
153,737
9.5%
n/a
10.9% $
70,651
n/a
$
5.0% $
56,655
56,521
8.0%
8.0%
6.0%
6.0%
4.5%
4.5%
4.0%
4.0%
8.0%
8.0%
6.0%
6.0%
4.5%
4.5%
4.0%
4.0%
NOTE 15. REGULATORY RESTRICTION ON DIVIDEND
The approval of the regulatory agencies is required if the total of all dividends declared by the Bank in any calendar year exceeds
the Bank’s net profits, as defined, for that year combined with its retained net profits for the preceding two calendar years.
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NOTE 16. LEASES
The Company leases land and building space for the operation of some banking offices. All such leases qualify as operating leases.
Following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 2017:
(Dollars in thousands)
Years ended December 31:
2018
2019
2020
2021
2022
Thereafter
Total minimum payments required:
$
$
1,822
1,299
1,244
1,268
1,201
5,185
12,019
Total rent expense for the years ended December 31, 2017, 2016 and 2015 was $2.0 million, $1.7 million and $1.8 million, respectively.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures
for financial instruments.
Level I:
Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II:
Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of
the reported date. The nature of these assets and liabilities include items for which quoted prices are available but
traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can
be directly observed.
Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-
way markets and are measured using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment or estimation.
Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory
reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates,
methods and assumptions are set forth below for the Company’s other financial instruments.
Cash and cash equivalents: The carrying amounts for cash and cash equivalents approximate fair value because they have original
maturities of 90 days or less and do not present unanticipated credit concerns.
Certificates of deposits: The fair values for certificates of deposits are computed based on scheduled future cash flows of principal
and interest, discounted at interest rates currently offered for certificates of deposits with similar terms of investors. No prepayments
of principal are assumed.
Securities: U.S. treasury, government agency, mortgage-backed securities, certain municipal securities and corporate bonds are
generally measured at fair value using a third-party pricing service or recent comparable market transactions in similar or identical
securities and are classified as Level II instruments. Equity securities are measured at fair value using observable closing prices and
are classified as Level I instruments if they are traded on a heavily active market and as Level II instruments if the observable closing
price is from a less than active market. Certain local municipal securities related to tax increment financing (“TIF”) are independently
valued and classified as Level III instruments.
Loans held for sale: Loans held for sale are reported at fair value. These loans currently consist of one-to-four-family residential
loans originated for sale in the secondary market. Fair value is based on committed market rates or the price secondary markets are
currently offering for similar loans using observable market data. (Level II)
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Loans: The 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.
Mortgage servicing rights: The carrying value of mortgage servicing rights approximates their fair value due to the immateriality
of the balance.
Interest rate lock commitment: For mortgage interest rate locks, the fair value is based on either (i) the price of the underlying
loans obtained from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individual loans
traded in the secondary market for loans that will be delivered on a mandatory basis less (iii) expected costs to deliver the interest
rate locks, any expected “pull through rate” is multiplied by this calculation to estimate the derivative value.
Mortgage-backed security hedges: MBS hedges are used to mitigate interest rate risk for residential mortgage loans held for sale
and interest rate locks and manage expected funding percentages. These instruments are considered derivatives and are recorded at
fair value based on observable market data of the individual mortgage-backed securities.
Interest rate cap: The fair value of the interest rate cap is determined at the end of each quarter by using Bloomberg Finance which
values the interest rate cap using observable inputs from forward and futures yield curves as well as standard market volatility.
Interest rate swap: Interest rate swaps are recorded at fair value based on third party vendors who compile prices from various
sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market
data.
Accrued interest receivable and payable and repurchase agreements: The carrying values of accrued interest receivable and
payable approximate their fair values.
Deposits: The fair values of demand deposits (i.e., noninterest bearing checking, NOW and money market), savings accounts and
other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted
cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term
relationships with depositors is not considered in estimating the fair values disclosed.
FHLB and other borrowings: The fair values 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.
Subordinated debt: The fair values for debt are computed based on scheduled future cash flows of principal and interest, discounted
at interest rates currently offered for debt with similar terms of borrowers of similar credit quality. No prepayments of principal are
assumed.
Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using
the fees currently charged to enter into similar agreements, taking into account the remaining terms of agreements and the present
credit standing of the counterparties. The amounts of fees currently charged on commitments and standby letters of credit are deemed
insignificant, and therefore, the estimated fair values and carrying values are not shown.
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The carrying values and estimated fair values of the Company’s financial instruments are summarized as follows:
Fair Value Measurements at:
(Dollars in thousands)
December 31, 2017
Financial assets:
Carrying Value
Estimated Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets (Level I)
Significant
Other
Observable
Inputs (Level II)
Significant
Unobservable
Inputs (Level
III)
Cash and cash equivalents
$
20,305
$
20,305
$
20,305
$
— $
Certificates of deposits with other banks
Securities available-for-sale
Loans held for sale
Loans, net
Mortgage servicing rights
Interest rate lock commitment
Interest rate swap
Interest rate cap
Accrued interest receivable
Financial liabilities:
Deposits
Repurchase agreements
FHLB and other borrowings
Mortgage-backed security hedges
Interest rate swap
Accrued interest payable
Subordinated debt
December 31, 2016
Financial assets:
14,778
231,507
66,794
14,695
231,507
66,794
1,096,063
1,093,824
182
1,426
268
33
5,296
182
1,426
268
33
5,296
—
1,607
—
—
—
—
—
—
—
14,695
206,991
66,794
—
—
—
268
33
1,241
$
1,159,580
$
1,126,615
$
— $
1,126,615
$
22,403
152,169
78
268
643
22,403
152,190
78
268
643
33,524
35,117
—
—
—
—
—
—
22,403
152,190
78
268
643
35,117
Cash and cash equivalents
$
17,340
$
17,340
$
17,340
$
— $
Certificates of deposits with other banks
Securities available-for-sale
Loans held for sale
Loans, net
Mortgage servicing rights
Interest rate lock commitment
Mortgage-backed security hedges
Interest rate swap
Interest rate cap
Accrued interest receivable
14,527
162,368
90,174
14,985
162,368
90,174
1,043,764
1,035,437
190
1,546
372
250
268
3,951
190
1,546
372
250
268
3,951
—
897
—
—
—
—
—
—
—
—
14,985
161,471
90,174
—
—
—
372
250
268
—
—
22,909
—
1,093,824
182
1,426
—
—
4,055
—
—
—
—
—
—
—
—
—
—
—
1,035,437
190
1,546
—
—
—
1,002
2,949
Financial liabilities:
Deposits
Repurchase agreements
FHLB and other borrowings
Interest rate swap
Accrued interest payable
Subordinated debt
$
1,107,017
$
1,116,174
$
— $
1,116,174
$
25,160
90,921
250
741
33,524
25,160
90,919
250
741
32,275
—
—
—
—
—
25,160
90,919
250
741
32,275
—
—
—
—
—
—
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Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings
of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair
value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics
of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the
estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
NOTE 18. FAIR VALUE MEASUREMENTS
Accounting standards require that the Company adopt fair value measurement for financial assets and financial liabilities. This
enhanced guidance for using fair value to measure assets and liabilities applies whenever other standards require or permit assets or
liabilities to be measured at fair value. This guidance does not expand the use of fair value in any new circumstances.
Assets Measured on a Recurring Basis
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 II instruments
and valued them using the market approach. The following measurements are made on a recurring basis.
• Available-for-sale investment securities — Available-for-sale investment securities are recorded at fair value on a
recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair
values are measured using independent pricing models or other model-based valuation techniques such as the present
value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as
credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock
Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money
market funds. Level II securities include mortgage-backed securities issued by government sponsored entities and private
label entities, municipal bonds and corporate debt securities. There have been no changes in valuation techniques for the
year ended December 31, 2017. Valuation techniques are consistent with techniques used in prior periods.
• Loans held for sale — The fair value of mortgage loans held for sale is determined, when possible, using quoted
secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined
using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by
other market participants.
•
Interest rate lock commitment — The Company estimates the fair value of interest rate lock commitments based on the
value of the underlying mortgage loan, quoted mortgage-backed security prices and estimates of the fair value of the
mortgage servicing rights and the probability that the mortgage loan will fund within the terms of the interest rate lock
commitments.
• Mortgage-backed security hedges — MBS hedges are considered derivatives and are recorded at fair value based on
observable market data of the individual mortgage-backed security.
•
•
Interest rate cap — The fair value of the interest rate cap is determined at the end of each quarter by using Bloomberg
Finance which values the interest rate cap using observable inputs from forward and futures yield curves as well as
standard market volatility.
Interest rate swap — Interest rate swaps are recorded at fair value based on third party vendors who compile prices from
various sources and may determine fair value of identical or similar instruments by using pricing models that consider
observable market data.
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The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a recurring
basis as of December 31, 2017 and 2016 by level within the fair value hierarchy. Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair value measurement.
(Dollars in thousands)
Assets:
U.S. Government Agency securities
U.S. Sponsored Mortgage backed securities
Municipal securities
Equity and other securities
Loans held for sale
Interest rate lock commitment
Interest rate swap
Interest rate cap
Liabilities:
Interest rate swap
Mortgage-backed security hedges
(Dollars in thousands)
Assets:
U.S. Government Agency securities
U.S. Sponsored Mortgage backed securities
Municipal securities
Equity and other securities
Loans held for sale
Interest rate lock commitment
Mortgage-backed security hedges
Interest rate swap
Interest rate cap
Liabilities:
Interest rate swap
The following table represents recurring level III assets:
Interest Rate Lock Commitments
(Dollars in thousands)
Balance, beginning of period
Realized and unrealized gains included in earnings
Balance, end of period
December 31, 2017
Level I
Level II
Level III
Total
$
— $
80,945
$
—
—
1,607
—
—
—
—
—
—
58,154
52,933
16,566
66,794
—
268
33
268
78
— $
—
22,909
—
—
1,426
—
—
—
—
80,945
58,154
75,842
16,566
66,794
1,426
268
33
268
78
December 31, 2016
Level I
Level II
Level III
Total
$
— $
28,816
$
— $
—
—
897
—
—
—
—
—
—
54,732
70,796
8,024
90,174
—
372
250
268
250
—
—
—
—
1,546
—
—
—
—
28,816
54,732
70,796
8,024
90,174
1,546
372
250
268
250
December 31, 2017
December 31, 2016
$
$
1,546
$
1,537
(120)
9
1,426
$
1,546
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Assets Measured on a Nonrecurring Basis
The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and
non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These
include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the
period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition
or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill
impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.
Non-financial assets measured at fair value on a nonrecurring basis during 2017 and 2016 include certain foreclosed assets which,
upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses
and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down
included in other noninterest expense.
•
Impaired Loans — Loans for which it is probable that payment of interest and principal will not be made in accordance
with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually
impaired, management measures impairment using one of several methods, including collateral value, liquidation value
and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of
the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated
using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a
majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation
techniques are used as well, including internal valuations, comparable property analysis and contractual sales
information.
• Other Real Estate owned — Other real estate owned, which is obtained through the Bank’s foreclosure process is valued
utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market
data or Level III inputs based on customized discounting criteria. At the time, the foreclosure is completed, the Company
obtains a current external appraisal.
Assets measured at fair value on a nonrecurring basis as of December 31, 2017 and 2016 are included in the table below:
(Dollars in thousands)
Impaired loans
Other real estate owned
(Dollars in thousands)
Impaired loans
Other real estate owned
December 31, 2017
Level I
Level II
Level III
Total
— $
—
— $
14,368
$
—
1,346
14,368
1,346
December 31, 2016
Level I
Level II
Level III
Total
— $
—
— $
11,609
$
11,609
—
414
414
$
$
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The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities
measured at fair value at December 31, 2017 and 2016.
(Dollars in thousands)
December 31, 2017
Nonrecurring measurements:
Impaired loans
Other real estate owned
Recurring measurements:
Interest rate lock commitments
(Dollars in thousands)
December 31, 2016
Nonrecurring measurements:
Impaired loans
Other real estate owned
Recurring measurements:
Quantitative Information about Level III Fair Value Measurements
Fair Value
Valuation Technique
Unobservable Input
14,368 Appraisal of collateral 1
1,346 Appraisal of collateral 1
Appraisal adjustments 2
Liquidation expense 2
Appraisal adjustments 2
Liquidation expense 2
Range
20% - 62%
5% - 10%
20% - 30%
5% - 10%
1,426 Pricing model
Pull through rates
73% - 85%
Quantitative Information about Level III Fair Value Measurements
Fair Value
Valuation Technique
Unobservable Input
11,609 Appraisal of collateral 1
414 Appraisal of collateral 1
Appraisal adjustments 2
Liquidation expense 2
Appraisal adjustments 2
Liquidation expense 2
Range
20% - 62%
5% - 10%
20% - 30%
5% - 10%
$
$
$
$
$
Interest rate lock commitments
1 Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various
level III inputs which are not identifiable.
1,546 Pricing model
Pull through rates
73% - 85%
$
2 Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
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NOTE 19. COMPREHENSIVE INCOME
The following tables present the components of accumulated other comprehensive income (“AOCI”) for the years ended December 31:
(Dollars in thousands)
2017
2016
2015
Details about AOCI Components
Available-for-sale securities
Unrealized holding gains
$
Defined benefit pension plan items
Amortization of net actuarial loss
Amount
Reclassified
from AOCI
Amount
Reclassified
from AOCI
Amount
Reclassified
from AOCI
Affected line item in the Statement where
Net Income is presented
731
731
(292)
439
(241)
(241)
96
(145)
$
1,082
$
1,082
(433)
649
(236)
(236)
94
(142)
130
130
(52)
78
(257)
(257)
103
(154)
Gain on sale of securities
Total before tax
Income tax expense
Net of tax
Salaries and benefits
Total before tax
Income tax expense
Net of tax
Total reclassifications
$
294
$
507
$
(76)
(Dollars in thousands)
Balance at January 1, 2017
Other comprehensive loss before reclassification
Amounts reclassified from AOCI
Net current period OCI
Balance at December 31, 2017
Balance at January 1, 2016
Other comprehensive loss before reclassification
Amounts reclassified from AOCI
Net current period OCI
Balance at December 31, 2016
Unrealized gains
(losses) on
available for-sale
securities
Defined benefit
pension plan
items
(1,598) $
(2,679) $
2,032
(439)
1,593
(449)
145
(304)
(5) $
(2,983) $
Total
(4,277)
1,583
(294)
1,289
(2,988)
(363) $
(2,570) $
(2,933)
(586)
(649)
(1,235)
(251)
142
(109)
(1,598) $
(2,679) $
(837)
(507)
(1,344)
(4,277)
$
$
$
$
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NOTE 20. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
Information relative to the parent company’s condensed balance sheets at December 31, 2017 and 2016, and the related condensed
statements of income and cash flows for the years ended December 31, 2017, 2016 and 2015 are presented below:
$
$
$
December 31,
2017
2016
3,904
$
175,027
5,743
7,699
168,325
4,316
184,674
$
180,340
958
$
33,524
34,482
150,192
$
184,674
$
1,191
33,524
34,715
145,625
180,340
Year ended December 31,
2017
2016
2015
$
13,724
$
9,241
$
11,974
1,750
(2,147)
3,897
—
—
—
3,678
11,307
(2,066)
(2,072)
6
6,926
2,629
4,297
8,609
$
$
$
7,575
$
12,912
$
498
7,077
$
$
1,128
11,784
$
$
7,744
8,988
(1,244)
(1,597)
353
—
—
—
6,463
6,816
575
6,241
Condensed Balance Sheets
(Dollars in thousands)
Assets
Cash
Investment in subsidiaries
Other assets
Total assets
Liabilities and stockholders’ equity
Other liabilities
Long-term debt
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(Dollars in thousands)
Income - dividends from bank subsidiary
Expenses - operating
Income (loss) before income taxes and undistributed earnings - continuing operations
Income tax (benefit) - continuing operations
Income after tax from continuing operations
Income before income taxes and undistributed earnings - discontinued operations
Income tax - discontinued operations
Income after tax from discontinued operations
Equity in undistributed income earnings of subsidiaries
Net Income
Preferred dividends
Net Income available to common shareholders
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Table of Contents
Condensed Statements of Cash Flows
(Dollars in thousands)
OPERATING ACTIVITIES
Net Income
Equity in undistributed earnings of subsidiaries
(Decrease) in other assets
Decrease (increase) in other liabilities
Stock option expense
2017
2016
2015
$
7,575
$
12,912
$
(3,678)
(2,214)
(234)
813
(8,609)
(612)
920
568
6,816
(6,463)
(529)
(261)
413
Net cash provided by (used in) operating activities
2,262
5,179
(24)
INVESTING ACTIVITIES
Investment in subsidiary
(947)
(19,697)
(400)
Net cash used in investing activities
(947)
(19,697)
(400)
FINANCING ACTIVITIES
Proceeds of stock offering
Dividend reinvestment plan
Proceeds from subordinated debt
Preferred stock issuance
Preferred stock redemption
Common stock options exercised
Cash dividends paid on common stock
Cash dividends paid on preferred stock
4,931
20,519
—
—
—
(8,500)
(10)
(1,033)
(498)
—
—
—
—
32
(646)
(1,128)
—
—
—
—
—
(448)
(641)
(575)
Net cash (used in) provided by financing activities
(5,110)
18,777
(1,664)
(Decrease) increase in cash
Cash at beginning of period
Cash at end of period
NOTE 21. SEGMENT REPORTING
(3,795)
4,259
(2,088)
7,699
3,440
5,528
$
3,904
$
7,699
$
3,440
The Company has identified three reportable segments: commercial and retail banking; mortgage banking; and financial holding
company. Insurance services was previously identified as a reportable segment until entering into an Asset Purchase Agreement, as
discussed below and in Note 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements included in Item
8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Revenue from commercial and retail banking
activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue
from financial holding company activities is mainly comprised of intercompany service income and dividends.
Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage
origination process. The mortgage banking services are conducted by MVB Mortgage. Revenue from insurance services is comprised
mainly of commissions on the sale of insurance products.
On June 30, 2016, the Company entered into an Asset Purchase Agreement with USI Insurance Services (“USI”), in which USI
purchased substantially all of the assets and assumed certain liabilities of MVB Insurance, which resulted in a pre-tax gain of $6.9
million, as discussed in Note 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements included in Item
8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. MVB Insurance retained the assets related
107
Table of Contents
to, and continues to operate, its title insurance business. The title insurance business is immaterial in terms of revenue and the
Company has reorganized MVB Insurance as a subsidiary of the Bank.
Information about the reportable segments and reconciliation to the consolidated financial statements for the years ended December
31, 2017, 2016, and 2015 are as follows:
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations, before income
taxes
Income tax expense (benefit) - continuing operations
Net income (loss) from continuing operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued operations
Net income (loss) from discontinued operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common shareholders
Capital Expenditures for the year ended December 31, 2017
Total Assets as of December 31, 2017
Goodwill as of December 31, 2017
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
2017
Financial
Holding
Company
Intercompany
Eliminations
Consolidated
$
52,423
$
4,698
$
$
(527) $
736
563
5,303
59,025
9,118
12,266
1,967
19,523
42,874
16,151
5,820
10,331
—
—
—
37,262
—
(2,372)
39,588
2,317
26,196
206
8,188
36,907
2,681
1,082
1,599
—
—
—
4
—
—
5,466
5,470
2,241
5,646
—
4,085
11,972
(6,502)
(2,147)
(4,355)
—
—
—
10,331
—
10,331
$
$
1,599
—
1,599
$
$
(4,355) $
498
(4,853) $
(849)
—
(5,403)
(6,779)
(1,375)
—
—
(5,404)
(6,779)
—
—
—
—
—
—
— $
—
— $
56,598
37,149
563
2,994
97,304
12,301
44,108
2,173
26,392
84,974
12,330
4,755
7,575
—
—
—
7,575
498
7,077
3,226
$
1,187
$
83
$
— $
4,496
1,533,497
1,598
149,323
16,882
184,600
(333,118)
1,534,302
—
—
18,480
108
Table of Contents
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations,
before income taxes
Income tax expense (benefit) - continuing
operations
Net income (loss) from continuing
operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued
operations
Net income (loss) from discontinued
operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital Expenditures for the year ended
December 31, 2016
Total Assets as of December 31, 2016
Goodwill as of December 31, 2016
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
Financial
Holding
Company
Insurance
Intercompany
Eliminations
Consolidated
2016
$
50,413
$
4,285
$
(252)
420
5,485
56,066
8,437
11,592
3,632
18,009
41,670
14,396
4,496
9,900
—
—
—
36,960
—
1,674
42,919
2,082
27,696
—
8,125
37,903
5,016
1,954
3,062
—
—
—
3
—
—
5,247
5,250
2,226
5,937
—
3,144
11,307
(6,057)
(2,072)
(3,985)
6,926
2,629
4,297
$
— $
(578) $
—
—
—
—
—
—
—
—
—
—
—
—
(580)
(218)
(362)
(1,035)
—
(5,294)
(6,907)
(1,613)
—
—
(5,294)
(6,907)
—
—
—
—
—
—
54,123
35,673
420
7,112
97,328
11,132
45,225
3,632
23,984
83,973
13,355
4,378
8,977
6,346
2,411
3,935
12,912
1,128
9,900
$
3,062
$
312
$
(362) $
—
—
1,128
—
— $
—
9,900
$
3,062
$
(816) $
(362) $
— $
11,784
1,145
$
220
$
303
$
— $
— $
1,668
1,415,735
1,598
122,242
16,882
180,340
—
—
—
(299,513)
1,418,804
—
18,480
109
Table of Contents
(Dollars in thousands)
Revenues:
Interest income
Mortgage fee income
Insurance and investment services income
Other income
Total operating income
Expenses:
Interest expense
Salaries and employee benefits
Provision for loan losses
Other expense
Total operating expenses
Income (loss) from continuing operations,
before income taxes
Income tax expense (benefit) - continuing
operations
Net income (loss) from continuing
operations
Income (loss) from discontinued operations
Income tax expense (benefit) - discontinued
operations
Net income (loss) from discontinued
operations
Net income (loss)
Preferred stock dividends
Net income (loss) available to common
shareholders
Capital Expenditures for the year ended
December 31, 2015
Total Assets as of December 31, 2015
Goodwill as of December 31, 2015
$
$
$
Commercial
& Retail
Banking
Mortgage
Banking
Financial
Holding
Company
Insurance
Intercompany
Eliminations
Consolidated
2015
$
40,524
$
3,882
$
$
— $
(308) $
7
338
3,721
44,590
6,776
11,049
2,493
16,132
36,450
8,140
2,176
5,964
—
—
—
30,560
1,673
36,115
1,647
20,774
—
7,471
29,892
6,223
2,394
3,829
—
—
—
2
—
—
4,331
4,333
2,204
4,250
—
2,534
8,988
(4,655)
(1,597)
(3,058)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
134
53
81
81
—
(1,095)
—
(4,580)
(5,983)
(1,402)
—
—
(4,362)
(5,764)
(219)
(87)
(132)
219
87
132
$
— $
—
44,100
29,472
338
5,145
79,055
9,225
36,073
2,493
21,775
69,566
9,489
2,886
6,603
353
140
213
6,816
575
5,964
$
3,829
$
(3,058) $
—
—
575
5,964
$
3,829
$
(3,633) $
81
$
— $
6,241
1,174
$
354
$
616
$
9
$
— $
2,153
1,378,988
1,598
125,227
16,882
148,509
—
5,017
—
(273,265)
1,384,476
—
18,480
110
Table of Contents
Commercial & Retail Banking
For the year ended December 31, 2017, the Commercial & Retail Banking segment earned $10.3 million compared to $9.9 million
in 2016. Net interest income increased by $1.3 million, primarily the result of a $1.3 million increase in interest on taxable investment
securities and a $734 thousand increase in interest and fees on loans which was offset by a $546 thousand increase in interest on
deposits and a $132 thousand increase in interest on FHLB and other borrowings. Noninterest income increased by $949 thousand,
primarily the result of a $988 thousand increase in mortgage fee income, a $419 thousand increase on commercial swap fee income,
a $447 thousand increase in other operating income, offset by a $557 thousand decrease in gain on sale of securities and a $504
thousand decrease in gain on sale of portfolio loans. Noninterest expense increased by $2.2 million, primarily the result of the
following: $674 thousand increase in salaries and employee benefits expense, $599 thousand increase in occupancy and equipment
expense, and $227 thousand increase in data processing and communications expense, which was offset by a $209 thousand decrease
in professional fees. The $599 thousand increase in occupancy and equipment expense was primarily the result of two new full-
service branches opened in 2017 and increased equipment expense related to depreciation and continued maintenance of property
and software. The $227 thousand increase in data processing and communications was primarily the result of the core conversion
completed in April 2017, along with overall growth in terms of personnel and office space company-wide and the usage of additional
products, services, and providers to better serve the client base. In addition, provision expense decreased by $1.7 million. Also,
income tax expense increased $1.3 million as a result of both increased net income before income taxes and as a result of tax reform
in which the Company was required to re-measure its net deferred tax asset and resulted in an income tax charge of $646 thousand.
Mortgage Banking
For the year ended December 31, 2017, the Mortgage Banking segment earned $1.6 million compared to $3.1 million in 2016. Net
interest income increased $178 thousand, noninterest income decreased by $3.7 million, and noninterest expense decreased by $1.4
million. The decrease in noninterest income was primarily the result of a $4.1 million decrease in the gain on derivative. The decrease
in the gain on derivatives was largely the result of a 39.0% decrease in the locked mortgage pipeline for 2017 compared to a 31.6%
increase in the locked mortgage pipeline for 2016. The decrease in noninterest expense was primarily the result of the following:
$1.5 million decrease in salaries and employee benefits expense, which was primarily due to a 15.6% decrease in origination volume
and a $1.2 million decrease in the earn out paid to management of the mortgage company related to the 2012 acquisition. Other items
that impacted noninterest expense were as follows: a $242 thousand increase in occupancy and equipment expense and a $146
thousand increase in travel, entertainment, dues, and subscriptions expense, which were offset by a $159 thousand decrease in
marketing expense and a $148 thousand decrease in mortgage processing expense.
Financial Holding Company
Excluding discontinued operations, for the year ended December 31, 2017, the Financial Holding Company segment lost $4.4 million
compared to a loss of $4.0 million in 2016. Interest expense increased $15 thousand, noninterest income increased $219 thousand
and noninterest expense increased $650 thousand. In addition, the income tax benefit increased $75 thousand. The increase in
noninterest expense was primarily due to a $604 thousand increase in professional fees, a $169 thousand increase in travel,
entertainment, dues, and subscriptions expense, a $125 thousand increase in occupancy and equipment expense, and a $100 thousand
increase in other operating expense.
Insurance
In June 2016, primarily all the assets of the Insurance segment were sold and the segment was reorganized as a subsidiary of the
Bank. There was no insurance segment in 2017. The discontinued insurance segment lost $362 thousand in 2016.
NOTE 22. MERGERS AND ACQUISITIONS
On May 1, 2015, MVB Bank, Inc. (MVB Bank), a wholly-owned subsidiary of MVB Financial Corp. (MVB Financial or the
Company), issued a joint news release with BB&T Corporation (BB&T) and Susquehanna Bancshares, Inc. (Susquehanna)
announcing the signing of a definitive agreement, subject to customary closing conditions including regulatory approvals, through
which MVB Bank will acquire two branch locations of Susquehanna Bank in Berkeley County, West Virginia and will assume
approximately $69 million of deposits and $17 million of loans. The two Susquehanna Bank branch locations are slated for divestiture
under BB&T’s agreement with the United States Department of Justice and commitments to the Board of Governors of the Federal
Reserve System in connection with BB&T’s pending acquisition of Susquehanna. On July 22, 2015, regulatory approvals for the
acquisition of the two Susquehanna Bank branch locations were received and the acquisition closed August 28, 2015.
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Table of Contents
The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805. The assets and liabilities
were recorded at their estimated fair values as of the August 28, 2015 acquisition date.
The following is a summary of net liabilities assumed:
(Dollars in thousands)
Net assets acquired:
Cash received in transaction
Cash on hand
Loans
Bank premises, furniture and equipment
Accrued interest receivable and other assets
Core deposit intangible
Deposits
Accrued interest payable and other liabilities
Net liabilities assumed
Goodwill
$
$
47,962
330
18,200
609
62
878
68,041
68,697
45
68,742
(701)
701
—
A valuation of the acquired loans and core deposit intangible was performed with the assistance of a third-party valuation consultant.
The unpaid principal balance and fair value of performing loans was $18.7 million and $18.2 million, respectively. The discount of
$458 thousand will be accreted through interest income over the life of the loans in accordance with Accounting Standards Codification
(ASC) topic 310-20. No nonperforming loans were acquired in this transaction. The core deposit intangible will be amortized over
10 years using a double declining balance amortization method.
Merger costs related to the branch acquisitions were $722 thousand, consisting primarily of legal, consulting and data processing
expenses. Goodwill was recorded in the amount of $701 thousand which is the difference between the total purchase price and the
net liabilities assumed and is not deductible for income tax purposes.
The following acquisition related costs are included in the consolidated statements of income for the periods indicated:
(Dollars in thousands)
Professional fees
Marketing
Printing, postage and supplies
Equipment depreciation and maintenance
Travel and entertainment
Data processing and communications
Other operating expense
Total
Year ended
Year ended
Year ended
December 31, 2017
December 31, 2016
December 31, 2015
$
$
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
471
29
71
—
50
76
25
722
The following pro forma financial information combines the historical results of MVB and two branches acquired on August 28,
2015. The pro forma results exclude the impact of branch acquisition costs of $722 thousand.
If the branch acquisition had been completed on January 1, 2014 total revenue, net of interest expense, would have been $55.1 million
and $76.0 million for the years ended December 31, 2014 and 2015, respectively. Net income would have been $1.7 million and
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Table of Contents
$6.4 million for the same periods. Basic and diluted earnings per share would have been $0.17 and $0.17 and $0.73 and $0.72,
respectively for the years ended December 31, 2014 and 2015.
NOTE 23. DISCONTINUED OPERATIONS
On June 30, 2016, the Company entered into an Asset Purchase Agreement with USI, in which USI purchased substantially all of
the assets and assumed certain liabilities of MVB Insurance, which resulted in a pre-tax gain of $6.9 million. MVB Insurance retained
the assets related to, and continues to operate, its title insurance business. The title insurance business is immaterial in terms of
revenue and the Company has reorganized MVB Insurance as a subsidiary of the Bank. The Company retained approximately $424
thousand in liabilities and received proceeds totaling $7.0 million related to this transaction.
There were no assets and liabilities of discontinued operations as of December 31, 2017 or 2016.
Net income (losses) from discontinued operations, net of tax, for the years ended December 31, 2017, 2016, and 2015, were as
follows:
(Dollars in thousands)
NONINTEREST INCOME
2017
2016
2015
Insurance and investment services income
$
— $
1,887
$
Gain on sale of subsidiary
Other operating income
Total noninterest income
NONINTEREST EXPENSES
Salary and employee benefits
Occupancy expense
Equipment depreciation and maintenance
Data processing and communications
Marketing, contributions and sponsorships
Professional fees
Printing, postage and supplies
Insurance, tax and assessment expense
Travel, entertainment, dues and subscriptions
Other operating expenses
Total noninterest expense
Income from discontinued operations, before income taxes
Income tax expense - discontinued operations
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,926
2
8,815
1,937
124
29
79
7
2
12
58
67
154
2,469
6,346
2,411
Net Income from discontinued operations
$
— $
3,935
$
NOTE 24. QUARTERLY FINANCIAL DATA (UNAUDITED)
4,733
—
6
4,739
3,603
281
57
105
25
23
19
136
119
18
4,386
353
140
213
(Dollars in thousands)
2017
First quarter
Second quarter
Third quarter
Fourth quarter
Interest
Income
Net Interest
Income
Income
Before Taxes
Net Income
Basic
Diluted
Earnings Per Share
$
13,068
$
10,306
$
2,295
$
1,574
$
13,814
14,630
15,086
10,894
11,414
11,683
3,435
3,510
3,090
2,260
2,318
1,423
$
0.14
0.21
0.21
0.12
0.14
0.20
0.21
0.12
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Table of Contents
(Dollars in thousands)
2016
First quarter
Second quarter
Third quarter
Fourth quarter
Interest
Income
Net Interest
Income
Income
Before Taxes
Net Income
Basic
Diluted
Earnings Per Share
$
13,382
$
10,695
$
2,612
$
1,796
$
13,580
13,523
13,638
10,742
10,729
10,825
10,228
3,441
3,420
6,499
2,310
2,307
$
0.20
0.77
0.25
0.23
0.20
0.63
0.24
0.22
114
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of MVB Financial Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MVB Financial Corp. and subsidiary
(the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2017, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2018 expressed an
unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2014.
Gaithersburg, Maryland
March 8, 2018
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of the Company’s management, including the Company’s President
and Chief Executive Officer, along with the Company’s Chief Financial Officer (the Principal Financial Officer), has evaluated the
effectiveness as of December 31, 2017, of the design and operation of the Company’s disclosure controls and procedures, as such
term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based upon that evaluation, the Company’s President
and Chief Executive Officer, along with the Company’s Principal Accounting Officer concluded that the Company’s disclosure
controls and procedures were effective as of December 31, 2017.
There have been no material changes in the Company’s internal control over financial reporting during the fourth quarter of 2017
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No.
5), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the
normal course of performing their assigned functions.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.
Management’s assessment did not identify any material weaknesses in the Company’s internal control over financial reporting.
In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework in 2013. Because there were no material weaknesses discovered,
management believes that, as of December 31, 2017, the Company’s internal control over financial reporting was effective.
Dixon Hughes Goodman LLP, an independent registered public accounting firm, has audited the consolidated financial statements
included in this Annual Report and has issued a report on the effectiveness of our internal control over financial reporting, which
report is included in “Item 9A – Controls and Procedures” of this Annual Report on Form 10-K.
Date:
3/8/2018
Date:
3/8/2018
/s/ Larry F. Mazza
Larry F. Mazza
President, CEO and Director
(Principal Executive Officer)
/s/ Donald T. Robinson
Donald T. Robinson
Executive Vice President and CFO
(Principal Financial and Accounting Officer)
116
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Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
117
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of MVB Financial Corp.
Opinion on Internal Controls Over Financial Reporting
We have audited MVB Financial Corp. and Subsidiary's (the “Company”) internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion,
MVB Financial Corp. and Subsidiary maintained, in all material aspects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) ("PCAOB"), the consolidated financial statements of MVB Financial Corp. and Subsidiary
as of December 31, 2017 and 2016, and for each of the three years in the period ended December 31, 2017,
and our report dated March 8, 2018, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial reporting based on our audit. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk and
performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
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directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Gaithersburg, Maryland
March 8, 2018
119
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ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
This information is omitted from this report pursuant to General Instruction G.(3) of Form 10-K as the Company will file with the
SEC its definitive Proxy Statement pursuant to Regulation 14A of the Exchange Act for the 2018 annual meeting of shareholders
(the “Proxy Statement”) not later than 120 days after December 31, 2017. The applicable information appearing in the Proxy
Statement is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
This information is omitted from this report pursuant to General Instruction G.(3) of Form 10-K as the Company will file with the
SEC its definitive Proxy Statement not later than 120 days after December 31, 2017. The applicable information appearing in the
Proxy Statement is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
This information is omitted from this report (with the exception of the equity compensation plan information, which is reported in
Item 5 of this report and is incorporated herein by reference) pursuant to General Instruction G.(3) of Form 10-K as the Company
will file with the SEC its definitive Proxy Statement not later than 120 days after December 31, 2017. The applicable information
appearing in the Proxy Statement is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
This information is omitted from this report pursuant to General Instruction G.(3) of Form 10-K as the Company will file with the
SEC its definitive Proxy Statement not later than 120 days after December 31, 2017. The applicable information appearing in the
Proxy Statement is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
This information is omitted from this report pursuant to General Instruction G.(3) of Form 10-K as the Company will file with the
SEC its definitive Proxy Statement not later than 120 days after December 31, 2017. The applicable information appearing in the
Proxy Statement is incorporated by reference.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
Management’s Annual Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm - Dixon Hughes Goodman LLP
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
(b) Exhibits
Exhibits filed with this Annual Report on Form 10-K are attached hereto. For a list of such exhibits, see “Exhibit Index”
below. The Exhibit Index specifically identifies each management contract or compensatory plan required to be filed as
an exhibit to this Form 10-K.
121
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SIGNATURES
Date:
3/8/2018
MVB Financial Corp.
By:
/s/ Larry F. Mazza
Larry F. Mazza
President, CEO and Director
(Principal Executive Officer)
POWER OF ATTORNEY AND SIGNATURES
Know all persons by the presents, that each person whose signature appears below constitutes and appoints Larry F. Mazza or
Donald T. Robinson or either of them, as attorney-in-fact, with each having the power of substitution, for him or her in any and
all capacities, to sign any amendment to this Form 10-K and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Federal Deposit Insurance Corporation hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this Form 10-K has been signed below by the
following person on behalf of the registrant in the capacities and on the dates indicated.
/s/ Larry F. Mazza
Larry F. Mazza, President, CEO and Director
(Principal Executive Officer)
/s/ Donald T. Robinson
Donald T. Robinson, Executive Vice President and CFO
(Principal Financial and Accounting Officer)
/s/ Stephen R. Brooks
Stephen R. Brooks, Chairman
/s/ David B. Alvarez
David B. Alvarez, Vice Chairman
/s/ James J. Cava, Jr.
James J. Cava, Jr., Director
/s/ Harry E. Dean III
Harry E. Dean III, Director
/s/ John W. Ebert
John W. Ebert, Director
/s/ Daniel W. Holt
Daniel W. Holt, Director
/s/ Gary A. LeDonne
Gary A. LeDonne, Director
/s/ Kelly R. Nelson
Kelly R. Nelson, Director
/s/ J. Christopher Pallotta
J. Christopher Pallotta, Director
122
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Date: 3/8/2018
Table of Contents
Exhibit
Number
3.1
Articles of Incorporation, as amended
Description
Amended and Restated Bylaws
EXHIBIT INDEX
Exhibit Location
Annual Report Form 10-K, File No. 000-50567, filed March
16, 2015, and incorporated by reference herein
Form 8-K, File No. 000-50567, filed January 18, 2017, and
incorporated by reference herein
3.2
4.1
4.2
4.3
10.2†
10.3†
10.4
10.8
10.9
Specimen of stock certificate representing MVB
Financial Corp. common stock.
Form S-3 Registration Statement, File No. 333-208949, filed
January 11, 2016, and incorporated by reference herein
Form of Certificate for the SBLF Preferred Stock
Form of Subscription Rights Certificate
10.1†
MVB Financial Corp. 2003 Stock Incentive Plan
Form 8-K, File No. 000-50567, filed September 12, 2011 and
incorporated by reference herein
Form 8-K, File No. 000-50567, filed March 13, 2017, and
incorporated by reference herein
Form SB-2 Registration Statement, File No. 333-120931,
filed December 2, 2004, and incorporated by reference herein
MVB Financial Corp. 2013 Stock Incentive Plan, as
amended
Filed herewith
MVB Financial Corp. 2018 Annual Senior Executive
Performance Incentive Plan
Lease Agreement with Essex Properties, LLC for
land occupied by Bridgeport Branch
10.5†
Employment Agreement of Larry F. Mazza
10.6†
Employment Agreement of Donald T. Robinson
10.7†
Offer Letter for Donald T. Robinson
Asset Purchase Agreement by and among MVB
Insurance, LLC, MVB Financial Corp., and USI
Insurance Services LLC
Form 8-K, File No. 000-50567, filed February 23, 2018 and
incorporated by reference herein
Form SB-2 Registration Statement, File No. 333-120931,
filed December 2, 2004, and incorporated by reference herein
Form 8-K/A, File No. 000-50567, filed January 24, 2014 and
incorporated by reference herein
Form 8-K, File No. 000-50567, filed December 3, 2015 and
incorporated by reference herein
Form 8-K, File No. 000-50567, filed December 3, 2015 and
incorporated by reference herein
Quarterly Report on Form 10-Q, File No. 000-50567, filed
November 3, 2016, and incorporated by reference herein
Severance Agreement and Release of Claims by and
between MVB Financial Corp. and Bret S. Price
Quarterly Report on Form 10-Q, File No. 000-50567, filed
November 3, 2016, and incorporated by reference herein
10.10
Form of Securities Purchase Agreement
Form 8-K, File No. 000-50567, filed December 6, 2016, and
incorporated by reference herein
10.11
10.12
10.13
11
14
21
23.1
Investment Agreement between MVB Financial
Corp. and Larry F. Mazza
Form 8-K, File No. 000-50567, filed March 13, 2017 and
incorporated by reference herein
Third Addendum to the Employment Agreement
with MVB Financial Corp. and MVB Bank, Inc. and
H. Edward Dean, III, President and Chief Executive
Officer of Potomac Mortgage Group, Inc., doing
business as MVB Mortgage
Fourth Addendum to the Employment Agreement
with MVB Financial Corp. and MVB Bank, Inc. and
H. Edward Dean, III, President and Chief Executive
Officer of Potomac Mortgage Group, Inc., doing
business as MVB Mortgage
Statement Regarding Computation of Earnings per
Share
Code of Ethics
Subsidiary of Registrant
Consent of Independent Registered Public
Accounting Firm
Quarterly Report on Form 10-Q, File No. 000-50567, filed
July 31, 2017, and incorporated by reference herein
Quarterly Report on Form 10-Q, File No. 000-50567, filed
July 31, 2017, and incorporated by reference herein
Filed herewith
Filed herewith
Filed herewith
Filed herewith
24
Power of Attorney
Contained in signature page to this Annual Report on Form
10-K
31.1
Certificate of Principal Executive Officer pursuant to
Section 302 of Sarbanes Oxley Act of 2002
Filed herewith
123
Table of Contents
EXHIBIT INDEX
31.2
32.1*
101
Certificate of Principal Financial Officer pursuant to
Section 302 of Sarbanes Oxley Act of 2002
Certificate of Principal Executive Officer &
Principal Financial Officer pursuant to Section 906
of Sarbanes Oxley Act of 2002
Interactive data files pursuant to Rule 405 of
Regulation S-T
Filed herewith
Filed herewith
Filed herewith
(*) In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's
Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the
certifications furnished in Exhibits 32.1 hereto are deemed to accompany this Form 10-K and will not be deemed "filed" for purposes
of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
(†) Management contract or compensatory plan
124
MVB FINANCIAL CORP.
2013 STOCK INCENTIVE PLAN (AMENDED)
Exhibit 10.2
SECTION 1
Statement of Purpose
1.1
Corp. (the "Company") to become effective at the Effective Time as defined herein in order to enhance shareholder value by:
The MVB Financial Corp. 2013 Stock Incentive Plan (Amended), (the "Plan") has been established by MVB Financial
(a)
Attracting and retaining well qualified directors and executive, managerial and other employees;
(b)
goals;
Motivating participating directors and employees, by means of appropriate incentives, to achieve long-range
(c)
banking institutions; and
Providing incentive compensation opportunities that are competitive with those of other similarly situated
Connecting a Participant's interests with those of the Company's other stockholders through compensation based
(d)
on the Company's capital stock thereby promoting the long-term financial interest of the Company, including the growth
in value of the Company's equity and enhancement of long-term stockholder return.
2.1
term:
Unless the context indicates otherwise, the following terms shall have the meaning set forth below opposite each respective
SECTION 2
Definitions
(a)
Acquiring Corporation. The term "Acquiring Corporation" means the surviving, continuing successor or
purchasing corporation in an acquisition or merger with the Company in which the Company is not the surviving
corporation.
(b)
Award. The term "Award" means any award or benefit granted to any Participant under the Plan, including,
without limitation, the grant of Options granted under Section 6, Restricted Stock Awards granted under Section 7,
Restricted Stock Units granted under Section 8, Merit Awards of Stock granted under Section 10, and Stock acquired
through purchase under Section 9. Any Award may also be designated as a Performance-Based Award by the Committee
as set forth in Section 20.
(c)
Committee or other committees of the Board acting on behalf of the Board.
Board. The term "Board" means the Board of Directors of the Company acting as such but shall not include the
(d)
Cause. The term "Cause" means (a) the continued failure by the Participant to substantially perform his or her
duties with the Company (other than any such failure resulting from his or her incapacity due to physical or mental
illness), or (b) the engaging by the Participant in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise.
(e)
Change in Control. A "Change in Control" shall be deemed to have occurred (a) upon the approval of the Board
(or if approval of the Board is not required as a matter of law, the shareholders of the Company) of (1) any consolidation
or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which
shares of Stock would be converted into cash, securities or other property, other than a merger in which the holders of
the Stock immediately prior to the merger will have more than 50% of the ownership of common stock of the surviving
corporation immediately after the merger, (2) any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company, or (3) adoption of any plan or proposal for
the liquidation or dissolution of the Company, or (b) when any person, other than a Significant Stockholder, or any
subsidiary of the Company or employee benefit plan or trust maintained by the Company or any of its subsidiaries, shall
become the beneficial owner, directly or indirectly, of more than 25% of the Stock outstanding at the time, without the
prior approval of the Board.
1
Notwithstanding the foregoing, to the extent that any amount constituting Section 409A Deferred Compensation
would be payable under this Plan by reason of a Change in Control, such amount shall become payable only if the event
constituting a Change of Control would also constitute a change in ownership or effective control of the Company or a
change in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A.
Similar rules shall apply to the extent any Change in Control would extend or modify Section 409A Deferred Compensation
or would accelerate or defer vesting of Section 409A Deferred Compensation and such change would constitute an
impermissible acceleration or deferral of compensation within the meaning of Section 409A.
(f)
of the Code shall include reference to any successor provision of the Code.
Code. The term "Code" means the Internal Revenue Code of 1986, as amended. A reference to any provision
(g)
of Subsection 4.2.
Committee. The term "Committee" means the committee of the Board selected in accordance with the provisions
(h)
Company. The term "Company" means MVB Financial Corp., a West Virginia corporation.
(i)
the meaning of Section 162(m) of the Code.
Covered Employee. The term “Covered Employee means an Employee who is a “Covered Employee” within
(j)
Date of Termination. A Participant's "Date of Termination" shall be the date on which his or her employment
with all Employers and Related Companies terminates for any reason; provided that for purposes of this Plan only, a
Participant's employment shall not be deemed to be terminated by reason of a transfer of the Participant between the
Company and a Related Company (included Employers) or between two Related Companies (including Employers); and
further provided that a Participant's employment shall not be considered terminated by reason of the Participant's leave
of absence from an Employer or a Related Company that is approved in advance by the Participant's Employer.
(k)
have a "Disability" or be “Disabled” if either:
Disability or Disabled. Except as otherwise provided by the Committee, a Participant shall be considered to
(a)
the Participant is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, or
(b)
the Participant is, by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous period of not less than twelve (12)
months, receiving income replacement benefits for a period of not less than three (3) months under an accident
and health plan covering employees of the Participant’s employer.
(l)
the Plan.
Effective Date. The term "Effective Date" means the date on which the shareholders of the Company approve
(m)
Employee. The term "Employee" means a person with an employment relationship with an Employer.
Employer. The Company and any Subsidiary which, with the consent of Company, participates in the Plan for
(n)
the benefit of its eligible Employees are referred to collectively as the "Employers" and individually as an "Employer".
(o)
Exercise Price. The term "Exercise Price" means, with respect to each share of Stock subject to an Option, the
price fixed by the Committee at which such share may be purchased from the Company pursuant to the exercise of such
Option, which price at no time may be less than 100% of the Fair Market Value (or in the case of a Ten Percent Stockholder,
less than 110% of the Fair Market Value) of the Stock on the date the Option is granted.
(p)
determined in good faith by the Committee, which determination shall be deemed to be conclusive.
Fair Market Value. The term "Fair Market Value" means with respect to each share of stock, the value as
(q)
consanguinity or adoptive relationships, the Participant's spouse, children, stepchildren, siblings and grandchildren.
Immediate Family. With respect to a Participant, the term "Immediate Family" means, whether through
(r)
Incentive Stock Option. The term "Incentive Stock Option" means any Incentive Stock Option granted under
2
the Plan.
(s)
Merit Award. The term "Merit Award" means any Merit Award granted under the Plan.
(t)
granted under the Plan.
Non-Qualified Stock Option. The term "Non-qualified Stock Option" means any Non- Qualified Stock Option
(u)
the Plan.
Option. The term "Option" means any Incentive Stock Option or Non-Qualified Stock Option granted under
(v)
the Code.
Outside Director. The term "Outside Director" means a person who qualifies as such under Section 162(m) of
(w)
or an Employee who has been granted an Award under the Plan.
Participant. The term "Participant" means a member of the Board of Directors of the Company or any subsidiary
(x)
Performance-Based Award. The term “Performance-Based Award” means any Award granted to a Covered
Employee that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code and the
regulations promulgated thereunder.
(y)
Performance Criteria. The term “Performance Criteria” means the criteria that the Committee selects for
purposes of establishing the Performance Goal or Performance Goals for an individual for a Performance Cycle. The
Performance Criteria (which shall be applicable to the organizational level specified by the Committee, including, but
not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish
Performance Goals are limited to the following: total shareholder return, earnings before interest, taxes, depreciation and
amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the
market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions
or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free
cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense,
margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market
shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental
increase or as compared to results of a peer group. The Committee may appropriately adjust any evaluation performance
under a Performance Criterion to exclude any of the following events that occurs during a Performance Cycle: (i) asset
write-downs or impairments, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law,
accounting principles or other such laws or provisions affecting reporting results, (iv) accruals for reorganizations and
restructuring programs, (v) any extraordinary non- recurring items, including those described in the Financial Accounting
Standards Board’s authoritative guidance and/or in management’s discussion and analysis of financial condition of
operations appearing the Company’s annual report to stockholders for the applicable year, and (vi) any other extraordinary
items adjusted from the Company U.S. GAAP results.
Performance Cycle. The term “Performance Cycle” means one or more periods of time, which may be of
(z)
varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance
Criteria will be measured for the purpose of determining a grantee’s right to and the payment of an Award, the vesting
and/or payment of which is subject to the attainment of one or more Performance Goals. Each such period shall not be
less than 12 months.
(aa)
established in writing by the Committee for a Performance Cycle based upon the Performance Criteria.
Performance Goals. The term “Performance Goals” means, for a Performance Cycle, the specific goals
(bb)
may be from time to time amended or revised.
Plan. The term "Plan" shall mean the MVB Financial Corp. 2013 Stock Incentive Plan (Amended) as the same
(cc)
Company that is intended to be qualified under Section 401(a) of the Code.
Qualified Retirement Plan. The term "Qualified Retirement Plan" means any plan of an Employer or a Related
(dd)
Related Companies. The term "Related Companies" means any Significant Stockholder and any companies
controlled by such Significant Stockholder; Subsidiaries; and any other company during any period in which it is a
Subsidiary or a division of the Company, including any entity acquired by, or merged with or into, the Company or a
Subsidiary.
3
Restricted Stock Award. Restricted Stock Award” means an Award granted to a Participant under Section 7 of
Restricted Stock Unit. “Restricted Stock Unit” means an Award granted to a Participant under Section 8 of the
(ee)
the Plan.
(ff)
Plan.
Restriction Period. “Restriction Period” means the period when a Restricted Stock Award or Restricted Stock
(gg)
Unit is subject to forfeiture based upon continued employment over a period of time, the achievement of performance
criteria, the occurrence of other events and/or the satisfaction of nondisclosure and protection of business provisions as
determined by the Committee, in its discretion.
(hh)
Retirement. "Retirement" of a Participant means the occurrence of a Participant's Date of Termination under
circumstances that constitute such Participant's retirement at normal or early retirement age under the terms of the Qualified
Retirement Plan of Participant's Employer that is extended to the Participant immediately prior to the Participant's Date
of Termination or, if no such plan is extended to the Participant on his or her Date of Termination, under the terms of any
applicable retirement policy of the Participant's Employer.
(ii)
Section 409A means Section 409A of the Code.
(jj)
deferred compensation subject to and not exempted from the requirements of Section 409A.
Section 409A Deferred Compensation means compensation provided pursuant to the Plan that constitutes
(kk)
immediately prior to the Effective Date, owned more than 5% of the capital stock of the Company.
Significant Stockholder. The term "Significant Stockholder" means any shareholder of the Company who,
(ll)
Stock. The term "Stock" means the shares of capital stock of the Company, $1.00 par value per share.
(mm)
of the Code Section 424(f).
Subsidiary. The term "Subsidiary" means any future subsidiary corporation of the Company within the meaning
(nn)
Ten Percent Stockholder. The term “Ten Percent Stockholder” means any recipient of an Award pursuant to
this Plan who, at the time of such Award owns, directly or indirectly, by virtue of the ownership attribution provisions of
Section 424(d) of the Code more than 10 percent of the total combined voting power of all classes of the capital stock of
the Company.
(oo)
Tax Date. The term "Tax Date" means the date a withholding tax obligation arises with respect to an Award.
SECTION 3
Eligibility
3.1
Subject to the discretion of the Committee and the terms and conditions of the Plan, the Committee shall determine and
designate from time to time, the members of the Board of Directors of the Company or a subsidiary and Employees who will be
granted one or more Awards under the Plan. Incentive Stock Options may only be granted to Employees of the Company or a
subsidiary.
SECTION 4
Operation and Administration
4.1
Incentive Stock Option may be granted under the Plan after May 20, 2023.
The Plan shall be unlimited in duration and remain in effect until termination by the Board; provided, however, that no
4.2
The Plan shall be administered by the Committee which shall consist of two or more members of the Board who are
Outside Directors. Plenary authority to manage and control the operation and administration of the Plan shall be vested in the
Committee, which authority shall include, but shall not be limited to:
(a)
Subject to the provisions of the Plan, the authority and discretion to select persons to receive Awards, to determine
4
the time or times of receipt of Awards, to determine the types of Awards and the number of shares covered by the Awards,
and to establish the terms and conditions, and other provisions of such Awards, including without limitation whether
Shares subject to an Award shall be subject to a right of first refusal as referred to in Section 5.3 below. In making such
Award determinations, the Committee may take into account the nature of services rendered by the respective Employee,
his or her present and potential contribution to the Company's success and such other factors as the Committee deems
relevant.
The authority and discretion to interpret the Plan and the Awards granted under the Plan, to establish, amend
(b)
and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements made
pursuant to the Plan, to make all other determinations that it deems necessary or advisable for the administration of the
Plan and to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award, in each
case, in the manner and to the extent the Committee deems necessary or advisable to carry it into effect.
4.3
Any interpretation of the Plan by the Committee and any decision made by it under the Plan shall be final and binding
on all persons. The express grant in the Plan of any specific power to the Committee shall not be construed as limiting any power
or authority of the Committee.
4.4
The Committee may only act at a meeting by unanimity if comprised of two members, and otherwise by a majority of
its members. Any action of the Committee may be taken without a meeting by the unanimous written consent of its members. In
addition, the Committee may authorize one or more of its members or any officer of an Employer to execute and deliver documents
and perform other administrative acts pursuant to the Plan.
4.5
No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in
connection with the administration of the Plan unless attributable to his or her own fraud or gross misconduct. The Committee,
the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified
by the Employers against any and all liabilities, losses, costs, and expenses (including legal fees and expenses) of whatsoever kind
and nature which may be imposed on, incurred by, or asserted against, the Committee or its members or authorized delegates by
reason of the performance of any action pursuant to the Plan if the Committee or its members or authorized delegates did not act
in willful violation of the law or regulation under which such liability, loss, cost or expense arises. This indemnification shall not
duplicate but may supplement any coverage available under any applicable insurance policy, contract with the indemnitee or the
Company's Articles of Incorporation or By-laws.
SECTION 5
Shares Available Under the Plan
The shares of Stock with respect to which Awards may be made under the Plan shall be shares of currently authorized
5.1
but unissued or treasury shares acquired by the Company, including shares purchased in the open market or in private transactions.
Subject to the provisions of Section 10, the total number of shares of Stock available for grant of Awards, including Awards granted
under the MVB Financial Corp. 2003 Stock Incentive Plan, shall not exceed one million, one hundred thousand (1,1000,000)
shares of Stock. Except as otherwise provided herein, if any Award shall expire or terminate for any reason without having been
exercised in full, the unissued shares of Stock subject thereto (whether or not cash or other consideration is paid in respect of such
Award) shall again be available for the purposes of the Plan. Any shares of Stock which are used as full or partial payment to the
Company upon exercise of an Award shall also be available for purposes of the Plan.
5.2
the Company, whether statutory or otherwise.
Shares of Stock issued by the Company pursuant to this Plan shall be free of any preemptive rights of stockholders of
5.3
Shares of stock issued by the Company pursuant to this Plan may, at the discretion of the Committee, be issued subject
to a right of first refusal on the part of the Company to purchase such shares in the event the Participant, or his or her heirs,
successors, executors, administrators, or assigns should ever desire to sell, transfer, assign, pledge, or otherwise dispose of such
shares, in whole or in part (“a Disposition”). In any such event, the Participant or such heir, executor, administrator, or assign (a
“Disposing Participant”) shall notify the Company of such desire and the Company shall have, for a period of thirty (30) days
following receipt of such notice, the right and option to purchase such shares upon the same terms and conditions and at the same
price as the Disposing Participant proposes to dispose of such shares. If the Company desires to exercise its right and option, it
shall so notify the Disposing Participant of such desire within said thirty (30) day period. In the event the proposed Disposition
is for consideration other than cash, and the Company and the Disposing Participant cannot agree on the cash equivalent to be
paid by the Company to the Disposing Participant, the Disposing Participant may dispose of the shares, but the shares shall remain
subject to Company’s right of first refusal until such time as they are proposed to be disposed of for cash and the Company elects
5
not to exercise its right of first refusal. Shares subject to a right of first refusal shall contain the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST
REFUSAL HELD BY MVB FINANCIAL CORP. PURSUANT TO THE MVB FINANCIAL CORP. STOCK INCENTIVE
PLAN. A COPY OF THE MVB FINANCIAL CORP. STOCK INCENTIVE PLAN IS AVAILABLE FOR INSPECTION
AT THE OFFICE OF THE CORPORATION.
SECTION 6
Options
The grant of an Option under this Section 6 entitles the Participant to purchase shares of Stock at an Exercise Price fixed
6.1
at the time the Option is granted, or at a price determined under a method established at the time the Option is granted, subject to
the terms of this Section 6. Options granted under this Section 6 may be either Incentive Stock Options or Non-Qualified Stock
Options, but subject to Sections 9 and 14, shall not be exercisable for at least six months from the date of grant, as determined in
the discretion of the Committee. An Incentive Stock Option is an Option that is intended to satisfy the requirements applicable to
an "incentive stock option" described in Section 422(b) of the Code. A Non-Qualified Stock Option is an Option that is not intended
to be an "incentive stock option" as that term is described in Section 422(b) of the Code.
The Committee shall designate the persons to whom Options are to be granted under this Section 6 and shall determine
6.2
the number of shares of Stock to be subject to each such Option. To the extent that the aggregate Fair Market Value of Stock with
respect to which Incentive Stock Options are exercisable for the first time by any individual during any calendar year (under all
plans of the Company and all Related Companies) exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options,
but only to the extent required by Section 422 of the Code.
6.3
shall be subject to the following terms of this Subsection 6.3:
The determination and payment of the Exercise Price of a share of Stock under each Option granted under this Section
The Exercise Price shall be established by the Committee or shall be determined by a method established by
(a)
the Committee at the time the Option is granted; provided, however, that in no event shall the Exercise Price per share
be less than the Fair Market Value per share on the date of the grant (or in the case of a Ten Percent Stockholder, less
than 110% of the Fair Market Value);
(b)
The full Exercise Price of each share of Stock purchased upon the exercise of any Option shall be paid at the
time of such exercise and, as soon as practicable thereafter, a certificate representing the shares so purchased shall be
delivered to the person entitled thereto; and
(c)
The Exercise Price shall be paid, in the sole discretion of the Committee, in cash, in shares of previously acquired
Stock (valued at Fair Market Value as of the day of exercise), through a combination of cash and Stock (so valued), or
through means of a “net settlement,” whereby the Exercise Price will not be due in cash and where the number of shares
of Stock issued upon such exercise will be equal to (A) the product of (i) the number of shares of Stock as to which the
Option is then being exercised, and (ii) the excess, if any, of (a) the then current Fair Market Value per share over (b) the
Exercise Price per share of Stock as to which the Option is then being exercised, divided by (B) then then current Fair
Market Value per share of Stock. For example, where the Exercise Price per share of Stock as to which an Option is being
exercised is $1, the then current Fair Market Value of a share of Stock is $10, and the Option is being exercised as to one
hundred (100) shares of Stock, the foregoing formula would result in ninety (90) shares of Stock being issued by means
of a net settlement.
6.4
Except as otherwise expressly provided in the Plan, the terms and conditions relating to exercise of an Option shall be
established by the Committee, and may include, without limitation, conditions relating to completion of a specified period of
service, achievement of performance standards prior to exercise of the Option, or achievement of Stock ownership objectives by
the Participant. Options may be exercised in whole or in part during their term if otherwise in accordance with the terms of the
Plan, the Award Agreement, and this Section 6; provided, however, that no Option may be exercised by a Participant after the
expiration date applicable to that Option. The Committee may also designate any Option granted pursuant to this Section 6 as a
Performance-Based Award subject to the provisions of Section 18 below.
6.5
more than ten years after the date of grant.
The exercise period of any Option shall be determined by the Committee but the term of any Option shall not extend
6
SECTION 7
Restricted Stock Awards
Grant of Restricted Stock Awards. A Restricted Stock Award may be granted to any Participant, subject to the provisions
7.1
of the Plan and such other terms and conditions as it may determine. Restricted Stock Awards may constitute Performance-Based
Awards. Restricted Stock Awards shall be awarded in such number and at such times during the term of the Plan as the Committee
shall determine. Each Restricted Stock Award may be evidenced in such manner as the Committee deems appropriate, including,
and without limitation, a book-entry registration or issuance of a stock certificate or certificates, and an Award Agreement setting
forth the terms of such Restricted Stock Award.
7.2
Conditions of Restricted Stock Awards. The grant of a Restricted Stock Award shall be subject to the following:
7.3
Restriction Period. The Committee shall determine the Restriction Period(s) that apply to the shares of Stock covered
by each Restricted Stock Award or portion thereof. At the end of the Restriction Period, restrictions imposed by the Committee
shall lapse with respect to the shares of Stock covered by the Restricted Stock Award or portion thereof.
7.4
Restriction on Transfer. The holder of a Restricted Stock Award may not sell, transfer, pledge, exchange, hypothecate,
or otherwise dispose of the shares of Stock represented by the Restricted Stock Award during the applicable Restriction Period.
The Committee shall impose such other restrictions and conditions on any shares of Common Stock covered by a Restricted Stock
Award as it may deem advisable including, without limitation, restrictions under applicable federal or state securities laws, and
may legend the certificates representing the Restricted Stock Award to give appropriate notice of such restrictions.
7.5
Stockholder Rights. During any Restriction Period, the Committee may, in its discretion, grant to the holder of a Restricted
Stock Award all or any of the rights of a stockholder with respect to the shares, including, but not by way of limitation, the right
to vote such shares. At the discretion of the Committee, dividends or other distributions with respect to Restricted Stock Award
may, pursuant to the terms of such award, be either currently paid to Participant or withheld by the Company and credited to the
Participant’s Account; provided that any dividends or other distributions with respect to Restricted Stock Awards subject to vesting
based on performance shall vest only if and to the extent that the underlying Restricted Stock Award vests, as determined by the
Committee. Any dividends or distributions so withheld by the Committee and attributable to any particular share of a Restricted
Stock Award shall be subject to the same restrictions on transferability as the shares of the Restricted Stock Award with respect
to which they were paid, and, if such shares are forfeited, the Participant shall have no right to such dividends or distributions.
SECTION 8
Restricted Stock Units
8.1
Grant of Restricted Stock Units. Restricted Stock Units may be granted any Participant, subject to the provisions of the
Plan and such other terms and conditions as it may determine. Restricted Stock Units may constitute Performance- Based Awards.
Restricted Stock Units shall be similar to Restricted Stock Awards except that no shares of Common Stock are actually awarded
to the Participant on the date of grant. Restricted Stock Units shall be awarded in such number and at such times during the term
of the Plan as the Committee shall determine.
8.2
Conditions of Restricted Stock Units. The grant of a Restricted Stock Unit shall be subject to the following:
Restriction Period. the Committee shall determine the Restriction Period(s) that apply to the shares of Stock
(a)
covered by each Award of Restricted Stock Units or portion thereof. At the end of the Restriction Period, the restrictions
imposed by the Committee shall lapse and the Award shall be paid as specified in Section 8.2(c) below
(b)
Restriction on Transfer. Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Restriction Period established by the Committee,
or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in
the Award Agreement or otherwise.
Form of Payment. Restricted Stock Units shall be paid in cash, shares of Common Stock, or a combination of
(c)
cash and shares as established by the Committee in the Award Agreement, no later than 75 days after the lapse of the
Restriction Period unless otherwise required by applicable law.
(d)
Award of Restricted Stock Units.
Stockholder Rights. Participants shall not have any rights as a stockholder of the Company with respect to an
7
SECTION 9
Stock Purchase Program
9.1
The Committee may, from time to time, establish one or more programs under which Employees or members of the Board
of Directors of the Company or any subsidiary will be permitted to purchase shares of Stock under the Plan, and shall designate
the persons eligible to participant under such Stock purchase programs. The purchase price of shares of Stock available under
such programs, and other terms and conditions of such programs, shall be established by the Committee. The purchase price may
not be less than 85% of the Fair Market Value of the Stock at the time of purchase (or, in the Committee's discretion, the average
Fair Market value over a period determined by the Committee), and further provided that if newly issued shares of Stock are sold,
the purchase price may not be less than the aggregate par value of such newly issued shares of Stock.
9.2
The Committee may impose such restrictions with respect to shares purchased under this Section 7, as the Committee,
in its sole discretion, determines to be appropriate. The Committee may also designate any shares purchased under this Section 7
as a Performance-Based Award subject to the provisions of Section 18 below.
SECTION 10
Merit Awards
10.1
The Committee may from time to time make an Award of Stock under the Plan to selected Employees or members of the
Board of Directors of the Company or any subsidiary for such reasons and in such amounts as the Committee, in its sole discretion,
may determine. The consideration to be paid by an Employee for any such Merit Award, if any, shall be fixed by the Committee
from time to time. The Committee may also designate any Award of Stock granted pursuant to this Section 8 as a Performance-
Based Award subject to the provisions of Section 18 below.
SECTION 11
Termination of Employment
11.1
If a Participant's employment is terminated by the Participant's Employer for Cause or if the Participant's employment
is terminated by the Participant without the written consent and approval of the Participant's Employer, all of the Participant's
unvested Awards shall be immediately forfeited and exercisable Options shall be forfeited after 90 days from the Participant's
Termination Date.
If a Participant's Date of Termination occurs by reason of death, Disability, or Retirement, all Options outstanding
11.2
immediately prior to the Participant's Date of Termination shall immediately become exercisable and shall be exercisable until
one year from the Participant's Date of Termination and thereafter shall be forfeited if not exercised, and all restrictions on any
Awards outstanding immediately prior to the Participant's Date of Termination shall immediately lapse. Options which are or
become exercisable at the time of a Participant's death may be exercised by the Participant's designated beneficiary or, in the
absence of such designation, by the person to whom the Participant's rights will pass by will or the laws of descent and distribution.
11.3
Options which are or become exercisable by reason of the Participant's employment being terminated by the Participant's
Employer for reasons other than Cause or by the Participant with the consent and approval of the Participant's Employer, shall be
exercisable until 120 days from the Participant's Termination Date and shall thereafter be forfeited if not exercised.
11.4
Except to the extent the Company shall otherwise determine, if, as a result of a sale or other transaction (other than a
Change in Control), a Participant's Employer ceases to be a Related Company (and the Participant's Employer is or becomes an
entity that is separate from the Company), the occurrence of such transaction shall be treated as the Participant's Date of Termination
caused by the Participant's employment being terminated by the Participant's Employer for a reason other than Cause.
11.5
Notwithstanding the foregoing provisions of this Section 9, the Committee may, with respect to any Awards of a Participant
(or portion thereof) that are outstanding immediately prior to the Participant's Date of Termination, determine that a Participant's
Date of Termination will not result in forfeiture or other termination of the Award, or may extend the period during which any
Options may be exercised, but shall not extend such period beyond the original expiration date set forth in the Award.
8
SECTION 12
Adjustments to Shares
If the Company shall effect a reorganization, merger, or consolidation, or similar event or effect any subdivision or
12.1
consolidation of shares of Stock or other capital readjustment, payment of stock dividend, stock split, spin- off, combination of
shares or recapitalization or other increase or reduction of the number of shares of Stock outstanding without receiving compensation
therefor in money, services or property, then the Committee shall appropriately adjust (a) the number of shares of Stock available
under the Plan, (b) the number of shares of Stock available under any individual or other limitations under the Plan, (c) the number
of shares of Stock subject to outstanding Awards and (d) the per-share price under any outstanding Award to the extent that the
Participant is required to pay a purchase price per share with respect to the Award.
If the Committee determines that an adjustment in accordance with the provisions of Subsection 10.1 would not be fully
12.2
consistent with the purposes of the Plan or the purposes of the outstanding Awards under the Plan, the Committee may make such
other adjustments, if any, that the Committee reasonably determines are consistent with the purposes of the Plan and/or the affected
Awards.
12.3
To the extent that any reorganization, merger, consolidation, or similar event or any subdivision or consolidation of shares
of Stock or other capital readjustment, payment of stock dividend, stock split, spin-off, combination of shares or recapitalization
or other increase or reduction of the number of shares of Stock hereunder is also accompanied by or related to a Change in Control,
the adjustment hereunder shall be made prior to the acceleration contemplated by Section 14.
SECTION 13
Transferability and Deferral of Awards
13.1
Awards under the Plan are not transferable except by will or by the laws of descent and distribution. To the extent that a
Participant who receives an Award under the Plan has the right to exercise such Award, the Award may be exercised during the
lifetime of the Participant only by the Participant. Notwithstanding the foregoing, the Committee may, subject to any restrictions
under applicable laws, permit Awards under the Plan (other than an Incentive Stock Option) to be transferred by a Participant for
no consideration to or for the benefit of the Participant's Immediate Family (including, without limitation, to a trust for the benefit
of a Participant's Immediate Family or to a Partnership comprised solely of members of the Participant's Immediate Family),
subject to such limits as the Committee may establish, provided the transferee shall remain subject to all of the terms and conditions
applicable to such Award prior to such transfer.
13.2
The Committee may permit a Participant to elect to defer payment under an Award under such terms and conditions as
the Committee, in its sole discretion, may determine; provided that any such deferral election must be made prior to the time the
Participant has become entitled to payment under the Award.
SECTION 14
Award Agreement
14.1
Each Participant granted an Award pursuant to the Plan shall sign an Award Agreement which signifies the offer of the
Award by the Company and the acceptance of the Award by the Participant in accordance with the terms of the Award and the
provisions of the Plan. Each Award Agreement shall reflect the terms and conditions of the Award. Participation in the Plan shall
confer no rights to continued employment with an Employer nor shall it restrict the right of an Employer to terminate a Participant's
employment at any time for any reason, notwithstanding the fact that the Participant's rights under this Plan may be negatively
affected by such action.
SECTION 15
Tax Withholding
All Awards and other payments under the Plan are subject to withholding of all applicable taxes, which withholding
15.1
obligations shall be satisfied (without regard to whether the Participant has transferred an Award under the Plan) by a cash remittance,
or with the consent of the Committee, through the surrender of shares of Stock which the Participant owns or to which the Participant
is otherwise entitled under the Plan pursuant to an irrevocable election submitted by the Participant to the Company at the office
designated for such purpose. The number of shares of Stock needed to be submitted in payment of the taxes shall be determined
using the Fair Market Value as of the applicable tax date rounding down to the nearest whole share.
9
SECTION 16
Change in Control
After giving effect to the provisions of Section 10 (relating to the adjustment of shares of Stock), and except as otherwise
16.1
provided in the Plan or the Agreement reflecting the applicable Award, upon the occurrence of a Change in Control:
(a)
term of the Option; and
All outstanding Options shall become fully exercisable and may be exercised at any time during the original
(b)
All shares of Stock subject to Awards shall become fully vested and be distributed to the Participant.
SECTION 17
Mergers/Acquisitions
17.1
In the event of any merger or acquisition involving the Company and/or a Subsidiary of the Company and another entity
which results in the Company being the survivor or the surviving direct or indirect parent corporation of the merged or acquired
entity, the Committee may grant Awards under the provisions of the Plan in substitution for awards held by employees or former
employees of such other entity under any plan of such entity immediately prior to such merger or acquisition upon such terms and
conditions as the Committee, in its discretion, shall determine and as otherwise may be required by the Code to ensure such
substitution is not treated as the grant of a new Award for tax or accounting purposes.
In the event of a merger or acquisition involving the Company in which the Company is not the surviving corporation,
17.2
the Acquiring Corporation shall either assume the Company's rights and obligations under outstanding Awards or substitute awards
under the Acquiring Corporation's plans, or if none, securities for such outstanding Awards, and without limiting Section 14, the
Board shall set a date, determined in the Boards sole discretion, prior to such merger or consolidation on which any unexercisable
and/or unvested portion of the outstanding Awards shall be immediately exercisable and vested. The exercise and/or vesting of
any Award that was permissible solely by reason of this Subsection 15.2 shall be conditioned upon the consummation of the merger
or consolidation. Unless otherwise provided in the Plan or the Award, any Awards which are neither assumed by the Acquiring
Corporation nor exercised on or prior to the date of the transaction shall terminate effective as of the effective date of the transaction.
SECTION 18
Termination and Amendment
18.1
The Board may amend or terminate this Plan from time to time; provided, however, that no amendment may
become effective until shareholder approval is obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan or (ii) the amendment changes the class of individuals eligible to become Participants,
provided, however that any modification that may result from adjustments authorized by Section 10 does not require such approval.
No suspension, termination, modification or amendment of the Plan may terminate a Participant's existing Award or materially
and adversely affect a Participant's rights under such Award without the Participant's consent.
SECTION 19
Compliance with Section 409A
19.1
Awards Subject to Section 409A. The provisions of this Article shall apply to any Award or portion thereof that is or
becomes subject to Section 409A, notwithstanding any provision to the contrary contained in the Plan or the Agreement applicable
to such Award.
19.2
Deferral and/or Distribution Elections. Except as otherwise permitted or required by Section 409A, U.S. Treasury
Regulations promulgated pursuant to Section 409A (“Section 409A Regulations”) or other applicable guidance, the following rules
shall apply to any deferral and/or distribution elections (each, an “Election”) that may be permitted or required by the Committee
pursuant to an Award subject to Section 409A:
All Elections must be in writing and specify the amount (or an objective, nondiscretionary formula determining
(a)
the amount) of the distribution in settlement of an Award being deferred, as well as the time and form of distribution as
10
permitted by this Plan.
(b)
All Elections shall be made by the end of the Participant’s taxable year prior to the year in which services
commence for which an Award may be granted to such Participant; provided, however, that if the Award qualifies as
“performance-based compensation” for purposes of Section 409A (and is based on a performance period of at least 12
consecutive months), then the Election may be made no later than six (6) months prior to the end of the performance
period, provided that the Participant’s service is continuous from the later of the beginning of the performance period or
the date on which the performance goals are established through the date such election is made and provided further that
no election may be made after the compensation has become readily ascertainable (as provided by Section 409A
Regulations).
Elections shall continue in effect until a written election to revoke or change such Election is received by the
(c)
Company, except that a written election to revoke or change such Election must be made prior to the last day for making
an Election determined in accordance with paragraph (b) above or as permitted by Section 17.3.
Subsequent Elections. Except as otherwise permitted or required by Section 409A Regulations or other applicable
19.3
guidance, any Award subject to Section 409A which permits a subsequent Election to delay the distribution or change the form
of distribution in settlement of such Award shall comply with the following requirements:
(a)
Election is made;
No subsequent Election may take effect until at least twelve (12) months after the date on which the subsequent
(b)
Each subsequent Election related to a distribution in settlement of an Award not described in Section 17.4(b),
17.4(c) or 17.4(f) must result in a delay of the distribution for a period of not less than five (5) years from the date such
distribution would otherwise have been made; and
(c)
months prior to the date of the first scheduled payment under such distribution.
No subsequent Election related to a distribution pursuant to Section 17.4(d) shall be made less than twelve (12)
19.4
other applicable guidance, no distribution in settlement of an Award subject to Section 409A may commence earlier than:
Distributions Pursuant to Deferral Elections. Except as otherwise permitted or required by Section 409A Regulations or
(a)
(b)
(c)
The Participant’s separation from service (as defined by Section 409A Regulations);
The date the Participant becomes Disabled;
The Participant’s death;
(d)
A specified time (or pursuant to a fixed schedule) that is either (i) specified by the Committee upon the grant of
an Award and set forth in the Agreement evidencing such Award or (ii) specified by the Participant in an Election complying
with the requirements of Section 17.2 and/or 17.3, as applicable;
(e)
the assets of the Company (as defined by Section 409A Regulations); or
A change in the ownership or effective control of the Company or in the ownership of a substantial portion of
(f)
The occurrence of an Unforeseeable Emergency (as defined by Section 409A Regulations).
Notwithstanding anything else herein to the contrary, to the extent that a Participant is a “Specified Employee” (as
defined by Section 409A Regulations) of the Company, no distribution pursuant to Section 17.4(a) in settlement of an
Award subject to Section 409A may be made before the date (the “Delayed Payment Date”) which is six (6) months after
such Participant’s date of separation from service, or, if earlier, the date of the Participant’ death. All such amounts that
would, but for this paragraph, become payable prior to the Delayed Payment Date shall be accumulated and paid on the
Delayed Payment Date.
19.5
Unforeseeable Emergency. The Committee shall have the authority to provide in any Award subject to Section 409A for
distribution in settlement of all or a portion of such Award in the event that a Participant establishes, to the satisfaction of the
Committee, the occurrence of an Unforeseeable Emergency. In such event, the amount(s) distributed with respect to such
Unforeseeable Emergency cannot exceed the amounts reasonably necessary to satisfy such Unforeseeable Emergency plus amounts
necessary to pay taxes or penalties reasonably anticipated as a result of such distribution(s), after taking into account the extent
11
to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation
of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or by
cessation of deferrals under the Plan. All distributions with respect to an Unforeseeable Emergency shall be made in a lump sum
within 90 days of the occurrence of Unforeseeable Emergency and following the Committee’s determination that an Unforeseeable
Emergency has occurred.
The occurrence of an Unforeseeable Emergency shall be judged and determined by the Committee. The Committee’s
decision with respect to whether an Unforeseeable Emergency has occurred and the manner in which, if at all, the distribution in
settlement of an Award shall be altered or modified, shall be final, conclusive and not subject to approval or appeal.
19.6
settlement of such Award in the event that the Participant becomes Disabled.
Disabled. The Committee shall have the authority to provide in any Award subject to Section 409A for distribution in
All distributions payable by reason of a Participant becoming Disabled shall be paid in a lump sum or in periodic
installments as established by the Participant’s Election, commencing within 90 days following the date the Participant becomes
Disabled. If the Participant has made no Election with respect to distributions upon becoming Disabled, all such distributions shall
be paid in a lump sum within 90 days following the date the Participant becomes Disabled.
19.7
Death. If a Participant dies before complete distribution of amounts payable upon settlement of an Award subject to
Section 409A, such undistributed amounts shall be distributed to his or her beneficiary under the distribution method for death
established by the Participant’s Election, or, if the Participant has made no Election with respect to distributions upon death, in a
lump sum, within 90 days following the Participant’s death and following receipt by the Committee of satisfactory notice and
confirmation of the Participant’s death.
No Acceleration of Distributions. Notwithstanding anything to the contrary herein, this Plan does not permit the
19.8
acceleration of the time or schedule of any distribution under this Plan to any Award subject to Section 409A, except as provided
by Section 409A and Section 409A Regulations.
SECTION 20
Performance-Based Awards
The Committee may designate any Award as a Performance-Based Award, provided that said Performance-Based Award
20.1
shall be payable only upon the attainment of Performance Goals that are established by the Committee and related to one or more
of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee.
The Committee shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any
Performance Cycle. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals
may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. Each
Performance-Based Award shall comply with the provisions set forth below.
20.2 With respect to each Performance-Based Award granted to a Covered Employee (excepting for such purposes any
Performance-Based Award that is an Option), the Committee shall select, within the first 90 days of a Performance Cycle (or, if
shorter, within the maximum period allowed under Section 162(m) of the Code) the Performance Criteria for such grant, and the
Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount
will become payable with respect to such Performance-Based Award). Each Performance-Based Award will specify the amount
payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The
Performance Criteria established by the Committee may be (but need not be) different for each Performance Cycle and different
Performance Goals may be applicable to Performance-Based Awards to different Covered Employees.
Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether,
20.3
and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify
in writing the amount of the Performance-Based Awards earned for the Performance Cycle for each Covered Employee.
20.4
one hundred fifty thousand (150,000) shares of Stock (subject to adjustment as provided in Section 10 hereof).
The maximum Performance-Based Award payable to any one Covered Employee under the Plan for a calendar year is
12
Earnings per Share are calculated as follows:
Earnings Per Share
(Dollars in thousands except shares and per share data)
2017
2016
2015
For the years ended
December 31,
Exhibit 11
Numerator for basic earnings per share:
Net Income from continuing operations
Less: Dividends on preferred stock
Net Income from continuing operations available to common
shareholders - basic
Net Income from discontinued operations available to common
shareholders - basic and diluted
Net Income available to common shareholders
Numerator for diluted earnings per share:
Net Income from continuing operations available to common
shareholders - basic
Add: Dividends on preferred stock
Add: Interest on subordinated debt (tax effected)
Net Income available to common shareholders from continuing
operations - diluted
Denominator:
Total average shares outstanding
Effect of dilutive convertible preferred stock
Effect of dilutive convertible subordinated debt
Effect of dilutive stock options
Total diluted average shares outstanding
Earnings per share from continuing operations - basic
Earnings per share from discontinued operations - basic
Earnings per common shareholder - basic
Earnings per share from continuing operations - diluted
Earnings per share from discontinued operations - diluted
Earnings per common shareholder - diluted
$
$
$
$
$
$
$
$
$
$
7,575
$
8,977
$
498
7,077
—
1,128
7,849
3,935
7,077
$
11,784
$
6,603
575
6,028
213
6,241
7,077
$
7,849
$
6,028
—
—
—
1,390
—
—
7,077
$
9,239
$
6,028
10,308,738
8,212,021
8,014,316
—
—
131,490
—
1,837,500
19,212
10,440,228
10,068,733
—
—
125,800
8,140,116
0.69
$
— $
0.69
0.68
$
$
— $
0.68
$
0.96
0.48
1.44
0.92
0.39
1.31
$
$
$
$
$
$
0.75
0.03
0.78
0.74
0.03
0.77
1
Exhibit 14
MVB Financial Corp. (hereinafter “MVB Financial”) and Its Wholly Owned Subsidiaries,
(hereinafter collectively “MVB”)
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
Approved: December 19, 2017
This policy applies to all senior financial officers of MVB. The senior financial officers include Larry F.
Mazza, Donald T. Robinson, David A. Jones, Joshua A. Anderson, John T. Schirripa, Donald T. Robinson,
Eric L. Tichenor, David A. Jones, Kenneth L. Ash, Harry E. Dean III, L. (“Covered Persons”).
Specifically, the senior financial officers for MVB represent the following organizations:
MVB Financial Corp.
Larry F. Mazza, Donald T. Robinson, David A. Jones, and Joshua A. Anderson
MVB Bank, Inc.
Larry F. Mazza, Donald T. Robinson, John T. Schirripa, Eric L. Tichenor, David A. Jones,
Joshua A. Anderson, and Kenneth L. Ash
Potomac Mortgage Group, Inc.
Harry E. Dean III
This Code of Ethics is required by the United States securities laws and the rules and regulations
of the Securities and Exchange Commission as being necessary to deter wrongdoing and to
promote:
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of
(i)
interest between personal and professional relationships,
avoidance of conflicts of interest, including disclosure to an appropriate person or persons
(ii)
identified in the code of any material transaction or relationship that reasonably could be expected
to give rise to such a conflict,
full, fair, accurate, timely, and understandable disclosure in reports and documents that MVB
(iii)
files with, or submits to, the Commission and in other public communications made by MVB,
(iv)
compliance with applicable governmental laws, rules and regulations,
the prompt internal reporting of code violations to an appropriate person or persons identified
(v)
in the code; and
(vi)
accountability for adherence to the code.
If you have any questions regarding this Code, please feel free to contact the MVB Financial Chief Executive
Officer or the MVB Financial Chairman of the Board of Directors. If you are not comfortable speaking with
the MVB Financial Chief Executive Officer or MVB Financial
Chairman of the Board of Directors, you are encouraged to speak with the MVB Financial Human
Resources Director.
1. Each Covered Person must avoid any transaction or arrangement that would create a conflict
of interest or the appearance of a conflict of interest between personal and professional
relationships.
A conflict of interest may be generally defined as a conflict between the Covered Person’s private
interests and his or her responsibilities to MVB or an entity with which MVB maintains a relationship.
A conflict of interest can also arise when an immediate family member is involved in a transaction
or arrangement that in any way casts doubt upon the Covered Person’s independence. An
“immediate family member” includes a Covered Person’s spouse, parents, children, siblings,
mothers and fathers-in-law, sons and daughters-in-law, sisters-in-law, brothers-in-law, and anyone
(other than employees) who shares the Covered Person’s home.
2. Covered Persons may only accept items of nominal value as gifts from any individual or entity
that is involved or seeks to become involved in a business relationship with MVB.
The Bank Bribery Act prohibits Covered Persons and others from offering or receiving anything
of value where the item of value is offered with the intent of influencing MVB personnel or a
business transaction. This law is broad and carries civil and criminal penalties, including fines
and/or imprisonment.
Covered Persons may accept any non-cash item of value from customers only if it:
•
•
•
•
•
Is valued at $100 or less;
Is not intended to influence any decision by us;
Is unsolicited;
Is infrequent; and
Is not a quid pro quo.
Under no circumstances shall Covered Persons accept cash or any other form of money as a gift
from any customer. Gifts which are likely to be acceptable under these guidelines are: advertising
or promotional materials such as pens, pencils, key rings, calendars and similar items valued
under $100.
Additionally, Covered Persons may accept gifts from individuals who have both a personal
relationship with such Covered Persons, as well as a business relationship with MVB, for such
commonly recognized events or occasions as a promotion, wedding, retirement, or religious
observance, if valued at less than $100.
Generally, there is no threat of a violation of the Bank Bribery Act if acceptance of a gift or benefit
is based on an immediate family or personal relationship, which exists independent of any
business with MVB or if the gift or benefit is made available to the general public under the same
conditions on which it is made available to a Covered Person.
Payments for travel, lodging, meals and entertainment are normally permissible if they (i) are
reasonable in amount; (ii) are expended in the course of a legitimate business meeting or an event
intended to foster better business relations; (iii) would be paid by MVB as a business expense if
not paid for by the outside source; and (iv) are unsolicited.
If any Covered Person is offered or receive something of value in excess of the above- stated
amounts or any payment for travel, lodging, meals or entertainment, such person must disclose
the matter, in writing, to the Chief Executive Officer, and seek a determination on acceptability.
The reviewer will give due consideration to the criteria for permissible gifts and whether receipt
poses a threat to the integrity of MVB or might violate the Bank Bribery Act.
3. All Covered Persons are responsible for maintaining accurate financial records for MVB.
Covered Persons must closely adhere to the following accounting guidelines:
(i)
(ii)
All assets, liabilities and transactions of MVB should be accurately recorded
in accordance with MVB’s record keeping procedures and generally
accepted accounting principles;
No false or misleading entries are permitted to be knowingly made or caused to
be made in MVB’s record books, even if such entries would not be material to MVB
or its operations as a whole; and
(iii)
Any entries that are inaccurate, false or irregular should be promptly reported to
a member of the Audit Committee for an immediate corrective action.
4. Covered Persons must recognize that confidential information is an asset of MVB, and must
refrain from using inside information to their personal advantage.
Covered Persons must maintain the confidentiality of information entrusted to them by MVB or
its customers or suppliers, except when disclosure is authorized or legally mandated.
Confidential information includes all non-public information that might be of use to competitors,
or harmful to MVB or its customers or suppliers, if disclosed.
At its core, the prohibition against insider trading focuses on the buying, selling or trading in
securities using non-public information. The prohibition applies to securities of MVB as well as to
customers and suppliers of MVB and, or any entity with which MVB and has a business relationship.
Covered Persons are in a unique position to acquire non-public information about MVB, and such
information might influence their decision to buy, sell or trade securities. In addition to refraining
from using inside information in making their own investment decisions, Covered Persons should
also avoid discussing the inside information with friends or immediate family members (whether
at home or in the public) or mailing or faxing the inside information to outside sources unless
appropriate confidentiality agreements are in place to ensure that material, non-public information
is not used improperly.
5. The conduct of Covered Persons should be governed by the highest standards of integrity
and fairness.
Covered Persons should avoid those situations in which outside personal interests conflict
with MVB’s business. These situations include:
(i)
(ii)
Ownership by a Covered Person, or a member of his or her immediate family,
of a material financial interest in any outside enterprise that is involved or seeks
to become involved in a business relationship with MVB;
Ownership by a Covered Person, or a member of his or her immediate family,
of a material financial interest in any outside enterprise that competes for
business with MVB;
(iii)
Outside employment of a Covered Person, or a member of his or her immediate
family, whether as a consultant, director, officer, employee or independent
contractor, with an entity that is involved or seeks to become involved in a business
relationship with MVB; or
(iv)
Appointment of a Covered Person, or a member of his or her immediate family,
to a public office, board or commission that may create an appearance of a conflict
of interest between the goals and purposes of that organization and MVB
business. Such appointment would include a “public service” organization or a
not-for-profit organization.
6. Covered Persons must not take for themselves opportunities that they discover while working
for MVB, or use corporate property or information for personal gain.
Covered Persons must not (a) take personal advantage of a situation or knowledge acquired
through the use of his or her position or MVB’s property, if the situation or knowledge could be
used for MVB’s benefit, (b) use his or her position or MVB property or information for personal
gain, or (c) compete with the MVB. Covered Persons owe a duty to the MVB to advance its
interests whenever the opportunity arises.
7. In drafting periodic reports that are to be filed with the Securities and Exchange
Commission, Covered Persons should take all steps necessary to ensure full, fair, accurate,
timely and complete disclosure.
(i)
Go Beyond the Minimum Disclosure Required by Law. While in the past periodic
reporting has focused on disclosing only those items that were mandated by the
law, Covered Persons should go beyond the minimum requirements to convey
the full financial picture of MVB to the public.
Areas of special attention include: off-balance sheet structures, insider and affiliated party
transactions, board relationships, accounting policies, and auditor relationships.
(ii)
Make Sure All Relationships that Could Give Rise to Any Perceived Conflicts are
Fully Disclosed. Given the recent focus of lawmakers on a more complete
disclosure of any material conflict of interest to the public, it is important to ensure
that any transaction that threatens to create the appearance of a conflict of interest
must be fully disclosed in MVB’s periodic reports.
8. Covered Persons must comply with all laws and regulations that apply to MVB’s business.
All Covered Persons should understand those laws that apply to them in the performance of their
duties and ensure that their decisions and actions are conducted in conformity with those laws. Any
violation of the applicable laws can subject MVB or the implicated Covered Person to liability. Any
inquiries relating to compliance with applicable laws and regulations should be directed to the MVB
Financial Chief Legal and Risk Officer.
9. Accountability for adherence to the Code.
Failure to adhere to the above detailed responsibilities by the Covered Persons may result in disciplinary
action being taken against such persons. The disciplinary action may range up to and including
termination. The Board of Directors shall be responsible for determining the proper action to be taken.
Exhibit 21
MVB FINANCIAL CORP. AND SUBSIDIARIES ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2017
Subsidiaries of MVB Financial Corp.
The following are the only subsidiaries of MVB Financial Corp.:
Name of Subsidiary
MVB Bank Inc.
Potomac Mortgage Group, Inc., (D/B/A MVB Mortgage)
MVB Insurance, LLC
MVB Community Development Corporation
Jurisdiction of Incorporation
West Virginia
Virginia
West Virginia
West Virginia
1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of MVB Financial Corp. and Subsidiary
We consent to the incorporation by reference in the registration statements (Nos. 333-189512, 333-186910,
333-145716, and 333-120234) on Forms S-8 and (Nos. 333-180317, 333-208949, and 333-215140) on Forms S-3 of
MVB Financial Corp. and Subsidiary of our report, dated March 8, 2018, with respect to the consolidated financial
statements of MVB Financial Corp. and Subsidiary and the effectiveness of internal control over financial reporting,
which reports appear in MVB Financial Corp.’s 2017 Annual Report on Form 10-K.
Gaithersburg, Maryland
March 8, 2018
1
Form 10-K Certification
I, Larry F. Mazza, certify that:
CERTIFICATION
Exhibit 31.1
1.
I have reviewed this annual report on Form 10-K of MVB Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted account principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: 3/8/2018
/s/ Larry F. Mazza
Larry F. Mazza
President, CEO and Director
(Principal Executive Officer)
1
Exhibit 31.2
Form 10-K Certification
I, Donald T. Robinson, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of MVB Financial Corp.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted account principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: 3/8/2018
/s/ Donald T. Robinson
Donald T. Robinson
Executive Vice President and CFO
(Principal Financial and Accounting Officer)
1
SIGNATURES
Exhibit 32.1
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused this Form 10-K to be signed on its behalf by
the undersigned, thereunto duly authorized and based on our knowledge and belief that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
MVB Financial Corp.
By:
/s/ Larry F. Mazza
Larry F. Mazza
President, CEO and Director
(Principal Executive Officer)
/s/ Donald T. Robinson
Donald T. Robinson
Executive Vice President and CFO
(Principal Financial and Accounting Officer)
Date: 3/8/2018
Date: 3/8/2018
1
2017 Annual Report 149
BOARD OF DIRECTORS
Stephen R. Brooks
Chairman of the Board
Member & Attorney, Flaherty Sensabaugh Bonasso PLLC
David B. Alvarez
Vice Chairman
Owner & CEO, Energy Transportation, LLC & Applied Construction Solutions
James J. Cava Jr.
Managing Member, Cava & Banko, PLLC, Certified Public Accountants
CFO, Ryan Environmental & Ryan Environmental Transport, LLC
Harry Edward Dean III
President & CEO, Potomac Mortgage Group, Inc. (dba MVB Mortgage), a wholly owned
subsidiary of MVB Bank
John W. Ebert
President, J.W. Ebert Corporation, a McDonald’s Restaurant franchise
Daniel W. Holt
Co-Founder & CEO of BillGO
Gary A. LeDonne
Executive in Residence & Master of Professional Accountancy Program Coordinator, West
Virginia University College of Business and Economics
Larry F. Mazza
President & Chief Executive Officer, MVB and MVB Bank
Dr. Kelly R. Nelson
Physician
J. Christopher Pallotta
Director, Bond Insurance Agency, Inc.
2017 Annual Report 148
SHAREHOLDER & COMPANY INFORMATION
SHAREHOLDERS MEETING
The Annual Meeting of Shareholders of MVB Financial Corp. (MVB) will be held at the
Fairmont State University Falcon Center, 1201 Locust Avenue, Fairmont, WV 26554.
This meeting is for the purposes of considering and voting upon certain proposals.
Only those shareholders of record at the close of business on March 21, 2018, shall be
entitled to notice of the meeting and to vote at the meeting.
TRANSFER AGENT AND SHAREHOLDER INQUIRIES
The corporation’s transfer agent is Computershare. Inquiries concerning transfer
requirements, lost certificates and change of address should be directed to:
Computershare
250 Royall Street
Canton, MA 02021
www.computershare.com
ALL OTHER INQUIRIES
Investor inquiries to the company should be directed to:
Sue Campbell
304.285.0020 • scampbell@MVBbanking.com
ALL OTHER INQUIRIES ABOUT THE COMPANY SHOULD BE DIRECTED TO:
MVB Financial Corp.
Attn: Investor Relations
301 Virginia Avenue
Fairmont, West Virginia 26554 844-MVB-BANK (844-862-2265)
FORM 10-K
A copy of the MVB Financial Corp. Form 10-K for 2017, 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
Dixon Hughes Goodman LLP
111 Rockville Pike
6th Floor
Rockville, MD 20850
STOCK MARKET LISTING
MVB Financial Corp. stock is traded on the Nasdaq Capital Market under the symbol:
MVBF
2017 Annual Report 150
Morgantown
Fairmont
Clarksburg
Bridgeport
Inwood
Martinsburg
Charles Town
Leesburg
McLean
WASHINGTON D.C.
Reston
Fairfax
WEST VIRGINIA
Charleston
VIRGINIA
Greensboro
Raleigh
NORTH CAROLINA
Charlotte
Columbia
SOUTH CAROLINA
Wilmington
Supply
Charleston
MVB Bank
MVB Mortgage
MVB Bank & Mortgage
301 Virginia Avenue • Fairmont, West Virginia 26554
304-363-4800 1-888-689-1877
MVBbanking.com