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MVBF > SEC Filings for MVBF > Form 10-Q on 15-May-2013All Recent SEC Filings

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Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


Statements in this Quarterly Report on Form 10-Q 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 MVB Financial Corp. ("the Company") and its subsidiaries (collectively "we," "our," or "us), including MVB Bank, Inc. (the "Bank");

statements preceded by, followed by or that include the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan," "projects," 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 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 and the Bank to successfully execute its business plans, manage its risks, and achieve its objectives;

changes in local, national and international political and economic conditions, including without limitation the political and economic effects of 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, military actions, and terrorist attacks;

changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts its 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 the Company's ability to raise capital and the cost of that capital to the Company;

changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;

acquisitions and integration of acquired businesses;

increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;

changes in fiscal, monetary, regulatory, trade and tax policies and laws, and regulatory assessments and fees, including policies of the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, 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, the Bank, 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 Bank engages in such activities, the fees the Bank 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, 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, on a timely basis;

changes in consumer spending and savings habits;

increased competitive challenges and expanding product and pricing pressures among financial institutions;

the ability of the Company and the Bank to develop new banking products, the cost of such development, the acceptance of such new products by the Company's and Bank's clientele and the impact of these new product's on the Company's and Bank's profitability;

inflation and deflation;

technological changes and the Company's implementation of new technologies, including how the cost of implementation impacts the Company's profitability;

the Company's ability to develop and maintain secure and reliable information technology systems;

legislation or regulatory changes which adversely affect the Company's operations or business;

the Company's ability to comply with applicable laws and regulations, and the cost of such compliance;

changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies; and

costs of deposit insurance and changes with respect to FDIC insurance coverage levels.

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.


At March 31, 2013 and 2012 and for the Three Months Ended March 31, 2013 and

                                                              Three Months Ended
                                                                   March 31
                                                               2013         2012
Net income to:
Average assets                                                   .65 %        .62 %
Average stockholders' equity                                    6.93         7.15
Net interest margin                                             3.08         3.18

Average stockholders' equity to average assets                  9.37         8.68
Total loans to total deposits (end of period)                  87.76        90.94
Allowance for loan losses to total loans (end of period)        1.02         0.79
Efficiency ratio                                               79.38        64.24
Capital ratios:
Tier 1 capital ratio                                           13.60        14.07
Risk-based capital ratio                                       14.51        14.93
Leverage ratio                                                  9.52         9.42
Cash dividends as a percentage of net income                     N/A          N/A
Per share data:
Book value per share (end of period)                       $   21.09      $ 17.92
Market value per share (end of period)*                        24.50        22.00
Basic earnings per share                                         .40          .38
Diluted earnings per share                                       .39          .38

* Market value per share is based on the Company's knowledge of certain arms-length transactions in the stock as the Company's common stock is not traded on any market. There may be other transactions involving either higher or lower prices of which the Company is unaware.


The Company was formed on January 1, 2004 as a bank holding company and effective December 2012 elected to become a financial holding company. The Company features multiple subsidiaries and affiliated businesses.

The Bank was formed on October 30, 1997 and chartered under the laws of the state of West Virginia. The Bank commenced operations on January 4, 1999. During the fourth quarter of 2004, the Company formed two second-tier holding companies MVB Marion, Inc. and MVB Harrison, Inc., which have since been merged to form MVB-Central, Inc. to manage the banking operations of the Bank in these specific north-central West Virginia markets. In August of 2005, the Bank opened a full service office in neighboring Harrison County. During October of 2005, the Bank purchased a branch office in Jefferson County, situated in West Virginia's eastern panhandle. In 2006, the Company formed another second-tier holding company, MVB - East, Inc. to manage the banking operations of the Bank in the Jefferson and Berkeley county markets. During the third quarter of 2007, the Bank opened a full service office in the Martinsburg area of Berkeley County. In the second quarter of 2011, the Bank opened a banking facility in the Cheat Lake area of Monongalia County. The Bank opened its second Harrison County location, the downtown Clarksburg office in the historic Empire building during the fourth quarter of 2012.

During the fourth quarter of 2012, the Bank acquired Potomac Mortgage Group ("PMG"), a mortgage company in the northern Virginia area, and fifty percent (50%) interest in a mortgage services company, Lender Service Provider, LLC. This PMG acquisition gives the Company and the Bank the opportunity to make the mortgage banking operation a much more significant line of business to further diversify its net income stream. In the first quarter of 2013, the Bank opened its second Monongalia County location in the Sabraton area of Morgantown.

Currently, the Company operates eight Bank offices in West Virginia, which are located at: 301 Virginia Avenue in Fairmont, Marion County; 9789 Mall Loop (inside the Shop N Save Supermarket) in White Hall, Marion County,; 1000 Johnson Avenue in Bridgeport, Harrison County; 406 West Main St. in Clarksburg, Harrison County; 88 Somerset Boulevard in Charles Town, Jefferson County; 651 Foxcroft Avenue in Martinsburg, Berkeley County; 2400 Cranberry Square in Cheat Lake, Monongalia County; and 10 Sterling Drive in Morgantown, Monongalia County. At March 31, 2013, the Company had total assets of $756.8 million, total loans of $456.6 million, total deposits of $520.3 million and total stockholders' equity of $82.2 million.

In addition to PMG, the Bank has a wholly-owned subsidiary, MVB Insurance, LLC, formed in 2000 and reinstated in 2005, which offers select insurance products such as title insurance, individual insurance, and casualty insurance. In addition to the second-tier holding companies, the Company has an additional subsidiary, Bank Compliance Solutions, Inc., formed in 2011, which to-date has not initiated business activities.

The Company's business activities are currently community banking and with the addition of PMG, mortgage banking. As a community banking entity, the Bank offers its customers a full range of products through various delivery channels. Such products and services include checking accounts, NOW accounts, money market and savings accounts, time certificates of deposit, commercial, installment, commercial real estate and residential real estate mortgage loans, debit cards, and safe deposit rental facilities. Services are provided through our walk-in offices, automated teller machines ("ATMs"), drive-in facilities, and internet and telephone banking. Additionally, the Bank offers non-deposit investment products through an association with a broker-dealer, and also offers correspondent lending services to assist other community banks in offering longer term fixed rate loan products that may be sold into the secondary market. With the acquisition of PMG, MVB now makes mortgage banking a much more significant focus, opening up increased market opportunities and adding enough volume to better diversify the Company's earnings stream.

Since the opening date of January 4, 1999, the Company, through the Bank, has experienced significant growth in assets, loans, and deposits due to overwhelming community and customer support in the Marion and Harrison county markets, expansion into West Virginia's eastern panhandle and most recently into Monongalia County.

During the first quarter 2013, the Company continued to focus on growth in the Berkeley County, Harrison County, Jefferson County, Marion County and Monongalia County areas as the primary method for reaching performance goals. The Company and the Bank continuously review key performance indicators to measure success.

This discussion and analysis should be read in conjunction with the prior year-end audited financial statements and footnotes thereto included in the Company's filing on Form 10-K and the unaudited financial statements, ratios, statistics, and discussions contained elsewhere in this Form 10-Q.At March 31, 2013, the Company had 252 full-time equivalent employees, including those added through the acquisition of PMG. The Company's principal office is located at 301 Virginia Avenue, Fairmont, West Virginia 26554, and its telephone number is
(304) 363-4800. The Company's Internet web site is

Application of Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States 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 financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Application of certain accounting policies inherently requires a greater reliance on the use of estimates, assumptions and judgments and as such, the probability of actual results being materially different from reported estimates is increased. 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 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 to the audited consolidated financial statements included in the Company's 2012 Annual Report on Form 10-K and the later filed amended 2012 Annual Report on Form 10-K/A. 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 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.

The allowance for loan losses 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 estimated future cash flows, estimated losses in pools of homogeneous loans based on historical loss experience of peer banks, estimated losses on specific commercial credits, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset in the consolidated balance sheet. Note 1 to the consolidated financial statements in MVB's 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 is included in the Allowance for Loan Losses section of Management's Discussion and Analysis in this quarterly report on Form 10-Q.

All dollars are expressed in thousands, unless as otherwise noted or specified.

Results of Operations

Overview of the Statement of Income

For the quarter ended March 31, 2013, the Company earned $1,188 compared to $861 in the first quarter of 2012. Net interest income increased by $375, other income increased by $6.3 million and other expenses increased by $6.1 million. The increase in net interest income was driven mainly by the continued growth of the Company balance sheet, with $62.1 million in average loan growth. Also contributing to the increase in net interest income was a decrease in interest expense of $40, despite an increase in average interest bearing liabilities of $139.8 million. This represented a decreased cost of funds of 27 basis points. The increase in other income was mainly the result of an increase in income on loans held for sale of $5.5 million as a result of additional volume that the Company was able to produce through the acquisition of PMG. The increase in other operating expenses was principally the result of increased salaries expense of $4.3 million, with the addition of the Clarksburg and Sabraton Bank offices as well as additions in the areas of human resources, information technology, and loan operations, the additional staff related to the acquisition of PMG, as well as increases for existing staff. Occupancy, Equipment and depreciation costs increased $398, the result of the additions of the Clarksburg and Sabraton Bank offices, the acquisition of PMG, and additional leased office space in both the Cheat Lake Bank office and the Bank Operations Center. Data processing costs increased $624 due mainly to the acquisition of PMG who uses a related entity to perform processing services related to mortgage loans. Legal and accounting fees increased $86 as a result of the additional fees incurred by PMG. Other operating expenses increased by $423, of which $263 were related to expenses incurred by PMG and the remaining $160 mainly the result of the following: increased other tax expense of $19, directors fees of $17, telephone of $16, travel and entertainment of $55, title exams and appraisal expense of $24 and collections expense of $4.

Loan loss provisions of $1,000 and $675 were made for the quarters ended March 31, 2013 and 2012, respectively. The provision for loan losses, which is a product of management's formal quarterly analysis, is recorded in response to inherent risks in the loan portfolio. The Company charged off $502 in loans during the first quarter of 2013 versus $549 for the same time period in 2012. The $325 in loan loss provision increased the allowance for loan losses to total loans from .79% at March 31, 2012 to 1.02% at March 31, 2013.

Non-interest income for the quarters ended March 31, 2013 and 2012 totaled $7.3 million and $1.0 million, respectively. The most significant portions of non-interest income are capitalized servicing retained income which totaled $338 at March 31, 2013, a new income stream that began during the third quarter of 2012, income on loans held for sale, which totaled $6.0 million at March 31, 2013, an increase of $5.6 million over the first quarter of 2012, the result of the increased volume from existing lenders as well as the addition of new lenders and increased volume from the acquisition of PMG and other operating income which totaled $646 at March 31, 2013, an increase of $458 from the prior year, mainly the result of the following: increased title insurance income of $43, underwriting income of $87, servicing income of $61 and wealth management income of $47.

Non-interest expense for the quarters ended March 31, 2013 and 2012 totaled $9.4 million and $3.3 million, respectively. The most significant increases were as discussed above.

Interest Income and Expense

Net interest income is the amount by which interest income on earning assets exceeds interest expense on interest-bearing liabilities. Interest-earning assets include loans and investment securities. Interest-bearing liabilities include interest-bearing deposits and repurchase agreements and Federal Home Loan Bank advances. Net interest income is the primary source of revenue for the bank. Changes in market interest rates, as well as changes in the mix and volume of interest-earning assets and interest-bearing liabilities impact net interest income.

Net interest margin is calculated by dividing net interest income by average interest-earning assets. This ratio serves as a performance measurement of the net interest revenue stream generated by the Bank's balance sheet. The net interest margin for the quarters ended March 31, 2013 and 2012 was 3.1% and 3.2% respectively. The 13 basis point decline in the Bank's net interest margin for the quarter ended March 31, 2013 was the result of the decreased yield on the loan portfolio of 35 basis points. The continued low rate environment and increasing competition for quality credit continues to apply pressure upon the Bank's loan portfolio yield. The funding side of the bank helped offset the decreased asset yield as a result of the following: a 27 basis point reduction in the cost of funds, mainly in the CD portfolio, IRA portfolio and FHLB borrowing balances. While the Bank's yield on total loans declined by 35 basis points, the Bank was able to grow average loan balances by $62.1 million, which enabled an increase in net interest income of $375. An increase in the Bank's average non-interest bearing balances of $14.0 million decreased the impact of non-interest bearing funds on the margin by 14 basis points.

Company and Bank management continuously monitor the effects of net interest margin on the performance of the Bank and, thus, the Company. Growth and mix of the balance sheet will continue to impact net interest margin in future periods.

Average Balances and Interest Rates

(Unaudited)(Dollars in thousands)

                                                          Three Months Ended                    Three Months Ended
                                                            March 31, 2013                        March 31, 2012
                                                                Interest                               Interest
                                                   Average      Income/      Yield/       Average      Income/      Yield/
                                                   Balance      Expense       Cost        Balance      Expense       Cost
Interest-bearing deposits in banks               $  12,127     $      4        0.14 %   $   3,298     $      1       0.12 %
Certificates of deposit in other banks               9,427           41        1.75         9,886           57       2.31
Investment securities                              114,251          525        1.84       113,791          546       1.92
Commercial                                         285,383        3,394        4.76       237,015        2,992       5.05
Tax exempt                                          22,723          236        4.15        17,226          186       4.32
Real estate                                        128,642        1,307        4.06       124,169        1,392       4.48
Consumer                                            17,021          207        4.87        13,292          205       6.17
   Total loans                                     453,769        5,144        4.53       391,702        4,775       4.88

Loans held for sale                                 71,824                                  5,282
Total earning assets                               589,574        5,714        3.88       518,677        5,379       4.15
Cash and due from banks                             21,453                                 10,874
Other assets                                        48,799                                 20,214
   Total assets                                  $ 731,650                              $ 555,047

Non-interest bearing demand                      $  54,981     $      -           - %   $  40,932     $      -          - %
NOW                                                245,171          504        0.82       180,107          424       0.94
Money market checking                               22,980           18        0.31        33,570           43       0.51
Savings                                             27,758           41        0.59        21,202           30       0.57
IRAs                                                 9,597           42        1.76         9,739           63       2.59
CDs                                                148,603          302        0.81       132,559          405       1.22
Repurchase agreements & FFS                         69,469          127        0.73        66,256          114       0.69
FHLB and other borrowings                           73,994          123        0.66        14,353          116       3.23
Long-term debt                                       4,124           20        1.90         4,124           22       2.13
Total interest-bearing liabilities                 601,696        1,177        0.78       461,910        1,217       1.05
Other liabilities                                    6,418                                  4,034
   Total liabilities                               663,095                                506,876

Stockholders' equity
Preferred stock                                      8,500                                  8,500
Common stock                                         2,970                                  2,235
Paid-in capital                                     49,416                                 32,620
Treasury stock                                      (1,084 )                               (1,084 )
Retained earnings                                   10,287                                  6,596
Accumulated other comprehensive income              (1,534 )                                 (696 )
   Total stockholders' equity                       68,555                                 48,171
   Total liabilities and stockholders' equity    $ 731,650                              $ 555,047

Net interest spread                                                            3.09                                  3.09
Impact of non-interest bearing funds on margin                                (0.02 )                                0.12
Net interest income-margin                                     $  4,537        3.08 %                 $  4,162       3.21 %

Non-Interest Income

Income on loans held for sale generates the core of the Bank's non-interest income. Non-interest income totaled $7.3 million in the first quarter of 2013 compared to $1.0 million in the first quarter of 2012. This increase of $6.3 million is mainly the result of an increase in income in loans held for sale of $5.5 million, the addition of $338 in capitalized servicing retained income and increased other operating income of $458 as a result of increased underwriting, title, servicing, and wealth management income.

Service charges on deposit accounts continue to be part of the core of the Bank's, and thus, the Company's other income and include mainly non-sufficient funds and returned check fees, allowable overdraft fees and service charges on commercial accounts. Through March 31, 2013, service charges totaled $137 versus $161 for the same quarter in 2012.

The Bank is continually searching for ways to increase non-interest income. Income from loans sold in the secondary market continues to be a major area of focus for the Bank and the Company, as well as servicing retained on mortgage loans sold into the secondary market.

Non-Interest Expense

. . .

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