Edgar Filing: MVB FINANCIAL CORP

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File number 000-50567

MVB Financial Corp.

(Exact name of registrant as specified in its charter)

West Virginia		20-0034461
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

301 Virginia Avenue

Fairmont, West Virginia 26554-2777

(Address of principal executive offices)

304-363-4800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant has (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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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):

Large accelerated filer	o

Accelerated filer	o

Non-accelerated filer	o

Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

As of August 13, 2013, the number of shares outstanding of the issuer’s only class of common stock was 3,506,842.

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MVB Financial Corp.

Part I.		Financial Information

Item 1.		Financial Statements

		The unaudited interim consolidated financial statements of MVB Financial Corp. (“MVB” or “the Company” and subsidiaries (“Subsidiaries”) including MVB Bank, Inc. (the “Bank”) listed below are included on pages 3-26 of this report.

		Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012
		Consolidated Statements of Income for the Six Months and Three Months ended June 30, 2013 and 2012
		Consolidated Statements of Comprehensive Income for the Six Months and Three Months ended June 30, 2013 and 2012
		Consolidated Statements of Cash Flows for the Six Months ended June 30, 2013 and 2012
		Notes to Consolidated Financial Statements

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

		Management’s Discussion and Analysis of Financial Condition and Results of Operations are included on pages 27-41 of this report.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

Item 4.		Controls and Procedures

Part II.		Other Information

Item 1.		Legal Proceedings

Item 1A.		Risk Factors

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.		Defaults Upon Senior Securities

Item 4.		Mine Safety Disclosures

Item 5.		Other Information

Item 6.		Exhibits

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Part I. Financial Information

Item 1. Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(Dollars in thousands, except Share and Per Share Data)

	June 30			December 31
	2013			2012
	(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	27,444		$	21,637
Interest bearing balances	3,305			3,703
Certificates of deposits in other banks	9,427			9,427
Investment securities:
Securities held-to-maturity, at cost	47,328			35,370
Securities available-for-sale, at fair value	83,550			79,502

Loans:	474,854			446,443
Less: Allowance for loan losses	(4,828		)	(4,076		)
Net loans	470,026			442,367
Loans held for sale	76,696			85,529
Bank premises, furniture and equipment, net	13,777			11,354
Bank owned life insurance	15,826			10,524
Accrued interest receivable and other assets	16,978			9,734
Goodwill	17,622			17,622
Total assets	$	781,979		$	726,769
Liabilities
Deposits
Non-interest bearing	$	55,403		$	54,620
Interest bearing	475,935			431,899
Total deposits	531,338			486,519

Accrued interest, taxes and other liabilities	8,175			6,726
Repurchase agreements	82,956			70,234
Federal Home Loan Bank and other borrowings	72,863			91,617
Subordinated debt	4,124			4,124
Total liabilities	699,456			659,220

Stockholders’ equity
Preferred stock, $1,000 par value, 8,500 shares authorized and issued	8,500			8,500
Common stock, $1 par value, 10,000,000 and 4,000,000 authorized, 3,505,093 and 2,932,901 issued	3,505			2,933
Additional paid-in capital	61,912			48,750
Treasury stock, 51,077 and 51,077 shares, respectively	(1,084		)	(1,084		)
Retained earnings	12,178			9,945
Accumulated other comprehensive (loss)	(2,488		)	(1,495		)
Total stockholders’ equity	82,523			67,549
Total liabilities and stockholders’ equity	$	781,979		$	726,769

See accompanying notes to unaudited financial statements.

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MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) (Dollars in Thousands except Share and Per Share Data)

	Six Months Ended				Three Months Ended
	June 30				June 30
	2013		2012		2013		2012
Interest income
Interest and fees on loans	$	9,835	$	9,223	$	4,927	$	4,635
Interest on deposits with other banks	97		109		52		51
Interest on investment securities — taxable	554		833		275		407
Interest on tax exempt loans and securities	971		625		489		318
Total interest income	11,457		10,790		5,743		5,411

Interest expense
Deposits	1,856		1,919		949		954
Repurchase agreements	271		243		148		129
FHLB and other borrowings	215		238		88		122
Subordinated debt	39		44		19		22
Total interest expense	2,381		2,444		1,204		1,227
Net interest income	9,076		8,346		4,539		4,184
Provision for loan losses	1,667		1,350		667		675
Net interest income after provision for loan losses	7,409		6,996		3,872		3,509

Other income
Service charges on deposit accounts	306		339		169		178
Income on bank owned life insurance	224		156		132		78
Visa debit card income	262		225		139		114
Income on loans held for sale	12,762		1,068		6,784		638
Capitalized servicing retained income	656		—		318		—
Other operating income	1,403		446		757		258
Gain on sale of securities	82		73		81		7
Gain on derivative	699		—		703		—
Total other income	16,394		2,307		9,083		1,273

Other expense
Salary and employee benefits	13,657		4,119		7,437		2,163
Occupancy expense	910		413		480		209
Equipment expense	575		333		247		177
Data processing	451		217		246		129
Mortgage processing	1,185		—		678		—
Visa debit card expense	213		185		111		94
Advertising	569		349		333		182
Legal and accounting fees	385		184		183		68
Printing, stationery and supplies	250		91		162		57
Consulting fees	225		224		105		111
FDIC insurance	274		81		135		54
Other taxes	110		90		47		46
Other operating expenses	1,584		728		819		386
Total other expense	20,388		7,014		10,983		3,676
Income before income taxes	3,415		2,289		1,972		1,106
Income tax expense	743		611		488		289
Net income	$	2,672	$	1,678	$	1,484	$	817
Preferred dividends	43		94		22		21
Net income available to common shareholders	$	2,629	$	1,584	$	1,462	$	796
Basic net income per share after preferred dividends	$	0.83	$	0.73	$	0.43	$	0.34
Diluted net income per share after preferred dividends	$	0.81	$	0.71	$	0.42	$	0.33
Basic weighted average shares outstanding	3,185,456		2,184,950		3,442,509		2,183,210
Diluted weighted average shares outstanding	3,270,222		2,235,007		3,527,274		2,236,267

See accompanying notes to unaudited financial statements.

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MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)(Dollars in thousands)

	Six Months Ended						Three Months Ended
	June 30						June 30
	2013			2012			2013			2012

Net Income	$	2,672		$	1,678		$	1,484		$	817

Other comprehensive (loss) income, net of tax:

Securities available for sale not other than temporarily impaired:
Unrealized holding (losses) gains during the year	(1,737		)	217			(1,701		)	407
Income tax effect	695			(87		)	681			(163		)
Reclassification adjustment for gain recognized in income	82			73			81			7
Income tax effect	(33		)	(29		)	(33		)	(3		)

Other comprehensive (loss) income	(993		)	174			(972		)	248

Comprehensive income	$	1,679		$	1,852		$	512		$	1,065

See accompanying notes to unaudited financial statements.

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MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)

	Six Months Ended
	June 30			June 30
	2013			2012
Operating activities
Net income	$	2,672		$	1,678
Adjustments to reconcile net income to net cash provided by operating
Provision for loan losses	1,667			1,350
Deferred income tax (benefit) expense	(87		)	44
Depreciation	417			260
Stock based compensation	77			79
Loans originated for sale	(374,920		)	(50,067		)
Proceeds of loans sold	383,753			54,567
(Gain) on sale of loans held for resale	(10,454		)	(1,119		)
Loss on sale of other real estate owned	—			2
(Gain) on sale of investment securities	(82		)	(73		)
(Gain) on derivatives	(699		)	0
Amortization, net of accretion	621			539
Decrease in interest receivable and other assets	4,634			276
Increase (decrease) in accrued interest, taxes, and other liabilities	1,449			(802		)
Net cash provided by operating activities	9,048			6,734
Investing activities
(Increase) in loans made to customers	(29,326		)	(51,182		)
Purchases of premises and equipment	(2,840		)	(306		)
Decrease (increase) in deposits with FHLB and Fed, net	398			(8,519		)
Maturities of certificates of deposit in other banks	—			491
Purchases of investment securities available-for-sale	(17,769		)	(27,244		)
Proceeds from sales, maturities and calls of securities available-for-sale	11,644			31,604
Proceeds from sale of other real estate owned	24			30
Purchases of investment securities held-to-maturity	(12,074		)	(2,938		)
Adjustment of branch acquisition	(157		)	—
Purchase of bank owned life insurance	(5,302		)	—
Net cash (used in) investing activities	(55,402		)	(58,064		)
Financing activities
Net increase in deposits	44,819			67,195
Net increase (decrease) in repurchase agreements	12,722			(13,515		)
Proceeds from Federal Home Loan Bank borrowings	302,495			56,495
Principal payments on Federal Home Loan Bank borrowings	(321,249		)	(56,610		)
Net proceeds of stock offering	13,658			266
Cash dividend	(241		)	(153		)
Dividends on preferred stock	(43		)	(94		)
Net cash provided by financing activities	52,161			53,584
Increase in cash and cash equivalents	5,807			2,254
Cash and cash equivalents - beginning of period	21,637			9,763
Cash and cash equivalents - end of period	$	27,444		$	12,017
Cash payments for:
Interest on deposits, repurchase agreements and borrowings	$	2,387		$	2,412
Income taxes	$	776		$	527

See accompanying notes to unaudited financial statements.

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MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for annual year-end financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, have been included and are of a normal, recurring nature. The balance sheet as of December 31, 2012 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles. Operating results for the six and three months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The accounting and reporting policies of MVB Financial Corp. (“MVB”) and its subsidiaries (“Subsidiaries”), including MVB Bank, Inc. (the “Bank”), the Bank’s subsidiary Potomac Mortgage Group, Inc. (“PMG” which, following July 15, 2013, is doing business under the registered trade name “MVB Mortgage”), and MVB Insurance, LLC, conform to accounting principles generally accepted in the United States and practices in the banking industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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 those estimates. All significant inter-company accounts and transactions have been eliminated in consolidation.

The consolidated balance sheet as of December 31, 2012 has been extracted from audited financial statements included in the Company’s 2012 filing on Form 10-K and the amended filing on Form 10-K/A. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in MVB’s December 31, 2012, Form 10-K and subsequent amended Form 10-K/A filed with the Securities and Exchange Commission.

Information is presented in these notes with dollars expressed in thousands, unless otherwise noted or specified.

Note 2 - Loans

The following table summarizes the primary segments of the allowance for loan losses (“ALL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2013. Activity in the allowance is presented for the periods indicated (in thousands):

						Home						Credit
	Commercial			Residential		Equity			Installment			Card		Total
ALL balance 3/31/12	$	2,246		$	396	$	246		$	273		$	12	$	3,173
Charge-offs	(372		)	—		(9		)	(1		)	—		(382		)
Recoveries	2			—		1			11			—		14
Provision	677			23		3			(36		)	8		675
ALL balance 6/30/12	$	2,553		$	419	$	241		$	247		$	20	$	3,480

						Home						Credit
	Commercial			Residential		Equity			Installment			Card		Total
ALL balance 12/31/11	$	2,164		$	366	$	249		$	255		$	11	$	3,045
Charge-offs	(916		)	—		(9		)	(6		)	—		(931		)
Recoveries	2			—		2			12			—		16
Provision	1,303			53		(1		)	(14		)	9		1,350
ALL balance 6/30/12	$	2,553		$	419	$	241		$	247		$	20	$	3,480
Individually evaluated for impairment	$	683		$	16	$	—		$	24		$	—	$	723
Collectively evaluated for impairment	$	1,870		$	403	$	241		$	223		$	20	$	2,757

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						Home				Credit
	Commercial			Residential		Equity		Installment		Card			Total
ALL balance 3/31/13	$	3,645		$	490	$	271	$	216	$	17		$	4,639
Charge-offs	(472		)	—		—		—		(11		)	(483		)
Recoveries	3			—		1		1		—			5
Provision	564			—		79		14		10			667
ALL balance 6/30/13	$	3,740		$	490	$	351	$	231	$	16		$	4,828

							Home				Credit
	Commercial			Residential			Equity		Installment		Card			Total
ALL balance 12/31/12	$	3,107		$	514		$	242	$	200	$	13		$	4,076
Charge-offs	(972		)	(2		)	—		—		(11		)	(985		)
Recoveries	25			36			8		1		—			70
Provision	1,580			(58		)	101		30		14			1,667
ALL balance 6/30/13	$	3,740		$	490		$	351	$	231	$	16		$	4,828
Individually evaluated for impairment	$	1,094		$	195		$	—	$	12	$	—		$	1,301
Collectively evaluated for impairment	$	2,646		$	295		$	351	$	219	$	16		$	3,527

The ALL is based on estimates, and actual losses will vary from current estimates. Company and Bank management believe 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.

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The following table summarizes the primary segments of the Company loan portfolio as of December 31, 2012 (in thousands):

	Commercial		Residential		Home Equity		Installment		Credit Cards		Total

December 31, 2012
Total Loans	$	299,639	$	113,212	$	16,800	$	16,174	$	618	$	446,443
Individually evaluated for impairment	$	203,060	$	16,407	$	1,824	$	101	$	0	$	221,392
Collectively evaluated for impairment	$	96,579	$	96,805	$	14,976	$	16,073	$	618	$	225,051

The following table summarizes the primary segments of the Company loan portfolio as of June 30, 2013 (in thousands):

	Commercial		Residential		Home Equity		Installment		Credit Cards		Total

June 30, 2013
Total Loans	$	333,687	$	100,918	$	21,547	$	18,083	$	619	$	474,854
Individually evaluated for impairment	$	4,063	$	472	$	—	$	20	$	—	$	4,555
Collectively evaluated for impairment	$	329,624	$	100,446	$	21,547	$	18,063	$	619	$	470,299

Of the $4,555 in impaired loans presented above, only $1,175 were non-performing loans as of June 30, 2013. The remaining $3,380 represents troubled debt restructured loans that are performing under modified terms.

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Bank management evaluates individual loans in all of the commercial segments for possible impairment. Loans are considered to be impaired when, based on current information and events, it is probable that the Bank 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 Bank management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Bank 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 Bank also separately evaluates individual consumer and residential mortgage loans for impairment.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of December 31, 2012 (in thousands):

					Impaired
					Loans with
	Impaired Loans with				No Specific		Total Impaired Loans
	Specific Allowance				Allowance				Unpaid
	Recorded		Related		Recorded		Recorded		Principal
Dec 31, 2012	Investment		Allowance		Investment		Investment		Balance

Commercial	$	3,074	$	683	$	—	$	3,074	$	3,074
Residential	43		16		—		43		43
Home Equity	—		—		—		—		—
Installment	1		24		—		1		1
Credit Card	—		—		—		—		—
Total impaired loans	$	3,118	$	723	$	—	$	3,118	$	3,118

					Impaired
					Loans with
	Impaired Loans with				No Specific		Total Impaired Loans
	Specific Allowance				Allowance				Unpaid
	Recorded		Related		Recorded		Recorded		Principal
June 30, 2013	Investment		Allowance		Investment		Investment		Balance

Commercial	$	3,945	$	1,094	$	118	$	4,063	$	6,058
Residential	282		195		190		472		472
Home Equity	—		—		—		—		—
Installment	20		12		—		20		20
Credit Card	—		—		—		—		—
Total impaired loans	$	4,247	$	1,301	$	308	$	4,555	$	6,550

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The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (in thousands):

	Six Months				Three Months
	June 30				June 30
	2013		2012		2013		2012
Average investment in impaired loans	$	4,867	$	3,799	$	4,508	$	3,573
Interest income recognized on an accrual basis on impaired loans	$	67	$	81	$	4	$	71

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 Bank management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Bank’s Credit Department performs an annual review of all commercial relationships $750,000 or greater. Confirmation of the appropriate risk grade is included in the review on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The 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.

The following table represents the classes of the Company 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, 2012 and June 30, 2013 (in thousands):

			Special
Dec. 31, 2012	Pass		Mention		Substandard		Doubtful		Total

Commercial	$	286,472	$	8,646	$	1,770	$	2,751	$	299,639
Residential	110,663		2,260		289		—		113,212
Home Equity	16,540		260		—		—		16,800
Installment	15,806		354		13		1		16,174
Credit Card	589		29		—		—		618
Total	$	430,070	$	11,549	$	2,072	$	2,752	$	446,443

			Special
June 30, 2013	Pass		Mention		Substandard		Doubtful		Total

Commercial	$	321,763	$	6,311	$	4,913	$	700	$	333,687
Residential	97,723		2,722		430		43		100,918
Home Equity	21,239		308		—		—		21,547
Installment	17,596		467		19		1		18,083
Credit Card	607		12		—		—		619
Total	$	458,928	$	9,820	$	5,362	$	744	$	474,854

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Bank management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of December 31, 2012 and June 30, 2013 (in thousands):

	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due		Total Past Due		Non- Accrual		Total Loans
Dec. 31, 2012
Commercial	$	295,295	$	767	$	221	$	275	$	1,263	$	3,081	$	299,639
Residential	111,053		1,772		293		51		2,116		43		113,212
Home Equity	16,772		28		—		—		28		—		16,800
Installment	15,991		179		—		3		182		1		16,174
Credit Card	589		24		5		—		29		—		618
Total	$	439,700	$	2,770	$	519	$	329	$	3,618	$	3,125	$	446,443

			30-59		60-89		90
			Days		Days		Days		Total		Non-		Total
	Current		Past Due		Past Due		Past Due		Past Due		Accrual		Loans
June 30, 2013
Commercial	$	327,467	$	1,664	$	3,472	$	142	$	5,278	$	942	$	333,687
Residential	100,189		75		393		29		497		232		100,918
Home Equity	21,519		—		28		—		28		—		21,547
Installment	17,937		119		26		—		145		1		18,083
Credit Card	590		11		6		12		29		—		619
Total	$	467,702	$	1,869	$	3,925	$	183	$	5,977	$	1,175	$	474,854

The ALL is maintained to absorb losses from the loan portfolio. The ALL is based on the Bank management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualified factors.

The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and Bank management track the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Commercial, Mortgage and Consumer pools currently utilize a rolling 12 quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

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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: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volume and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

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.

Historically, management has utilized an internally developed spreadsheet to track and apply the various components of the allowance.

The following table presents details related to loans identified as Troubled Debt Restructurings (“TDRs”) for the periods indicated (in thousands):

	New TDRs (1)
	For the Six Months Ended					For the Three Months Ended
	June 30, 2013					June 30, 2013
(Unaudited, dollars in thousands)	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Commercial real estate:	1	$	352	$	352	—	$	—	$	—
Land and construction	1	1,337		1,343		—	—		—
Other	—	—		—		—	—		—
Total commercial real estate	2	1,689		1,695		—	—		—
Commercial and industrial	2	119		119		2	119		119
Residential real estate	—	—		—		—	—		—
Home equity	—	—		—		—	—		—
Consumer	3	8		8		—	—		—
Total	7	$	1,816	$	1,822	2	$	119	$	119

(1) Excludes loans that were either paid off or charged-off by period end. The pre-modification balance represents the balance outstanding at the beginning of the period. The post-modification balance represents the outstanding balance at period end.

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Note 3 - Borrowed Funds

The Bank is a party to repurchase agreements with certain customers. As of June 30, 2013 and December 31, 2012, the Bank had repurchase agreements of $82.9 million and $70.2 million.

The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh, Pennsylvania. Borrowings from the FHLB are secured by stock in the FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-backed securities and certain investment securities. The remaining maximum borrowing capacity with the FHLB at June 30, 2013 was approximately $166.0 million.

Borrowings from the FHLB were as follows: (dollars in thousands)	Jun 30 2013		Dec 31 2012
Fixed interest rate note, originating April 1999, due April 2014, interest of 5.41% is payable monthly.	$	1,000	$	1,000

Fixed interest rate note, originating January 2005, due January 2020, interest of 5.14% is payable in monthly installments of $11.	—		763

Fixed interest rate note, originating April 2002, due May 2017, interest of 5.90% is payable monthly.	606		615

Fixed interest rate note, originating July 2006, due July 2016, interest of 4.50% is payable in monthly installments of $8.	1,237		1,258

Fixed interest rate note, originating October 2006, due October 2021, interest of 5.20% is payable in monthly installments of $6.	1,035		1,047

Fixed interest rate note, originating February 2007, due February 2022, interest of 5.22% is payable in monthly installments of $5.	870		879

Fixed interest rate note, originating April 2007, due April 2022, interest of 5.18% is payable in monthly installments of $6.	984		995

Floating interest rate note, originating March 2003, due December 2011, interest of 0.25% payable monthly.	66,167		23,065

Fixed interest rate note, originating December 2007, due December 2017, interest of 5.25% is payable in monthly installments of $7.	964		978

Fixed interest rate note originating March 2008, due March 2013, interest of 2.37% payable quarterly.	—		2,000

	$	72,863	$	32,600

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In March 2007, the Company completed the private placement of $4 million Floating Rate, Trust Preferred Securities through its MVB Financial Statutory Trust I subsidiary (the “Trust”). The Company established the trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The proceeds from the sale of the Trust Preferred Securities were loaned to the Company under subordinated Debentures (the “Debentures”) issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the Company’s Tier I capital.

The Trust Preferred Securities and the Debentures mature in 30 years and are redeemable by the Company after five years. Interest payments are due in March, June, September and December and are adjusted at the interest due dates at a rate of 1.62% over the three month LIBOR Rate. The Company reflects borrowed funds in the amount of $4.1 million as of June 30, 2013 and 2012 and interest expense of $39 and $44 for the periods ended June 30, 2013 and 2012.

Bank subsidiary PMG had borrowings of $59.0 million at December 31, 2012, which were comprised of three floating rate lines of credit with other banks. The three floating rate lines have since been paid off and PMG now utilizes FHLB borrowings.

A summary of maturities of these borrowings over the next five years is as follows:

(dollars in thousands)

Year	Amount
2013	$	77
2014	1,161
2015	169
2016	1,246
2017	1,470
Thereafter	72,864
	$	76,987

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Note 4 — Net Income Per Common Share

The Company determines basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by dividing net income by the weighted average number of shares outstanding increased by the number of shares that would be issued assuming the exercise of stock options. At June 30, 2013 and 2012, stock options to purchase 195,640 and 172,880 shares at an average price of $16.01 and $15.63, respectively, were outstanding. For the six months ended June 30, 2013 and 2012, the dilutive effect of stock options was 84,766 and 50,057 shares, respectively.

Note 5 — Recent Accounting Pronouncements

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation. This ASU is not expected to have a significant impact on the Company’s financial statements.

In June 2013, the FASB issued ASU 2013-08, Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited. This ASU is not expected to have a significant impact on the Company’s financial statements..

In July 2013, the FASB ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04. The amendments in this Update apply to certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission’s filing requirements (hereafter “nonpublic employee benefit plan”), that holds investments in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities and that are within the scope of the

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disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities. The amendments in this Update do not defer the effective date for those certain quantitative disclosures for other nonpublic entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures. The deferral in this amendment is effective upon issuance for financial statements that have not been issued. This ASU did not have a significant impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. This ASU is not expected to have a significant impact on the Company’s financial statements.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

Note 6 — Fair Value of 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.

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The following tables present the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of December 31, 2012 and June 30, 2013 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. All measurements are made on a recurring basis, with the exception of other real estate and impaired loans, which are measured on a non-recurring basis.

	December 31, 2012
(In Thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency Securities	$	—	$	22,192	$	—	$	22,192
U.S. Sponsored Mortgage backed securities	—		56,376		—		56,376
Other Securities	—		934				934
Loans held for sale	—		85,529		—		85,529
Derivative on loans held for sale	—		1,261		—		1,261
Other Real Estate Owned	—		—		207		207
Impaired Loans	—		—		3,118		3,118

	June 30, 2013
(In Thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency Securities	$	—	$	35,086	$	—	$	35,086
U.S. Sponsored Mortgage backed securities	—