MVBF

Business Context and Reporting Period

Company: MVB Financial Corp. (MVB)
Reporting Period: Fiscal year ended December 31, 2009
Business Overview: MVB is a West Virginia-based bank holding company operating a single community banking segment through its subsidiary, MVB Bank, Inc. The bank operates five offices in Marion, Harrison, Jefferson, and Berkeley counties. As of December 31, 2009, the company employed 73 full-time and 13 part-time staff.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability Increase: Net income increased by $578,000 (69.8%) to $1.4 million. This was driven primarily by a $1.1 million increase in net interest income and a $514,000 reduction in investment impairment losses.
• Asset Growth: Total assets grew by $94.1 million. Loans increased by $29.6 million, and deposits surged by $91.4 million, largely due to new products targeting brokerage firms and brokered certificates of deposit.
• Margin Compression: Net interest margin declined from 3.58% to 3.11% due to an 88 basis point decline in loan yields and a 69 basis point decline in investment portfolio yields, partially offset by a 99 basis point decrease in the cost of funds.
• Expense Increases: Non-interest expense rose to $8.3 million. Notable increases included FDIC insurance premiums (up 311% to $444,000 due to industry-wide bank failures) and advertising costs (up 31.5% to $309,000).
• Asset Quality: Non-performing assets decreased significantly from $2.1 million in 2008 to $1.2 million in 2009. Non-accrual loans dropped to zero from $1.1 million in the prior year.

Outlook, Risks, and Management Commentary

• Future Outlook: Management believes the bank is well-positioned in its West Virginia markets. Future plans involve leveraging technology and personal customer contact to capture market share. Loan growth is anticipated to remain strong.
• Capital Adequacy: The bank is categorized as "well-capitalized" by regulators. Total risk-based capital ratio was 13.2% (minimum 10%), Tier 1 capital ratio was 12.3% (minimum 6%), and the leverage ratio was 8.6% (minimum 5%).
• Risks and Contingencies:
  • Interest Rate Risk: The primary market risk is interest rate volatility. The bank utilizes simulation modeling to manage earnings at risk, maintaining limits of 10% variance for a 1% rate shift.
  • Investment Impairment: The bank held investment securities with unrealized losses of $122,000, which management deems temporary. In 2009, the bank recorded a $186,000 loss due to the failure of Silverton Bank, N.A., a correspondent bank in which it held stock.
  • FDIC Premiums: Significant increases in FDIC insurance costs are expected to continue as the deposit insurance fund is replenished.
• Dividends: The company paid $160,000 in dividends in 2009 ($0.10 per share). Dividend payments are subject to regulatory restrictions based on the bank's net profits.

Key Facts for Investor Verification

• Deposit Composition: Verify the sustainability of the $91.4 million deposit growth, which relied heavily on brokered certificates of deposit and new products targeting brokerage firms.
• FDIC Expense Trajectory: Monitor the impact of the 311% increase in FDIC insurance premiums on future net income margins.
• Loan Portfolio Concentration: Commercial loans represent 65.5% of the total loan portfolio; verify the credit quality and economic stability of the local commercial market in West Virginia.
• Investment Portfolio: Review the status of the $122,000 in unrealized losses on available-for-sale securities to ensure they remain classified as temporary.
• Related Party Transactions: Note that loans to officers and directors totaled $15.0 million, representing 55.4% of total equity capital.