PINX:MVBF MVB Financial Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)                                                                                                                                                                                                            

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

For the quarterly period ended March 31, 2012

 

OR

 

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 333-120931

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 ý          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 ý          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

Accelerated filer

Non-accelerated filer          

Smaller reporting company     ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o          No ý

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

As of May 14, 2012, the number of shares outstanding of the issuer’s only class of common stock was 2,234,767.

 
 

MVB Financial Corp.

Part I. Financial Information
Item 1. Financial Statements

The unaudited interim consolidated financial statements of MVB Financial Corp. and Subsidiaries (MVB or “the Company”) listed below are included on pages 2-19 of this report.

Consolidated Balance Sheets at March 31, 2012 and December 31, 2011

Consolidated Statements of Income for the Three Months ended March 31, 2012 and 2011

Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2012 and 2011 

Consolidated Statements of Cash Flows for the Three Months ended March 31, 2012 and 2011

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 20-31 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 1.a. 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
1

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)

 

   March 31   December 31 
   2012   2011 
   (Unaudited)   (Note 1) 
Assets          
Cash and due from banks  $11,787   $9,763 
Interest bearing balances   11,323    278 
Certificates of deposits in other banks   9,672    9,918 
Investment securities:          
    Securities held-to-maturity, at cost   14,088    13,568 
    Securities available-for-sale, at fair value   101,017    99,366 
           
Loans:   400,353    373,822 
    Less: Allowance for loan losses   (3,173)   (3,045)
    Net loans   397,180    370,777 
Loans held for sale   4,375    7,147 
Bank premises, furniture and equipment, net
   7,744    7,782 
 Bank owned life insurance   8,154    8,076 
Accrued interest receivable and other assets   7,028    6,806 
Total assets  $572,368   $533,481 
Liabilities          
Deposits          
    Non-interest bearing  $44,047   $38,632 
    Interest bearing   396,207    351,913 
    Total deposits   440,254    390,545 
           
Accrued interest, taxes and other liabilities   2,837    3,478 
Repurchase agreements   66,905    77,835 
Federal Home Loan Bank and other borrowings   9,710    9,767 
Long-term debt   4,124    4,124 
    Total liabilities   523,830    485,749 
           
Stockholders’ equity          
Preferred stock, $1,000 par value, 8,500 shares authorized and issued   8,500    8,500 
Common stock, $1 par value, 4,000,000 authorized,
2,234,767 and 2,234,767 issued
   2,235    2,235 
Additional paid-in capital
   32,643    32,603 
Treasury stock, 51,077 and 51,077 shares, respectively   (1,084)   (1,084)
Retained earnings   7,060    6,220 
Accumulated other comprehensive income/(loss)   (816)   (742)
    Total stockholders’ equity   48,538    47,732 
Total liabilities and stockholders’ equity  $572,368   $533,481 

See accompanying notes to unaudited financial statements.

2

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

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

 

   Three Months Ended 
   March 31 
   2012   2011 
Interest income          
  Interest and fees on loans  $4,588   $3,750 
  Interest on deposits with other banks   58    36 
  Interest on investment securities – taxable   426    344 
  Interest on tax exempt loans and securities   307    208 
Total interest income   5,379    4,338 
           
Interest expense          
Deposits   965    955 
Repurchase agreements   114    109 
FHLB and other borrowings   116    120 
Long-term debt   22    20 
Total interest expense   1,217    1,204 
Net interest income   4,162    3,134 
Provision for loan losses   675    300 
Net interest income after
provision for loan losses
   3,487    2,834 
           
Other income          
Service charges on deposit accounts   161    130 
Income on bank owned life insurance   78    47 
Visa debit card income   111    96 
Income on loans held for sale   430    92 
Other operating income   188    106 
Gain on sale of securities   66    149 
Total other income   1,034    620 
           
Other expense          
Salary and employee benefits   1,956    1,422 
Occupancy expense   204    143 
Equipment expense   156    126 
Data processing   88    36 
Visa debit card expense   91    77 
Advertising   167    75 
Legal and accounting fees   116    64 
Printing, stationery and supplies   34    37 
Consulting fees   113    92 
FDIC insurance   27    119 
Other taxes   44    49 
Other operating expenses   342    274 
Total other expense   3,338    2,514 
Income before income taxes   1,183    940 
Income tax expense   322    274 
Net income  $861   $666 
           
Basic net income per share after preferred dividends  $0.38   $0.33 
Diluted net income per share after preferred dividends  $0.38   $0.32 
Basic weighted average shares outstanding   2,183,690    2,032,542 
Diluted weighted average shares outstanding   2,233,747    2,068,683 

See accompanying notes to unaudited financial statements.

3

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows
(Unaudited) (Dollars in thousands)

   Three Months Ended 
  March 31   March 31 
   2012   2011 
Operating activities          
Net income  $861   $666 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   675    300 
Deferred income tax expense   201    171 
Depreciation   128    111 
Stock based compensation   40    28 
Loans originated for sale   (23,232)   (6,397)
Proceeds of loans sold   26,003    7,540 
Proceeds from sale of other real estate owned   30    234 
Loss on sale of other real estate owned   2     
(Gain) on sale of investment securities   (66)   (149)
Amortization, net of accretion   265    168 
(Increase) in interest receivable and other assets   (483)   (101)
(Decrease) in accrued interest, taxes, and other liabilities   (640)   (238)
    Net cash provided by operating activities   3,784    2,333 
Investing activities          
(Increase) in loans made to customers   (27,078)   (11,662)
Purchases of premises and equipment   (90)   (63)
(Increase) in interest bearing balances with banks, net   (11,046)   (15,993)
Purchases of certificates of deposit in other banks        
Maturities of certificates of deposit in other banks   246    16,094 
Purchases of investment securities available-for-sale   (13,281)   (33,881)
Proceeds from sales, maturities and calls of securities          
  Available-for-sale   11,323    8,052 
Proceeds from sales, maturities and calls of securities          
  held to maturity        
Purchases of investment securities held-to-maturity   (535)    
Purchase of bank owned life insurance       (1,200)
    Net cash (used in) investing activities   (40,461)   (38,653)
Financing activities          
Net increase in deposits   49,709    50,687 
Net (decrease) in repurchase agreements   (10,930)   (3,641)
Proceeds from  Federal Home Loan Bank borrowings   28,590    33,305 
Principal payments on Federal Home Loan Bank borrowings   (28,647)   (51,985)
Net proceeds of stock offering       6,515 
Dividends on preferred stock   21     
    Net cash provided by financing activities   38,701    34,881 
Increase/(decrease) in cash and cash equivalents   2,024    (1,439)
Cash and cash equivalents - beginning of period   9,763    3,713 
Cash and cash equivalents - end of period  $11,787   $2,274 

Cash payments for:

          
   Interest on deposits, repurchase agreements and borrowings  $1,218   $1,269 
   Income taxes  $   $ 

See accompanying notes to unaudited financial statements.

4

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)(Dollars in thousands)

 

   March 31, 2012   March 31, 2011 
         
Net Income   861    666 
           
Other comprehensive income/(loss), net of tax:          
           
Securities available for sale not other than temporarily impaired:          
  Gains/(losses) during the year   (123)   (208)
  Income tax effect   (49)   (83)
         - 
         - 
Other comprehensive income   (74)   (125)
           
Comprehensive income   787    541 
           

 

 

See accompanying notes to unaudited financial statements.

5

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 and Section 310(b) of Regulation SB. 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, 2011 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 three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

The accounting and reporting policies of MVB 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, 2011 has been extracted from audited financial statements included in MVB’s 2011 filing on Form 10-K. 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, 2011, Form 10-K filed with the Securities and Exchange Commission.

 

Note 2. - Loans

The following table summarizes the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2012. Activity in the allowance is presented for the period ended March 31, 2012 (in thousands):

 

6
           Home       Credit     
   Commercial   Residential   Equity   Installment   Card   Total 
ALL balance 12/31/11
  $2,164   $366   $249   $255   $11   $3,045 
Charge-offs   (544)           (5)       (549)
Recoveries           1    1        2 
Provision   626    30    (4)   22    1    675 
ALL balance 3/31/12  $2,246   $396   $246   $273   $12   $3,173 
Individually evaluated for impairment  $803   $16   $   $100   $   $919 
Collectively evaluated for impairment  $1,443   $380   $246   $173   $12   $2,254 

 

           Home       Credit     
   Commercial   Residential   Equity   Installment   Card   Total 
ALL balance 12/31/10
  $1,517   $460   $207   $274   $20   $2,478 
 Charge-offs   (22)   (65)   (76)   (70)   (3)   (236)
 Recoveries                10        10 
 Provision   222    49    3    25    1    300 
ALL balance 3/31/11  $1,717   $444   $134   $239   $18   $2,552 
 Individually evaluated  for impairment  $1,095   $135   $51   $   $2   $1,283 
 Collectively evaluated for impairment  $622   $309   $83   $239   $16   $1,269 

 

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.

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

   Commercial   Residential   Home
Equity
   Installment   Credit
Cards
   Total 
                         
Mar. 31, 2012                              
Total Loans  $253,723   $117,445   $16,493   $12,111   $581   $400,353 
Individually evaluated for impairment  $3,808   $76   $   $140   $   $4,024 
Collectively evaluated for impairment  $249,915   $117,369   $16,493   $11,971   $581   $396,329 

The following table summarizes the primary segments of the loan portfolio as of December 31, 2011 (in thousands):

   Commercial   Residential   Home
Equity
   Installment   Credit
Cards
   Total 
                         
December 31, 2011                              
Total Loans  $231,357   $112,753   $15,930   $13,217   $565   $373,822 
Individually evaluated for impairment  $393   $197   $262   $   $4   $856 
Collectively evaluated for impairment  $194,307   $71,489   $14,072   $12,830   $490   $293,188 
7

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 Corporation 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 Corporation 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 March 31, 2012 (in thousands):

           Impaired     
           Loans with     
   Impaired Loans with   No Specific     
   Specific Allowance   Allowance   Total Impaired Loans 
                   Unpaid 
   Recorded   Related   Recorded   Recorded   Principal 
Mar. 31, 2012  Investment   Allowance   Investment   Investment   Balance 
                     
 Commercial  $3,808   $803   $   $3,808   $3,808 
 Residential   76    16        76    76 
 Home Equity                    
 Installment   140    100        140    140 
 Credit Card                    
 Total impaired loans  $4,024   $919   $   $4,024   $4,024 

 

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, 2011 (in thousands):

       Impaired     
       Loans with     
   Impaired Loans with   No Specific     
   Specific Allowance   Allowance   Total Impaired Loans 
                   Unpaid 
   Recorded   Related   Recorded   Recorded   Principal 
Dec 31, 2011  Investment   Allowance   Investment   Investment   Balance 
                     
 Commercial  $2,597   $758   $   $2,597   $2,597 
 Residential   76    10        76    76 
 Home Equity   9    9        9    9 
 Installment   140    100        140    140 
 Credit Card                    
 Total impaired loans  $2,822   $877   $   $2,822   $2,822 

8

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

   March 31 
   2012   2011 
Average investment in impaired loans  $4,025   $1,390 
Interest income recognized on an accrual basis on impaired loans  $40   $14 

 

Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank's Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department performs an annual review of all commercial relationships $500,000 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 Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of March 31, 2012 and December 31, 2011 (in thousands):

       Special             
Mar. 31, 2012  Pass   Mention   Substandard   Doubtful   Total 
 Commercial  $240,648   $7,667   $1,600   $3,808   $253,723 
 Residential   115,384    1,572    489        117,445 
 Home Equity   16,323    95    75        16,493 
 Installment   11,733    231    7    140    12,111 
 Credit Card   581              

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