MVB FINANCIAL CORP - Quarter Report: 2010 September (Form 10-Q)

MVB FINANCIAL CORP - Quarter Report: 2010 September (Form 10-Q)

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Form 10-Q

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 September 30, 2010

¨	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

(Issuer’s telephone number)

Not Applicable

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

Indicate by check mark whether the registrant has (1) 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 ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ 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 November 15, 2010, the number of shares outstanding of the issuer’s only class of common stock was 1,633,830.

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 2-13 of this report.

	Consolidated Balance Sheets at September 30, 2010 and December 31, 2009	2

	Consolidated Statements of Income for the Nine and Three Months ended September 30, 2010 and 2009	3

	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2010 and 2009	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Management’s Discussion and Analysis of Financial Condition and Results of Operations is included on pages 14-26 of this report.

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	26

Item 4.	Controls and Procedures	26

Item 4T.	Controls and Procedures	26

Part II.	Other Information

Item 1.	Legal Proceedings	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Removed and Reserved	27

Item 5.	Other Information	27

Item 6.	Exhibits	27

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)


	September 30			December 31
	2010			2009
	(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	2,592		$	2,321
Interest bearing balances – FHLB		21,630			3,935
Certificates of deposits in other banks		20,877			49,442
Investment securities:
Securities held-to-maturity, at cost		7,465			6,594
Securities available-for-sale, at fair market value		65,823			37,292

Loans:		279,539			232,847
Less: Allowance for loan losses		(2,754	)		(2,241	)

Net loans		276,785			230,606
Loans held for sale		2,524			1,764
Bank premises, furniture and equipment, net		7,615			7,757
Accrued interest receivable and other assets		12,143			13,051

Total assets	$	417,454		$	352,762

Liabilities
Deposits
Non-interest bearing	$	31,188		$	23,493
Interest bearing		285,808			241,038

Total deposits		316,996			264,531

Accrued interest, taxes and other liabilities		2,890			2,130
Repurchase agreements		54,583			35,641
Federal Home Loan Bank borrowings		10,041			19,198
Long-term debt		4,124			4,124

Total liabilities		388,634			325,624

Stockholders’ equity
Preferred stock, $1,000 par value, 5,000 shares authorized; none issued		—			—
Common stock, $1 par value, 4,000,000 authorized, 1,633,830 and 1,629,971 issued		1,634			1,629
Additional paid-in capital		20,518			20,457
Treasury Stock, 38,218 and 23,036 shares, respectively		(826	)		(522	)
Retained earnings		7,472			5,917
Accumulated other comprehensive income (loss)		22			(343	)

Total stockholders’ equity		28,820			27,138

Total liabilities and stockholders’ equity	$	417,454		$	352,762

See accompanying notes to unaudited financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

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


	Nine Months Ended Sept. 30				Three Months Ended Sept. 30
	2010		2009		2010		2009
Interest income
Interest and fees on loans	$	9,795	$	8,838	$	3,449	$	3,021
Interest on deposits with other banks		501		483		115		189
Interest on investment securities – taxable		1,071		851		401		283
Interest on tax exempt loans and securities		586		422		224		160

Total interest income		11,953		10,594		4,189		3,653

Interest expense
Deposits		3,379		3,401		1,105		1,204
Repurchase agreements		338		158		115		81
Federal Home Loan Bank borrowings		385		403		123		128
Long-term debt		62		89		23		24

Total interest expense		4,164		4,051		1,366		1,437

Net interest income		7,789		6,543		2,823		2,216
Provision for loan losses		760		474		240		171
Net interest income after provision for loan losses		7,029		6,069		2,583		2,045


Other income
Service charges on deposit accounts		498		566		143		194
Income on bank owned life insurance		193		133		64		50
Visa debit card income		263		206		93		77
Income on loans held for sale		372		453		170		119
Other operating income		311		286		95		76
Gain on sale of securities		88		—		32		—

Total other income		1,725		1,644		597		516

Other expense
Salary and employee benefits		3,501		3,139		1,267		1,056
Occupancy expense		446		424		149		138
Equipment expense		350		297		127		106
Data processing		355		396		78		138
Visa debit card expense		218		173		79		65
Advertising		215		228		73		94
Legal and accounting fees		122		103		42		34
Printing, stationery and supplies		97		75		31		25
FDIC insurance		395		324		129		95
Other taxes		140		133		47		44
Loss on Silverton Bank Stock		—		186		—		—
Other operating expenses		825		673		313		252

Total other expense		6,664		6,151		2,335		2,047

Income before income taxes		2,090		1,562		845		514
Income tax expense		535		412		225		125

Net income	$	1,555	$	1,150	$	620	$	389


Basic net income per share	$	0.97	$	0.71	$	0.39	$	0.24
Diluted net income per share	$	0.96	$	0.70	$	0.38	$	0.23
Basic weighted average shares outstanding		1,599,382		1,622,183		1,593,629		1,629,971
Diluted weighted average shares outstanding		1,624,241		1,648,132		1,618,488		1,655,920

See accompanying notes to unaudited financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


	Nine Months Ended Sept. 30
	2010			2009
Operating activities
Net income	$	1,555		$	1,150
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		760			474
Deferred income tax (benefit)		(274	)		(71	)
Depreciation		338			332
Stock based compensation		27			11
Loans originated for sale		(27,717	)		(42,155	)
Proceeds of loans sold		26,957			40,986
Proceeds from sale of other real estate owned		866			—
(Gain) on sale of other real estate owned		(61	)		—
Amortization, net of accretion		331			56
(Increase) in interest receivable and other assets		(4	)		(28	)
Increase in accrued interest, taxes, and other liabilities		760			435

Net cash provided by operating activities		3,538			1,190
Investing activities
(Increase) in loans made to customers		(46,939	)		(20,925	)
Purchases of premises and equipment		(196	)		(125	)
(Increase) in interest bearing balances with banks, net		(17,695	)		(15,363	)
Purchases of certificates of deposit in other banks		(16,321	)		(47,863	)
Maturities of certificates of deposit in other banks		44,886			17,569
Purchases of investment securities available-for-sale		(59,976	)		(29,509	)
Proceeds from sales, maturities and calls of securities Available-for-sale		31,501			10,190
Proceeds from sales, maturities and calls of securities held to maturity		474			5,601
Purchases of investment securities held-to-maturity		(985	)		(3,688	)
Purchase of bank owned life insurance		—			(1,000	)

Net cash (used in) investing activities		(65,251	)		(85,113	)
Financing activities
Net increase in deposits		52,465			81,371
Net increase in repurchase agreements		18,942			16,996
Proceeds from Federal Home Loan Bank borrowings		92,500			5,700
Principal payments on Federal Home Loan Bank borrowings		(101,657	)		(22,393	)
Purchase of treasury stock		(304	)		(223	)
Common stock options exercised		38			293

Net cash provided by financing activities		61,984			81,744

Increase/decrease in cash and cash equivalents		271			(2,179	)
Cash and cash equivalents - beginning of period		2,321		$	4,710

Cash and cash equivalents - end of period	$	2,592		$	2,531

Cash payments for:
Interest on deposits, repurchase agreements and borrowings	$	4,296		$	4,012
Income taxes	$	516		$	467

See accompanying notes to unaudited financial statements.

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, 2009 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 nine and three months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

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, 2009 has been extracted from audited financial statements included in MVB’s 2009 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, 2009, Form 10-K filed with the Securities and Exchange Commission.

Management has reviewed events occurring through November 15, 2010, the date the financial statements were issued and no subsequent events transpired requiring accrual or disclosure.

Note 2. Allowance for Loan Losses

The provision for loan losses for the nine months ended September 30, 2010 and 2009 was $760 and $474, respectively. Management bases the provision for loan losses upon its continuing evaluation of the adequacy of the allowance for loan losses and the overall management of inherent credit risk.

Management continually monitors the risk in the loan portfolio through review of the monthly delinquency reports and the Loan Review Committee, which is responsible for the determination of the adequacy of the allowance for loan losses. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. The allocation among the various components of the loan portfolio and its adequacy is somewhat difficult considering the limited operating history in newer markets. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquency status, related deposit account activity, estimates of cash flow and underlying collateral value.

The results of this analysis at September 30, 2010, indicate that the allowance for loan losses is considered adequate to absorb losses inherent in the portfolio.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)


	September 30
(Dollars in thousands)	2010			2009

Allowance for loan losses
Balance, beginning of period	$	2,241		$	1,860

Loan charge-offs		(294	)		(257	)
Loan recoveries		47			49

Net charge-offs		(247	)		(208	)
Loan loss provision		760			474

Balance, end of period	$	2,754		$	2,126

Total non-performing assets and accruing loans past due 90 days are summarized as follows:


	September 30
(Dollars in thousands)	2010			2009

Non-accrual loans:
Commercial	$	629		$	—
Real Estate		511			972
Consumer		80			13

Total non-accrual loans		1,220			985
Renegotiated loans		—			—

Total non-performing loans		1,220			985
Other real estate, net		333			476

Total non-performing assets	$	1,553		$	1,461


Accruing loans past due 90 days or more	$	1,091		$	2,156
Non-performing loans as a % of total loans		.44	%		.44	%
Allowance for loan losses as a % of non-performing loans		225.74	%		215.84	%

Note 3. Borrowed Funds

The Company is a party to repurchase agreements with certain customers. As of September 30, 2010 and December 31, 2009, the Company had repurchase agreements of $54.6 million and $35.6 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 September 30, 2010 was approximately $106.7 million.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Borrowings from the FHLB were as follows:


	Sept. 30 2010		December 31 2009

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.		953		1,012

Fixed interest rate note, originating April 2002, due May 2017, interest of 5.90% is payable monthly.		651		662

Fixed interest rate note, originating July 2006, due July 2016, interest of 4.50% is payable in monthly installments of $8.		1,351		1,380

Fixed interest rate note, originating October 2006, due October 2021, interest of 5.20% is payable in monthly installments of $6.		1,094		1,109

Fixed interest rate note, originating February 2007, due February 2022, interest of 5.22% is payable in monthly installments of $5.		917		929

Fixed interest rate note, originating April 2007, due April 2022, interest of 5.18% is payable in monthly installments of $6.		1,038		1,051

Floating interest rate note, originating March 2003, due December 2011, interest of 0.70% payable monthly.		—		—

Fixed interest rate note, originating December 2007, due December 2017, interest of 5.25% is payable in monthly installments of $7.		1,037		1,055

Fixed interest rate note originating November 2009, due May 2010, interest of 0.35% payable quarterly.		—		4,000

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

Fixed interest rate note originating May 2009, due May 2010, interest of .72% payable quarterly.		—		5,000


	$	10,041	$	19,198

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 will be loaned to the Company under subordinated Debentures (the “Debentures”) issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the Company’s Tier 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 September 30, 2010 and 2009 and interest expense of $62 and $89 for the periods ended September 30, 2010 and 2009.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

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


Year	Amount
2010		53
2011		221
2012		232
2013		2,244
2014		1,257
Thereafter		10,158

		14,165

Note 4. – Comprehensive Income

The Company is required to present comprehensive income in a full set of general-purpose financial statements for all periods presented. The following represents comprehensive income for the nine and three month periods ended September 30, 2010 and September 30, 2009.

The following table represents other comprehensive income before tax and net of tax:


	For the three months ended Sept. 30						For the nine months ended Sept. 30
(in thousands)	2010			2009			2010			2009
Unrealized gain (losses) on securities available for sale	$	257		$	40		$	747		$	(49	)
Pension liability adjustment		—			—			(139	)		—
Tax effect		(103	)		(16	)		(243	)		20

Net of tax effect		154			24			365			(29	)
Net income as reported		620			389			1,555			1,150

Total comprehensive income	$	774		$	413		$	1,920		$	1,121

Note 5 – Net Income Per Common Share

MVB 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 September 30, 2010 and 2009, stock options to purchase 124,297 and 124,158 shares at an average price of $16.00 and $15.82, respectively, were outstanding. For the three months ended September 30, 2010 and 2009, the dilutive effect of stock options was 24,859 and 25,949 shares, respectively.

Note 6 – Recent Accounting Pronouncements

In December 2009, the FASB issued ASU 2009-16, Accounting for Transfer of Financial Assets. ASU 2009-16 provides guidance to improve the relevance, representational faithfulness, and comparability of the information that an entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. ASU 2009-16 is effective for annual periods beginning after November 15, 2009 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash – a consensus of the FASB Emerging Issues Task Force. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In January 2010, the FASB issued ASU 2010-05, Compensation – Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. ASU 2010-05 updates existing guidance to address the SEC staff’s views on overcoming the presumption that for certain shareholders escrowed share arrangements represent compensation. ASU 2010-05 is effective January 15, 2010. The adoption of this guidance did not have a material impact on the Company’s financial position.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In February 2010, the FASB issued ASU 2010-08, Technical Corrections to Various Topics. ASU 2010-08 clarifies guidance on embedded derivatives and hedging. ASU 2010-08 is effective for interim and annual periods beginning after December 15, 2009. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operation.

In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging. ASU 2010-11 provides clarification and related additional examples to improve financial reporting by resolving potential ambiguity about the breadth of the embedded credit derivative scope exception in ASC 815-15-15-8. ASU 2010-11 is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

In April 2010, the FASB issued ASU 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan is a Part of a Pool That is Accounted for as a Single Asset – a consensus of the FASB Emerging Issues Task Force. ASU 2010-18 clarifies the treatment for a modified loan that was acquired as part of a pool of assets. Refinancing or restructuring the loan does not make it eligible for removal from the pool, the FASB said. The amendment will be effective for loans that are part of an asset pool and are modified during financial reporting periods that end July 15, 2010 or later, and is not expected to have a significant impact on the Company’s financial statements.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Note 7 – 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.

The following table presents the assets and liabilities reported on the consolidated statements of financial condition at their fair value as of September 30, 2010 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.

September 30, 2010

(In Thousands)

Level I

Level II

Level III

Total

Assets measured on a recurring basis:

Investment securities, available for sale

U.S. Agency Securities

36,636

Mortgage Backed Securities

29,063

Other Securities

124

December 31, 2009

(In Thousands)

Level I

Level II

Level III

Total

Assets measured on a recurring basis:

Investment securities, available for sale

U.S. Agency Securities

16,300

Mortgage Backed Securities

20,868

Other Securities

124

The following summarizes the methods and significant assumptions used by the Company in estimating its fair value disclosures for financial instruments.

Short-term financial instruments: The carrying values of short-term financial instruments including cash and due from banks, interest bearing balances – FHLB, and certificates of deposit in other banks approximate the fair value of these instruments.

Securities: Estimated fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities.

Loans: The estimated fair values for loans are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for loans with similar terms of borrowers of similar credit quality. No prepayments of principal are assumed.

Accrued interest receivable and payable: The carrying values of accrued interest receivable and payable approximate their estimated fair values.

Repurchase Agreements: The fair values of repurchase agreements approximate their estimated fair values.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Deposits: The estimated fair values of demand deposits (i.e., non interest bearing checking, NOW and money market), savings accounts and other variable rate deposits approximate their carrying values. Fair values of fixed maturity deposits are estimated using a discounted cash flow methodology at rates currently offered for deposits with similar remaining maturities. Any intangible value of long-term relationships with depositors is not considered in estimating the fair values disclosed.

Off-balance sheet instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of agreements and the present credit standing of the counterparties. The amounts of fees currently charged on commitments and standby letters of credit are deemed significant, and therefore, the estimated fair values and carrying values are not shown.

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

The carrying values and estimated fair values of the Company’s financial instruments are summarized as follows:


	September 30, 2010
	Carrying Value		Estimated Fair Value
	(Dollars in thousands)
Financial assets:
Cash and due from banks		2,592		2,592
Interest bearing balances		42,507		42,507
Securities available-for-sale		65,823		65,823
Securities held-to-maturity		7,465		7,495
Loans		276,785		285,365
Accrued interest receivable		1,339		1,339

	$	396,511	$	405,121


Financial liabilities:
Deposits	$	316,996	$	320,166
Repurchase agreements		54,583		54,583
Federal Home Loan Bank Borrowings		10,041		10,834
Accrued interest payable		400		400
Long-term debt		4,124		4,124

	$	386,144		390,107

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Amortized cost and approximate fair values of investment securities held-to-maturity at September 30, 2010, including gross unrealized gains and losses, are summarized as follows:


(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Approximate Fair Value

Municipal securities	$	6,465	$	297	$	—	$	6,762
U. S. Agency securities		1,000		31		—		1,031

	$	7,465	$	328	$	—	$	7,793

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

Amortized cost and approximate fair values of investment securities available-for-sale at September 30, 2010 are summarized as follows:


								Approximate
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		Loss			Value

U. S. Agency securities	$	35,983	$	655	$	(2	)	$	36,636
Mortgage-backed securities		28,726		355		(18	)		29,063
Other securities		124		—		—			124

	$	64,833	$	1,010	$	(20	)	$	65,823

The following tables summarize amortized cost and approximate fair values of securities by maturity:


	September 30, 2010
	Held to Maturity				Available for sale
			Approximate				Approximate
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Within one year	$	—	$	—	$	—	$	—
After one year, but within five		115		116		30,419		30,798
After five years, but within ten		2,337		2,445		2,926		3,063
After ten Years		5,013		5,232		31,488		31,962

Total	$	7,465	$	7,793	$	64,833	$	65,823

The Company’s investment portfolio includes securities that are in an unrealized loss position as of September 30, 2010, the details of which are included in the following table. Although these securities, if sold at September 30, 2010 would result in a pretax loss of $20, the Company has no intent to sell the applicable securities at such market values, and maintains the Company has the ability to hold these securities until all principal has been recovered. Declines in the market values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of September 30, 2010, the Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in market value.

The following table discloses investments in an unrealized loss position:

At September 30, 2010, total temporary impairment totaled $10.


	Less than 12 months					12 months or more
Description and number of positions	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss

U.S. Agencies(2)	$	—	$	(2	)	$	—	$	—
Mortgage-backed securities(6) (11)		7,909		(8	)		1,202		(10	)
Municipal securities(-)		—		—			—		—

	$	7,909	$	(10	)	$	1,202	$	(10	)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Private Securities Litigation Reform Act of 1995 indicates that the disclosure of forward-looking information is desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements that involve risk and uncertainty. All statements other than statements of historical fact included in this Form 10-Q including statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. In order to comply with the terms of the safe harbor, the corporation notes that a variety of factors, (e.g., changes in the national and local economies, changes in the interest rate environment, competition, etc.) could cause MVB’s actual results and experience to differ materially from the anticipated results or other expectations expressed in those forward-looking statements.

At September 30, 2010 and for the Nine and Three Months Ended September 30, 2010 and 2009:


	Nine Months Ended Sept. 30						Three Months Ended Sept. 30
	2010			2009			2010			2009
Net income to:
Average assets		.54	%		.52	%		.62	%		.48	%
Average stockholders’ equity		7.58			5.78			8.83			5.69
Net interest margin		2.87			3.22			3.00			3.06

Average stockholders’ equity to average assets		7.15			8.96			7.08			8.36
Total loans to total deposits (end of period)		88.18			88.02			88.18			88.02
Allowance for loan losses to total loans (end of period)		.99			.95			.99			.95
Efficiency ratio		70.04			75.13			68.27			74.93
Capital ratios:
Tier 1 capital ratio		12.02			11.97			12.02			11.97
Risk-based capital ratio		13.07			12.84			13.07			12.84
Leverage ratio		7.96			9.14			7.96			9.14
Cash dividends as a percentage of net income		N/A			N/A			N/A			N/A
Per share data:
Book value per share (end of period)	$	17.64		$	16.60		$	17.64		$	16.60
Market value per share (end of period)*		20.00			20.00			20.00			20.00
Basic earnings per share		.97			.71			.39			.24
Diluted earnings per share		.96			.70			.38			.23

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

Introduction

The following discussion and analysis of the consolidated financial statements of MVB Financial Corp. is presented to provide insight into management’s assessment of the financial results. MVB has three wholly-owned second tier holding companies which own 100 percent of MVB Bank, Inc.(“the bank”). The bank is the primary financial entity in this discussion. Unless otherwise noted, this discussion will be in reference to the bank.

MVB Bank, Inc. was chartered by the State of West Virginia and is subject to regulation, supervision, and examination by the Federal Deposit Insurance Corporation and the West Virginia Department of Banking. The bank is not a member of the Federal Reserve System. The bank is a member of the Federal Home Loan Bank of Pittsburgh.

The bank began operations January 4, 1999, at 301 Virginia Avenue in Fairmont, West Virginia. MVB Bank, Inc. provides a full array of financial products and services to its customers, including traditional banking products such as deposit accounts, lending products, debit cards, automated teller machines, and safe deposit rental facilities. The bank opened a banking office in the Shop N Save supermarket in White Hall, WV during the second quarter of 2000. During August of 2005, the bank opened a full-service office at 1000 Johnson Avenue in Bridgeport, WV. In October of 2005 MVB Bank, Inc. purchased an office at 88 Somerset Boulevard in Charles Town, WV. Additionally, the bank opened a full service office at 651 Foxcroft Avenue in Martinsburg, WV during August 2007.

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.

Application of Critical Accounting Policies

MVB’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 MVB are presented in Note 1 to the audited consolidated financial statements included in MVB’s 2009 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in management’s discussion and analysis of operations, provide information on how significant assets and liabilities are valued in the 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.

Results of Operations

Overview of the Statement of Income

For the quarter ended September 30, 2010, MVB earned $620 compared to $389 in the third quarter of 2009. Net interest income increased by $607, other income increased by $81 and other expenses increased by $288. The increase in net interest income was driven in part by a rate decrease on interest bearing liabilities throughout 2009 and 2010 which resulted in a 49 basis point reduction in average interest rates paid during the third quarter of 2010 compared to the same period in 2009. The biggest influence upon interest income was the continued growth of the MVB balance sheet, with $42.7 million in average loan growth and $41.4 million in investment portfolio growth. The increase in other operating expenses was principally the result of salaries expense increasing by $211, mainly the result of the addition of a correspondent mortgage lending program along with the addition of three seasoned commercial lenders in the Central region. Equipment and depreciation costs increased $32, the result of updating fully depreciated computer equipment as well as the start up expenses of the correspondent mortgage lending program. Data processing and Visa debit card costs decreased $46 due to the renegotiation of MVB’s data processing contract. FDIC insurance costs were up $34 due to deposit growth and other operating expenses were up $61 relating to consulting fees for asset and liability services and for MVChecking.

Loan loss provisions of $240 and $171 were made for the quarters ended September 30, 2010 and 2009, 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.

Non-interest income for the quarters ended September 30, 2010 and 2009 totaled $597 and $516, respectively. The most significant portions of non-interest income are service charges on deposit accounts, which totaled $143 at September 30, 2010 and income on loans held for sale which totaled $170, an increase of $51 over the third quarter of 2009. Gain on sale of securities was $32 in the third quarter of 2010 versus the $0 in the third quarter of 2009, due to the sale of bullet agency securities.

Non-interest expense for the quarters ended September 30, 2010 and 2009 totaled $2.3 million and $2.0 million, respectively. The most significant increases were as discussed above.

For the nine months ended September 30, 2010 MVB earned $1,555 compared to $1,150 for the same time period in 2009. This $405 increase is mainly the result of balance sheet growth in the areas of loans and investments as discussed above, resulting in an increase in net interest income after provision for loan losses of $960 for the first nine months of 2010.

Loan loss provisions of $760 and $474 were made for the nine months ended September 30, 2010 and 2009, respectively.

Non-interest income for the nine months ended September 30, 2010 and 2009 totaled $1.7 million and $1.6 million, respectively. Income from the sale of loans into the secondary market decreased by $81 but was offset by gains on sale of securities of $88, increased BOLI income of $60 and increased debit card income of $57.

Non-interest expense for the nine months ended September 30, 2010 and 2009 totaled $6.7 million and $6.2 million. This $513 increase was mainly the result of the following: an increase in salaries expense of $362, increased other operating expenses of $152, increased FDIC insurance costs of $71, increased equipment and occupancy costs of $75 and increased debit card expense of $45. The salaries increase relates to the addition of correspondent mortgage lending and three additional commercial lenders. Other operating expense increases were in the areas of consulting, legal, postage and director fees.

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 September 30, 2010 and 2009 was 3.00% and 3.06% respectively. During 2008 the Federal Reserve began a series of rate cuts resulting in a total rate decrease of 4.25%. This rate decrease had the greatest impact on MVB in the yield on commercial loans, which decreased from 5.49% at September 30, 2009 to 5.31% at September 30, 2010. MVB’s yield on mortgage loans has also decreased from 5.95% at September 30, 2009 to 5.60% at September 30, 2010. This decrease is mainly the result of the addition of Freedom mortgage loans, a 10 year fixed rate product offering a 4.66% rate. The decline in the yield on earning assets for MVB is also the result of $28.3 million of CDs with other banks yielding 1.57%, funded with brokered deposits or borrowings to provide around a 1% return. While these transactions hurt the net interest margin and return on assets, they provided more dollars of net income. MVB’s cost of funds has declined 49 basis points from the third quarter of 2009 as a result of the following: a 58 basis point reduction on CDs and IRAs, a 44 basis point reduction on NOW accounts and a 21 basis point reduction on MMDAs.

Management continuously monitors the effects of net interest margin on the performance of the bank. 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 Sept 2010								Three months ended Sept 2009
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost

Interest-bearing deposits in banks	$	9,994		$	4		0.16	%	$	2,270		$	4		0.70	%
CDs with banks		28,332			111		1.57			34,729			185		2.13
Investment securities		71,030			464		2.61			29,591			312		4.22
Loans
Commercial		161,574			2,146		5.31			144,106			1,978		5.49
Tax exempt		14,871			161		4.33			12,299			132		4.29
Real estate		75,566			1,058		5.60			53,006			789		5.95
Consumer		14,139			245		6.93			14,004			253		7.23

Total loans		266,150			3,610		5.43			223,415			3,152		5.64


Total earning assets		375,506			4,189		4.46			290,005			3,653		5.04
Cash and due from banks		2,313								15,255
Other assets		19,119								16,922

Total assets	$	396,938							$	322,182


Liabilities
Deposits:
Non-interest bearing demand	$	30,748		$	—				$	22,487		$	—
NOW		98,195			295		1.20			47,803			196		1.64
Money market checking		31,145			75		0.96			29,301			86		1.17
Savings		7,949			2		0.10			6,844			1		0.06
IRAs		10,955			84		3.07			9,182			84		3.66
CDs		124,010			649		2.09			125,223			837		2.67
Repurchase agreements & FFS		45,187			115		1.02			32,773			81		0.99
FHLB borrowings		13,807			123		3.56			15,323			128		3.34
Long-term debt		4,124			23		2.23			4,124			24		2.33

Total interest-bearing liabilities		335,372			1,366		1.63			270,573			1,437		2.12

Other liabilities		2,727								2,200

Total liabilities		368,847								295,260

Stockholders’ equity
Common stock		1,632								1,630
Paid-in capital		20,488								20,451
Treasury Stock		(825	)							(523	)
Retained earnings		6,844								5,735
Accumulated other comprehensive income		(48	)							(371	)

Total stockholders’ equity		28,091								26,922

Total liabilities and stockholders’ equity	$	396,938							$	322,182


Net interest spread							2.83								2.92
Impact of non-interest bearing funds on margin							0.17								0.14

Net interest income-margin				$	2,823		3.00	%				$	2,216		3.06	%

Average Balances and Interest Rates

(Unaudited)(Dollars in thousands)


	Nine months ended Sept 2010								Nine months ended Sept 2009
	Average Balance			Interest Income/ Expense		Yield/ Cost			Average Balance			Interest Income/ Expense		Yield/ Cost

Interest-bearing deposits in banks	$	10,698		$	14		0.17	%	$	1,027		$	4		0.52	%
CDs with banks		40,062			487		1.62			27,844			479		2.29
Investment securities		60,814			1,257		2.76			25,234			901		4.76
Loans
Commercial		153,194			6,123		5.33			140,694			5,786		5.48
Tax exempt		12,474			400		4.28			11,503			373		4.32
Real estate		69,840			2,950		5.63			50,979			2,309		6.04
Consumer		13,928			722		6.91			13,745			742		7.20

Total loans		249,436			10,195		5.45			216,921			9,210		5.66


Total earning assets		361,010			11,953		4.41			271,026			10,594		5.21
Cash and due from banks		2,295								8,582
Other assets		19,041								16,548

Total assets	$	382,346							$	296,156


Liabilities
Deposits:
Non-interest bearing demand	$	30,167		$	—				$	22,652		$	—
NOW		85,785			876		1.36			34,343			337		1.31
Money market checking		31,096			226		0.97			27,674			224		1.08
Savings		7,741			6		0.10			7,138			5		0.09
IRAs		10,900			259		3.17			8,579			245		3.81
CDs		123,985			2,012		2.16			122,436			2,590		2.82
Repurchase agreements & FFS		41,179			338		1.09			22,996			159		0.92
FHLB borrowings		17,515			385		2.93			17,573			403		3.06
Long-term debt		4,124			62		2.00			4,124			88		2.85

Total interest-bearing liabilities		322,325			4,164		1.72			244,863			4,051		2.21

Other liabilities		2,500								2,103

Total liabilities		354,992								269,618

Stockholders’ equity
Common stock		1,631								1,622
Paid-in capital		20,470								20,370
Treasury Stock		(688	)							(499	)
Retained earnings		6,165								5,373
Accumulated other comprehensive income		(224	)							(328	)

Total stockholders’ equity		27,354								26,538

Total liabilities and stockholders’ equity	$	382,346							$	296,156


Net interest spread							2.69								3.00
Impact of non-interest bearing funds on margin							0.18								0.22

Net interest income-margin				$	7,789		2.87	%				$	6,543		3.22	%

Non-Interest Income

Service charges on deposit accounts generate the core of the bank’s non-interest income. Non-interest income totaled $597 in the third quarter of 2010 compared to $516 in the third quarter of 2009. This increase of $81 is the result of an increase of $51 in income on loans held for sale and a $32 gain on sale of securities.

Service charges on deposit accounts include mainly non-sufficient funds and returned check fees, allowable overdraft fees and service charges on commercial accounts.

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 MVB.

Non-Interest Expense

For the third quarter of 2010, non-interest expense totaled $2.3 million compared to $2.0 million in the third quarter of 2009. MVB’s efficiency ratio was 68.27% for the third quarter of 2010 compared to 74.93% for the third quarter of 2009. This ratio measures the efficiency of non-interest expenses incurred in relationship to net interest income plus non-interest income.

Salaries and benefits totaled $1.3 million for the quarter ended September 30, 2010 compared to $1.1 million for the quarter ended September 30, 2009. This $211 increase in salaries and benefits is mainly the result of the addition of correspondent lending staff and the addition of three commercial lenders. MVB had 81 full-time equivalent personnel at September 30, 2010 compared to 76 full-time equivalent personnel as of September 30, 2009. Management will continue to strive to find new ways of increasing efficiencies and leveraging its resources, while effectively optimizing customer service.

For the quarters ended September 30, 2010 and 2009, occupancy expense totaled $149 and $138, respectively.

Other operating expense totaled $313 in the third quarter of 2010 compared to $252 in the third quarter of 2009. The largest items relating to this increase were in the areas of consulting, legal, postage and director fees.

Return on Average Assets and Average Equity

Returns on average assets (ROA) and average equity (ROE) were .62% and 8.83% for the third quarter of 2010 compared to .48% and 5.69% in the third quarter of 2009.

Overview of the Statement of Condition

MVB’s interest-earning assets, interest-bearing liabilities, and stockholders’ equity changed significantly during the third quarter of 2010 compared to 2009. The most significant areas of change between the quarters ended September 30, 2010 and September 30, 2009 were as follows: investment securities increased from an average balance of $29.6 million to an average balance of $71.0 million, loans increased to an average balance of $266.1 million from $223.4 million and interest-bearing liabilities grew to an average balance of $335.4 million from $270.6 million. These trends reflect the continued growth of MVB in the investment, loan and deposit areas.

Total assets at September 30, 2010 were $417.4 million or an increase of $64.7 million since December 31, 2009. The greatest areas of increase were $29.4 million in investment securities and $46.7 million in loan growth, principally in the USDA secured arena. Interest bearing balances with banks increased $17.7 million from 2009, the result of significant public funds deposit increases at the end of the quarter, which should decline early in quarter four.

Deposits totaled $317.0 million at September 30, 2010 or an increase of $52.5 million since December 31, 2009. $54 million of this increase is the result of the brokerage buster product, MVChecking and governmental deposits. The brokerage buster product was introduced in early 2009 and has been a huge success in attracting large demand deposits at an attractive rate. MVChecking is a rewards checking account also began in early 2009 which through September 30, 2010 had added $17.0 million in demand deposits. The governmental deposits are the result of winning a 5 year county deposit bid in early 2010 as well as the addition of a second county deposit bid in the third quarter of 2010. Repurchase agreements totaled $54.6 million and have increased $18.9 million since December 31, 2009.

Federal Home Loan Bank borrowings decreased by $9.2 million from December 31, 2009, mostly the result of increased deposit volume.

Stockholders’ equity has increased approximately $1.7 million from December 31, 2009 due to earnings for the nine months ended September 30, 2010 of $1.6 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $2.6 million as of September 30, 2010 compared to $2.3 million as of December 31, 2009.

Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity and performance demands. Management believes the liquidity needs of MVB are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources, and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable MVB to meet cash obligations as they come due.

Investment Securities

Investment securities totaled $73.3 million as of September 30, 2010 and $43.9 million as of December 31, 2009. Government sponsored agency securities comprise the majority of the portfolio. This $29.4 million increase is the result of putting excess deposit funds to work in building bullet agency ladders that roll down the yield curve, as well as adding investments to secure the governmental deposits.

Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through Asset/Liability Committee meetings. The group also monitors net interest income, sets pricing guidelines, and manages interest rate risk for the bank. Through active balance sheet management and analysis of the investment securities portfolio, the bank maintains sufficient liquidity to satisfy depositor requirements and the various credit needs of its customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.

Loans

The bank’s lending is primarily focused in the Marion, Harrison, Jefferson and Berkeley County areas of West Virginia, and consists primarily of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending.

The following table details total loans outstanding as of:


(Dollars in thousands)	September 30 2010		December 31 2009

Commercial and nonresidential real estate	$	182,404	$	152,426
Residential real estate		83,626		67,507
Consumer and other		13,509		12,914

Total loans	$	279,539	$	232,847

Loan Concentration

At September 30, 2010, commercial loans comprised the largest component of the loan portfolio. The majority of commercial loans that are not secured by real estate are lines of credit secured by accounts receivable. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in numerous different industries but primarily located in our market areas.

Allowance for Loan Losses

Management continually monitors the loan portfolio through review of the monthly delinquency reports and through the Loan Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the allowance for loan losses. Their analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquency status, related deposit account activity, where applicable, local market rumors, which are generally based on some factual information, and changes in the local and national economy. While local market rumors are not measurable or perhaps not readily supportable, historically, this form of information can be an indication of a potential problem. The allowance for loan losses is further based upon the internal risk rating assigned to the various loan types within the portfolio. The Bank recognizes that a significant part of the loan review process and the evaluation of the Allowance for Loan Losses is the initial identification of emerging problem loans and the appropriate Risk Grade classification and loss allocations.

The banks loans are reviewed and graded on a basis that is consistent with the system used by state and federal bank examiners. The bank has four (4) grades for passing (1, 2, 3, 4) three (3) grades of other loans specially mentioned (5, 6 and 0), and one grade each for substandard (7), doubtful (8), and loss (9).

In determining the allowance for loan losses, MVB segregates the loan portfolio by loan type, risk grades and by region for certain loan types. The loan types are Commercial, Real Estate, Home Equity, Consumer Loans and Credit Cards. The loan types are further segregated by specific loan categories within each Loan type based upon risk and trends. Commercial is segregated into Government guaranteed, tax exempt, cash secured and all other commercial loans by region. Consumer loans are segregated by all direct consumer loans and indirect auto and recreational loans.

The entire bank Commercial Loan portfolio has been Risk Graded utilizing the above Risk Grading system and evaluated accordingly in determining the allowance for loan losses. Residential, Home Equity, Consumer loans and Credit Cards are Risk Graded for 5 and above and evaluated accordingly in determining the allowance for loan losses. Specific loss estimates based upon current data available are determined for any loans determined a Risk grade 7 or above. Historical loss ratios are applied to all other loans with similar risk characteristics. The bank is using a 3 year historical loss ratio due to trends in charge-offs, delinquency, non-performing and the economy locally and nationally. The bank previously used a 5 year historical loss ratio.

Funding Sources

MVB considers a number of alternatives, including but not limited to deposits, short-term borrowings, and long-term borrowings when evaluating funding sources. Traditional deposits continue to be the most significant source of funds for the bank, reaching $317.0 million at September 30, 2010.

Non interest bearing deposits remain a core funding source for MVB. At September 30, 2010, non-interest bearing deposits totaled $31.2 million compared to $23.5 million at December 31, 2009. Management intends to continue to focus on finding ways to increase the bank’s base of non-interest bearing funding sources.

Interest-bearing deposits totaled $285.9 million at September 30, 2010 compared to $241.0 million at December 31, 2009. Average interest-bearing liabilities totaled $335.4 million during the third quarter of 2010 compared to $270.6 million for the third quarter of 2009. Average non-interest bearing demand deposits totaled $30.7 million for the third quarter of 2010 compared to $22.5 million for the third quarter of 2009. Management will continue to emphasize deposit gathering in 2010 by offering outstanding customer service and competitively priced products. Management will also concentrate on balancing deposit growth with adequate net interest margin to meet MVB’s strategic goals.

Along with traditional deposits, MVB has access to both repurchase agreements, which are corporate deposits secured by pledging securities from the investment portfolio, and Federal Home Loan Bank borrowings to fund its operations and investments. At September 30, 2010, repurchase agreements totaled $54.6 million compared to $35.6 million at December 31, 2009. In addition to the aforementioned funds alternatives, MVB has access to more than $106.7 million through additional advances from the Federal Home Loan Bank of Pittsburgh and the ability to readily sell jumbo certificates of deposits to other banks as well as brokered deposit markets.

Liquidity

MVB recognizes the importance of liquidity in the day-to-day operations of the bank, and believes it is critical to have a plan for addressing liquidity in times of crisis, as well as prudently managing levels to maximize earnings. The bank has historically recognized the need for funding sources that go beyond the most important source which is retail deposit business. MVB has created a funding program that identifies various wholesale funding sources that may be used whenever appropriate. These sources include the following: FHLB advances, brokered deposits, CDARS, repurchase agreements, internet CDs through Qwickrate, the Federal Reserve discount window, State of West Virginia CD auctions, and fed funds purchased. Limits have been set as to how much MVB will utilize each identified source. MVB currently is taking advantage of all of the above, with the exception of fed funds purchased and the discount window. This allows the bank to lower funding costs slightly while documenting the availability of each.

Current Economic Conditions

The current economic climate in West Virginia, and in particular in the four counties MVB focuses in is better than the national climate. Unemployment in the United States was 9.5% in both June 2009 and June 2010. The unemployment levels in the four counties MVB operates in were as follows: Berkeley County unemployment was 8.7% in June 2010, compared to 9.0% in June 2009. Harrison County’s unemployment rate for June 2010 was 7.3% versus 7.2% in June 2009. Jefferson County’s unemployment rate improved from 7.5% in June 2009 to 6.8% in June 2010 and Marion County’s unemployment rate increased from 7.0% in June of 2009 to 7.6% in June of 2010. The numbers from all four counties continue to be significantly better than the national numbers.

MVB’s nonperforming loan information supports the fact that the West Virginia economy has not suffered as much as that of the nation as a whole. Nonperforming loans to total loans were .820% in September of 2010 versus 1.49% in September of 2009 and charge offs to total loans were .10 and .11 respectively. MVB continues to closely monitor economic and delinquency trends.

Capital/Stockholders’ Equity

The bank was initially capitalized when it sold 452,000 shares of stock at $10 per share or a total of $4.5 million in an offering during 1998.

In October of 1999 the bank completed a secondary offering of 66,000 shares of stock at $11 per share or a total of $726,000. This offering was used to purchase MVB’s main office at 301 Virginia Avenue.

During November of 2002 the bank completed another secondary offering of 164,000 shares of stock at $12.50 per share or a total of $2.0 million. This offering was needed to continue funding the bank’s growth.

In 2004, the bank formed a one-bank holding company. In that transaction, MVB Financial Corp. issued shares of common stock in exchange for shares of the bank’s common stock.

In 2006, MVB completed a public offering of 725,000 shares totaling $11.6 million.

In March 2007, MVB formed a statutory business trust for the purpose of issuing $4 million in trust preferred capital securities with the proceeds invested in MVB Bank, Inc. This was done primarily to increase the lending limit of the bank. The securities mature in 30 years and are redeemable by the Company after five years. The securities are at an interest cost of 1.62% over the three month LIBOR rate which is reset quarterly.

In April 2008, MVB completed a public offering of more than 100,000 shares which provided 2.4 million in additional capital.

At September 30, 2010, accumulated other comprehensive income totaled $22 compared to $(343) at December 31, 2009. This change is mainly related to increased gains in the investment portfolio.

Treasury stock shares increased by $304 as MVB repurchased 15,182 shares.

The primary source of funds for dividends to be paid by MVB Financial Corp. is dividends received from its subsidiary bank, MVB Bank, Inc. Dividends paid by the subsidiary bank are subject to restrictions by banking regulations. The most restrictive provision requires regulatory approval if dividends declared in any year exceed that year’s retained net profits, as defined, plus the retained net profits, as defined, of the two preceding years.

Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning MVB’s risk-based capital ratios can be found in Note 14 of the Notes to the Consolidated Financial Statements of MVB’s 2009 Form 10-K. At September 30, 2010, MVB and its banking subsidiary’s risk-based capital ratios exceeded the minimum standards for a well capitalized financial institution.

Commitments

In the normal course of business, the bank is party to financial instruments with off-balance sheet risk necessary to meet the financing needs of customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of these instruments express the extent of involvement the bank has in these financial instruments.

Loan commitments are made to accommodate the financial needs of MVB’s customers. MVB uses the same underwriting standards in making commitments and conditional obligations as it does for on-balance sheet instruments. The amount of collateral obtained is based on management’s credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant, and equipment, and income-producing commercial properties. The total amount of loan commitments outstanding at September 30, 2010 and December 31, 2009 was $33.7 million and $33.0 million, respectively.

Market Risk

There have been no material changes in market risks faced by MVB since December 31, 2009. For information regarding MVB’s market risk, refer to MVB’s Annual Report to Shareholders for the year ended December 31, 2009.

Effects of Inflation on Financial Statements

Substantially all of the bank’s assets relate to banking and are monetary in nature. Therefore they are not impacted by inflation to the same degree as companies in capital-intensive industries in a replacement cost environment. During a period of rising prices, a net monetary asset position results in loss in purchasing power and conversely a net monetary liability position results in an increase in purchasing power. In the banking industry, typically monetary assets exceed monetary liabilities. Therefore as prices increase, financial institutions experience a decline in the purchasing power of their net assets.

Future Outlook

The bank’s results of operations in the third quarter of 2010 are an improvement over the third quarter of 2009 mainly due to the improvement in net interest income. MVB’s emphasis in future periods will be to do those things that have made the bank successful thus far. The critical challenge for the bank in the future is to attract core deposits to fund growth in the new markets through continued delivery of the most outstanding customer service with the highest quality products and technology.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

No response required.

Item 4.

Controls and Procedures

No response required.

Item 4(T).

Controls and Procedures

The Company, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer, along with the Company’s Chief Financial Officer (the Principal Financial Officer), has evaluated the effectiveness as of September 30, 2010, of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s President and Chief Executive Officer, along with the Company’s Principal Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2010.

There have been no material changes in the Company’s internal control over financial reporting during the second quarter of 2010 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

No response required.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Removed and Reserved

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

(a)	The following exhibits were filed with Form SB-2 Registration Statement, Registration No. 333-120931, filed December 1, 2004, and are incorporated by reference herein.


Exhibit 3.1		Articles of Incorporation

Exhibit 3.1-1		Articles of Incorporation – Amendment

Exhibit 3.2		Bylaws

(b)	The following exhibits are filed herewith.


Exhibit 31.1		Certificate of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certificate of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certificate of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2		Certificate of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


November 15, 2010	MVB Financial Corp.

	By:	/S/ LARRY F. MAZZA
		Larry F. Mazza
		President and Chief Executive Officer

	By:	/S/ ERIC L. TICHENOR
		Eric L. Tichenor
		Chief Financial Officer

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