MVB FINANCIAL CORP - 10-K filing on 2017-03-10

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2016

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

Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments.

Cash and cash equivalents: The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns.

Certificates of deposits: The fair values for certificates of deposits are computed based on scheduled future cash flows of principal and interest, discounted at interest rates currently offered for certificates of deposits with similar terms of investors. No prepayments of principal are assumed.

Securities: 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 held for sale: Loans held for sale are reported at fair value. These loans currently consist of one-to-four-family residential loans originated for sale in the secondary market. Fair value is based on committed market rates or the price secondary markets are currently offering for similar loans using observable market data. (Level II)

Loans: The 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.

Mortgage servicing rights: The carrying value of mortgage servicing rights approximates their fair value.

Interest rate lock commitment: For mortgage interest rate locks, the fair value is based on either (i) the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis or (ii) the observable price for individual loans traded in the secondary market for loans that will be delivered on a mandatory basis less (iii) expected costs to deliver the interest rate locks, any expected “pull through rate” is multiplied by this calculation to estimate the derivative value.

Mortgage-backed security hedges: MBS hedges are used to mitigate interest rate risk for residential mortgage loans held for sale and interest rate locks and manage expected funding percentages. These instruments are considered derivatives and are recorded at fair value based on observable market data of the individual mortgage-backed securities.

Interest rate cap: The fair value of the interest rate cap is determined at the end of each quarter by using Bloomberg Finance which values the interest rate cap using observable inputs from forward and futures yield curves as well as standard market volatility.

Interest rate swap: Interest rate swaps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

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

Deposits: The fair values of demand deposits (i.e., noninterest 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.

FHLB and other borrowings: The 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.

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

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 insignificant, and therefore, the estimated fair values and carrying values are not shown.

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

Fair Value Measurements at:

(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
December 31, 2016
Financial assets:
Cash and cash equivalents	$	17,340	$	17,340	$	17,340	$	—	$	—
Certificates of deposits with other banks	14,527		14,985		—		14,985		—
Securities available-for-sale	162,368		162,368		—		162,368		—
Loans held for sale	90,174		90,174		—		90,174		—
Loans, net	1,043,764		1,035,437		—		—		1,035,437
Mortgage servicing rights	190		190		—		—		190
Interest rate lock commitment	1,546		1,546		—		—		1,546
Mortgage-backed security hedges	372		372		—		372		—
Interest rate swap	250		250		—		250		—
Interest rate cap	268		268		—		268		—
Accrued interest receivable	3,951		3,951		—		1,002		2,949

Financial liabilities:
Deposits	$	1,107,017	$	1,116,174	$	—	$	1,116,174	$	—
Repurchase agreements	25,160		25,160		—		25,160		—
FHLB and other borrowings	90,921		90,919		—		90,919		—
Interest rate swap	250		250		—		250		—
Accrued interest payable	741		741		—		741		—
Subordinated debt	33,524		32,275		—		32,275		—

December 31, 2015
Financial assets:
Cash and cash equivalents	$	29,133	$	29,133	$	29,133	$	—	$	—
Certificates of deposits with other banks	13,150		13,270		—		13,270		—
Securities available-for-sale	70,256		70,256		—		70,256		—
Securities held-to-maturity	52,859		54,470		—		54,470		—
Loans held for sale	102,623		102,623		—		102,623		—
Loans, net	1,024,164		1,034,832		—		—		1,034,832
Mortgage servicing rights	956		956		—		—		956
Interest rate lock commitment	1,537		1,537		—		—		1,537
Interest rate swap	405		405		—		405		—
Interest rate cap	437		437		—		437		—
Accrued interest receivable	3,356		3,356		—		723		2,633

Financial liabilities:
Deposits	$	1,012,314	$	1,015,521	$	—	$	1,015,521	$	—
Repurchase agreements	27,437		27,437		—		27,437		—
FHLB and other borrowings	183,198		183,211		—		183,211		—
Mortgage-backed security hedges	19		19		—		19		—
Interest rate swap	405		405		—		405		—
Accrued interest payable	474		474		—		474		—
Subordinated debt	33,524		32,172		—		32,172		—

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.