BORROWED FUNDS

12 Months Ended

Dec. 31, 2020

Note 7 – Borrowed Funds

The Bank is a member of the FHLB of Pittsburgh, Pennsylvania. At December 31, 2019 the Bank had borrowed $222.9 million. No amounts were outstanding as of December 31, 2020. As of December 31, 2020, the Bank's maximum borrowing capacity with the FHLB was $452.2 million and the remaining borrowing capacity was $440.9 million, with the difference being deposit letters of credit.

Short-term borrowings

Along with traditional deposits, the Bank has access to short-term borrowings from FHLB to fund its operations and investments.

Information related to short-term borrowings is summarized as follows:


(Dollars in thousands)	2020			2019
Balance at end of year	$	—		$	192,063
Average balance during the year	68,407			187,226
Maximum month-end balance	154,248			240,811
Weighted-average rate during the year	0.58		%	2.24		%
Weighted-average rate at December 31	—		%	1.81		%

Long-term borrowings

As of December 31, 2020, the Bank had no long-term borrowings with the FHLB. As of December 31, 2019, the Bank had long-term borrowings totaling $30.8 million. Of this total, $30.0 million was fixed interest rate notes, originated in November 2019, due between November 2022 and November 2024, with interest of between 1.7% and 1.8% payable monthly and $0.8 million was fixed interest rate notes, originated between October 2006 and April 2007, due between October 2021 and April 2022, with interest of between 5.18% and 5.20% payable monthly.

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase. Repurchase agreements with customers represent funds deposited by customers, on an overnight basis, that are collateralized by investment securities owned by the Company. Repurchase agreements with customers are presented as an individual line item on the consolidated

balance sheets. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between the Company and the client and are accounted for as secured borrowings. The Company’s repurchase agreements reflected in liabilities consist of customer accounts and securities which are pledged on an individual security basis.

The Company monitors the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected at the amount of cash received in connection with the transaction and included in securities sold under agreements to repurchase on the consolidated balance sheets. The primary risk with the Company's repurchase agreements is market risk associated with the investments securing the transactions, as it may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with safekeeping agents.

All of the Company’s repurchase agreements were overnight agreements at December 31, 2020 and December 31, 2019. These borrowings were collateralized with investment securities with a carrying value of $10.7 million and $10.5 million at December 31, 2020 and December 31, 2019, respectively, and were comprised of United States Government Agencies and Mortgage backed securities. Declines in the value of the collateral would require the Company to increase the amounts of securities pledged.

Information related to repurchase agreements is summarized as follows:


(Dollars in thousands)	2020			2019
Balance at end of year	$	10,266		$	10,172
Average balance during the year	9,856			11,252
Maximum month-end balance	10,505			14,655
Weighted-average rate during the year	0.23		%	0.43		%
Weighted-average rate at December 31	0.14		%	0.44		%

Subordinated Debt

Information related to subordinated debt is summarized as follows:


(Dollars in thousands)	2020			2019
Balance at end of year	$	43,407		$	4,124
Average balance during the year	7,568			12,125
Maximum month-end balance	43,524			17,524
Weighted-average rate during the year	3.45		%	6.35		%
Weighted-average rate at December 31	4.02		%	3.51		%

In November 2020, the Company completed the private placement of $40 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a ten-year term, maturing December 1, 2030, and will bear interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR, plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as Tier 2 capital for regulatory capital purposes.

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 Trust Preferred Securities and the Debentures mature in 2037 and have been redeemable by the Company since 2012. 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 obligations of the Company with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantees. The securities issued by the Trust are includable for regulatory purposes as a component of the Company’s Tier 1 capital.

In June 2014, the Company issued its Convertible Subordinated Promissory Notes to various investors in the aggregate principal amount of $29.4 million. The notes were issued in $0.1 million increments per note, subject to a minimum investment of $1 million. The Notes were to expire 10 years after the initial issuance date of the Notes. In July 2019, the Federal Reserve Board provided the Company with its approval for the Company to redeem all of the outstanding Notes. On or about August 1, 2019, the

Company provided notice to the holders of the outstanding notes that it would redeem the outstanding notes on September 30, 2019.

In 2019, $1.0 million of subordinated debt was converted into common stock, which resulted in the issuance of 62,500 new shares and $12.4 million of subordinated debt was redeemed. These transactions provided an annual interest expense savings of $1.0 million.

In 2018, $16.0 million of subordinated debt was converted into common stock, which resulted in the issuance of 1,000,000 new shares and providing an annual interest expense savings of $1.1 million.

The Company recognized interest expense on its subordinated debt of $0.3 million, $0.8 million and $1.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.