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MVB Bank Looks for Internal, External Growth

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The CEO of one of West Virginia's largest community banks says he sees another wave of merger activity coming, and his bank plans to be a survivor.

Larry Mazza of MVB Bank expects the 7,500 banking companies in the U.S. to fall to 3,500 to 4,000 in a few years. So, MVB is raising money through a stock sale for acquisition activity, and it is expanding in growth markets in West Virginia, he said.

Thanks to upcoming regulations and capital requirements, smaller banks will have problems with compliance, attracting the management expertise they need, making money and returning money to shareholders, Mazza said.

MVB Bank ranks 11th in West Virginia in deposits, and it ranks seventh among West Virginia banks in total assets at $587.9 million.

According to the FDIC, of the 62 banks and thrifts based in West Virginia, four have assets greater than $1 billion, four have assets between $500 million and $999 million and 15 have assets between $250 million and $499 million. The remaining 39 institutions have assets less than $250 million.

Mazza said there are three drivers of change in community banking industry. First is adapting to the Basel III capital rules, an international standard that requires banks to hold back more capital to back their assets.

"You live and die on capital. If you don't have adequate capital, the regulators shut you down or they can stunt your growth," Mazza said.

Then there is the twin punch of Dodd-Frank — 2,700 pages of legislation to be followed by 39,000 pages of regulations — and requirements of the Consumer Financial Protection Bureau, he said.

"These two things will swamp banks, especially community banks, with regulatory fatigue," Mazza said.

Finally, there is QE3, a program of the Federal Reserve in which the government is buying $40 billion worth of mortgage-backed securities every month. QE3 has cut into bank margins, Mazza said. At one time, a 4 to 4.5 percent margin for a bank was good. Now 3 percent is good, he said.

QE3 is driving down interest rates to where a 30-year mortgage is going for 3.5 percent and a car loan is at 1.99 percent. Banks can't go much lower, Mazza said.

To get around these, banks can cut expenses, which has its limits, or they can grow their revenue, "which is infinite," Mazza said.

MVB has three strategies, Mazza said. First is growing internally, which means expanding in five markets. One is Clarksburg, where MVB recently opened a branch in the downtown.

"In three days, we had over a million dollars in new core deposits," Mazza said.

Second is Morgantown, where a branch is scheduled to open April 13.

Then there's Fairmont, where a branch that is in a grocery store will move to a new location with drive-up windows. MVB also plans to add a second location in Martinsburg.

And then there's downtown Charleston.

Charleston is particularly interesting to MVB for several reasons, Mazza said. It handled the recession well, and its deposit market of $2 billion is twice as large as the next largest in West Virginia, he said.

"Charleston is solid," Mazza said.

Also, if you want to be a West Virginia company with a name and influence, you have to be in Charleston, Mazza said.

And there is a good supply of banking talent in the city, he said.

MVB plans a raze-and-rebuild of a former BB&T property at 400 Washington St. in Charleston. Once the necessary permits are obtained from the city, construction on the 22,000- to 28,000-square foot facility with off-street parking could take about a year, Mazza said.

"It'll be something I think Charleston will be pleased with," he said.

Another strategy is growth through mergers and acquisitions. MVB has targeted smaller banks within a 50- to 100-mile radius of Martinsburg and Clarksburg for possible mergers and acquisitions, he said. M&A activity in the Martinsburg region could put MVB in the Washington, D.C., market, which is one of the best markets in the nation for banking, Mazza said.

And MVB will look for M&A partners in the Charleston metro area, he said.

The M&A activity will be assisted by a stock sale of $20 million to $25 million to raise capital.

The third piece of growth is through non-interest income. Part of that is the company's new wealth management service, which started earlier this year. Mazza said there are several new "shaleionaires" in North Central West Virginia, where people such as school teachers are now receiving royalty checks for as much as $60,000 a month for Marcellus Shale gas wells on their properties, he said.