MVB Financial Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. MVB is a financial holding company operating primarily through MVB Bank, with CoRe banking (including Fintech), mortgage banking investments and other businesses. Unless noted, financial amounts below are in millions of dollars.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior balance |
|---|---|---|
| Net income attributable to parent | $4.5; diluted EPS $0.34 | Q1 2023: $11.3; diluted EPS $0.87, including $8.8 of discontinued-operations income |
| Continuing-operations net income | $4.5; diluted EPS $0.34 | Q1 2023: $2.4; diluted EPS $0.20 |
| Net interest income | $30.1 | Q1 2023: $32.7 |
| Net interest margin | 3.81% GAAP; 3.83% tax-equivalent | Q1 2023: 4.36% GAAP; 4.40% tax-equivalent |
| Noninterest income / expense | $7.8 / $30.2 | Q1 2023: $3.1 / $28.3 |
| Provision for credit losses | $2.0 | Q1 2023: $4.6 |
| Total assets | $3,547.4 | December 31, 2023: $3,313.9 |
| Loans, net of allowance | $2,244.5 | December 31, 2023: $2,295.5 |
| Deposits | $3,145.3 | December 31, 2023: $2,901.5 |
| Cash and cash equivalents | $640.4 | December 31, 2023: $398.2 |
| Stockholders’ equity / equity-to-assets | $291.8 / 8.2% | December 31, 2023: $289.3 / 8.7% |
| Debt and repurchase agreements | $73.6 subordinated debt; $6.5 senior term loan; $3.8 repurchase agreements | No FHLB or Federal Reserve borrowings outstanding at quarter-end |
Cash flow: Operating activities used $25.3; investing activities provided $25.8; financing activities provided $241.7. Deposit growth contributed $243.9 of financing cash flow. The quarter-end cash increase was partly seasonal, associated with tax-season activity from a BaaS relationship.
Credit and capital: Allowance for credit losses was $22.8, about 1.01% of loans. Nonperforming loans were $7.5, or 0.3% of loans. Net charge-offs were approximately $1.3. The Bank’s Community Bank Leverage Ratio was 10.1%, above the 9% well-capitalized standard described in the filing.
Material changes versus comparable periods
- Compared with Q1 2023, net interest income fell 7.9% as interest expense rose faster than interest income. The cost of interest-bearing liabilities increased to 4.22% from 2.95%; management cited higher deposit costs and a changed earning-asset mix as drivers of lower margin.
- Net income attributable to the parent declined from $11.3 to $4.5, but the comparison is substantially affected by Q1 2023’s $8.8 after-tax discontinued-operations income, including the Chartwell sale gain. Continuing-operations income increased from $2.4 to $4.5.
- Noninterest income increased to $7.8, helped by a $0.7 gain on available-for-sale securities and higher payment-card and service-charge income. Noninterest expense rose to $30.2, primarily reflecting a $2.8 increase in professional fees related to risk-management and compliance infrastructure.
- Loans declined $50.3 from year-end, which management attributed to amortization, slower demand and deliberate selective lending. Deposits grew $243.9; noninterest-bearing deposits rose to $1,391.1 and represented 44.2% of deposits, versus 41.3% at year-end.
- Unrealized losses on available-for-sale debt securities totaled $36.8 at quarter-end. Management said the losses were market-related, stated it had the intent and ability to hold the securities to recovery, and recorded no securities credit-loss allowance.
Outlook, risks and unusual items
- No earnings or financial guidance is provided. Management said it expected interest rates to remain stable or decline slightly during the rest of 2024, with possible reductions in year two; this is an expectation, not a commitment.
- Management reported that modeled net-interest-income sensitivity exceeded policy limits in immediate parallel rate-decline scenarios of 200, 300 and 400 basis points. Floating-rate assets could reprice downward while deposit costs have limited room to decline. The filing also notes that gradual rate declines would have a less severe modeled effect and could benefit mortgage-investment income.
- Fintech deposits and their concentration are material liquidity risks. At March 31, 2024, deposits in gaming, payments, BaaS and digital assets were $257.6, $417.9, $357.6 and $339.1, respectively. The largest digital-asset client held $309.5; the three largest gaming clients held $199.3 in aggregate. The company also reported $1.5 billion of custodial program deposits placed at third-party banks, up from $1.1 billion at year-end.
- Other identified risks include deposit outflows and uninsured-deposit exposure, interest-rate and liquidity changes, commercial real-estate and other credit risks, Fintech/BaaS regulation, cybersecurity, operational and third-party risks, and economic or geopolitical disruption. Healthcare-related loans represented 22% of total loans.
- Q1 included $2.2 of gross loan charge-offs, including $1.2 related to subprime consumer automotive loans and $1.0 across two commercial loans. Six commercial loans with government guarantees, totaling $1.4, received payment-delay modifications.
- The company terminated a supplemental executive retirement plan in February; its $1.8 obligation is scheduled for payment in February 2025. Management said ordinary-course legal matters were not expected to have a significant adverse financial effect and reported no material pending legal proceedings. Disclosure controls were concluded effective; no material internal-control changes were reported.
Important facts for investors to verify
- Reconcile the MD&A’s discussion of credit-loss provision: the income statement and allowance roll-forward show approximately $2.0 of provision, while a later MD&A passage refers to $0.7 of “total credit loss provision.”
- Track deposit mix, large-client and industry concentrations, custodial program deposits, and the liquidity implications of potential rapid withdrawals.
- Assess whether deposit costs stabilize and whether the lower net interest margin persists; review the disclosed rate-shock policy-limit exceedances.
- Monitor criticized, delinquent and nonaccrual loans, commercial and construction exposures, and charge-offs—particularly consumer auto and commercial credits—and evaluate the adequacy of the allowance.
- Consider the sustainability of earnings excluding the prior-year Chartwell sale-related discontinued income and the current-quarter securities gain; review the $36.8 unrealized securities loss and management’s ability to hold the portfolio.