MVB Financial Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020. Amounts are in U.S. dollars unless noted.
Business context and financial position
MVB is a West Virginia-based financial holding company operating principally through MVB Bank, with commercial and retail banking, mortgage-related interests, compliance services and Fintech businesses. The company reported 80% ownership and consolidated results for newly acquired Flexia and Trabian, with the remaining interests presented as noncontrolling interests.
| Metric | June 30, 2021 | Comparison |
|---|---|---|
| Total assets | $2.735 billion | Up $403.1 million from year-end 2020 |
| Total loans | $1.700 billion | Up $243.6 million from year-end 2020 |
| Total deposits | $2.229 billion | Up $246.8 million from year-end 2020 |
| Cash and cash equivalents | $332.8 million | Excludes $1.3 million classified as held for sale |
| Stockholders’ equity | $249.4 million | Equity-to-assets ratio 9.1%, versus 10.3% at year-end |
Results, margins and cash flow
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $19.1 million | $18.5 million | $36.6 million | $34.6 million |
| Noninterest income | $13.6 million | $45.5 million | $26.1 million | $56.4 million |
| Noninterest expense | $23.4 million | $33.3 million | $42.5 million | $58.0 million |
| Net income attributable to parent | $9.2 million | $18.0 million | $17.3 million | $19.1 million |
| Diluted EPS | $0.73 | $1.49 | $1.39 | $1.55 |
| Tax-equivalent net interest margin | 3.24% | 3.78% | 3.25% | 3.73% |
Q2 return on average assets was 1.4% and return on average equity was 15.5%; for the first half, the respective figures were 1.4% and 14.6%. Operating cash flow was $4.8 million for the first half, compared with an outflow of $120.7 million in the prior-year period. Investing activities used $340.4 million and financing activities provided $405.8 million; cash and cash equivalents increased $70.2 million during the period.
Interest expense fell as deposit and borrowing costs declined, supporting higher net interest income despite lower asset yields. The company reported a 0.47% cost of interest-bearing liabilities for both Q2 and the first half, versus 0.93% and 1.12%, respectively, in 2020. The tax-equivalent yield on earning assets was 3.54% in both 2021 periods, down from 4.44% in Q2 2020 and 4.57% in the first half of 2020.
Material changes and notable items
- Lower noninterest income largely reflects the prior-year comparison: 2020 included mortgage fee income, derivative gains and acquisition/divestiture gains. MVB’s mortgage combination with Intercoastal Mortgage Company (ICM) shifted its recognized mortgage-related earnings from mortgage fees to equity-method investment income. ICM contributed $4.5 million in Q2 and $11.0 million in first-half 2021.
- Payment-card and service-charge income increased to $1.9 million in Q2 from $0.5 million, which management attributed in part to sponsorship agreements and Fintech products. First-half income from this category was $3.4 million versus $1.1 million.
- The allowance for loan losses was $24.9 million, or 1.5% of loans, versus $25.8 million, or 1.8%, at year-end. MVB released $1.5 million of provision in Q2 and $0.9 million for the first half; the prior-year first half included $7.7 million of provision.
- Nonperforming loans were $15.5 million, or 0.9% of loans. Residential loans 90 or more days past due included a $5.6 million loan; management said it was well secured at approximately 50% loan-to-value and subject to forbearance.
- Noninterest-bearing deposits rose to $932.7 million, or 41.8% of deposits, from $715.8 million, or 36.1%, at year-end. Fintech deposits rose to $765.9 million from $533.0 million; gaming deposits were $595.9 million, versus $357.9 million.
- The Bank’s community bank leverage ratio was 11.0%, above the stated 8.5% well-capitalized standard. Subordinated debt was $43.5 million; FHLB and other borrowings were $0.1 million, with $468.8 million of reported remaining FHLB borrowing capacity.
Outlook, risks and contingencies
- No specific full-year earnings or financial guidance is provided. Management said loan activity was expected to remain strong near term and that it expects Fintech banking to continue growing. It also identified margin improvement, organic loan growth, operating efficiency and attracting core deposits as priorities.
- Management described pressure on net interest margin from low rates and competition. It expects falling rates to weigh on net interest income in an asset-sensitive position; a gradual upward shift in the Treasury curve could support net interest income, but outcomes depend on rate and economic developments.
- Interest-rate risk models showed net interest income sensitivity exceeding policy limits in the -200, -300 and -400 basis-point shock scenarios. COVID-19 effects, loan performance, deposit flows, competition, liquidity, execution of Fintech plans, cybersecurity and regulatory changes remain among the disclosed risks.
- At June 30, the balance sheet included assets and liabilities of branches held for sale. The sale of four West Virginia branches closed July 10, 2021; Summit assumed approximately $167 million of deposits and acquired approximately $55 million of loans. MVB expected a pretax gain of approximately $10 million in Q3 2021.
- Management reported $8.1 million of troubled debt restructurings; $2.7 million of loans to two borrowers had defaulted under restructured terms and were nonperforming. Legal matters were described as arising in the ordinary course, with no proceedings believed likely to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether deposit and loan growth—especially Fintech and gaming-related balances—continues and remains stable and economically attractive.
- Whether net interest margin and earnings respond as expected to interest rates, given lower asset yields and downside shock scenarios beyond policy limits.
- Whether asset quality, criticized loans, TDR defaults and the allowance remain consistent with management’s assumptions as pandemic-related effects evolve.
- The realized Q3 branch-sale gain and the ongoing effects of the sale on deposits, loans, liquidity and earnings.
- How recurring earnings compare after separating ICM equity-method income, securities gains, loan-sale gains and other transaction-related or nonrecurring items from core operations.