MVB Financial Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are to December 31, 2022 unless noted. Amounts are in U.S. dollars. The company operates through MVB Bank in community and commercial banking, Fintech banking, mortgage banking investments, and related services.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $32.7 million | $21.8 million in Q1 2022 |
| Net interest margin | 4.36% GAAP; 4.40% tax-equivalent | 3.14% GAAP; 3.18% tax-equivalent in Q1 2022 |
| Interest income / expense | $44.8 million / $12.0 million | $23.3 million / $1.4 million in Q1 2022 |
| Noninterest income / expense | $3.1 million / $28.3 million | $9.3 million / $27.3 million in Q1 2022 |
| Net income from continuing operations | $2.4 million | $1.9 million in Q1 2022 |
| Net income attributable to parent; diluted EPS | $11.3 million; $0.87 | $2.9 million; $0.22 in Q1 2022 |
| Total assets / stockholders’ equity | $3.55 billion / $271.3 million | $3.07 billion / $261.4 million at Dec. 31, 2022 |
| Loans receivable, net / allowance for credit losses | $2.33 billion / $35.5 million | $2.35 billion / $23.8 million at Dec. 31, 2022 |
| Deposits / cash and cash equivalents | $3.15 billion / $575.3 million | $2.57 billion / $40.3 million at Dec. 31, 2022 |
| Debt and other borrowings | $73.4 million subordinated debt; $9.6 million senior term loan; no FHLB borrowings outstanding | $102.3 million FHLB and other borrowings at Dec. 31, 2022 |
| Cash flows | Operating $(5.3) million; investing $69.4 million; financing $470.9 million | Net cash increase of $535.0 million; $46.5 million increase in Q1 2022 |
- Net interest income rose 49.8% year over year, reflecting loan growth and higher yields, partly offset by higher funding costs. Earning-asset yield was 6.00% versus 3.38%; cost of interest-bearing liabilities was 2.95% versus 0.39%.
- Reported parent earnings and EPS benefited substantially from the $11.8 million pretax gain on the Chartwell sale. Discontinued operations contributed $8.8 million net income, versus $0.8 million in Q1 2022; continuing-operations EPS was $0.20 basic and diluted.
- Deposits increased $580.3 million during the quarter. Cash rose amid liquidity actions taken during March; the company also repaid $102.3 million of FHLB and other borrowings. Management reported $763.3 million of remaining FHLB borrowing capacity at quarter-end.
- Loans receivable decreased $11.5 million from year-end. Residential real estate loans grew, while commercial and consumer balances declined. Net charge-offs were $1.7 million, compared with $0.7 million in Q1 2022.
- The allowance for credit losses was 1.50% of loans, up from 1.00% at year-end. Adoption of CECL on January 1, 2023 increased the allowance by $10.0 million before tax effects and reduced retained earnings by $6.6 million. The quarter’s provision for credit losses was $4.6 million.
- Available-for-sale securities had $41.3 million of gross unrealized losses at March 31. Management attributed the losses to market conditions rather than credit factors and recorded no securities credit-loss allowance.
- Book value per share was $21.43; tangible book value per share was $21.17. The Bank’s Community Bank Leverage Ratio was 10.0%, above the stated 9% well-capitalized threshold. Equity to assets was 7.6%, down from 8.5% at year-end.
Material changes, outlook and risks
- Market and liquidity: Management cited higher interest rates, a slowing economy, and deposit-market disruption following bank failures. It reported total deposits of $3.15 billion and off-balance-sheet deposits of $1.04 billion at quarter-end. Off-balance-sheet deposits included $420 million noninterest-bearing and $616 million interest-bearing.
- Deposit concentration: Gaming deposits were $543.2 million, including $465.1 million with the three largest clients. The filing cautions that large or concentrated deposits may be withdrawn rapidly in adverse conditions.
- Credit risk: Management’s CECL forecasts anticipated weaker economic conditions and higher unemployment and delinquencies over the next 12–24 months. Most Q1 gross charge-offs related to subprime auto loans; the filing also notes commercial real-estate, borrower, collateral-value, and concentration risks.
- Chartwell divestiture: The company sold Chartwell in February for $14.4 million of consideration in the form of a buyer-issued note bearing 7% interest, maturing June 2027, with annual installments beginning June 2024. The sale generated an $11.8 million gain. The company also agreed to provide transition services and ongoing support under a three-year contract.
- Merger termination: After quarter-end, on May 9, 2023, MVB and Integrated Financial Holdings mutually terminated their merger agreements. The filing identifies potential customer, market, litigation, reputational, and regulatory effects as risks associated with the termination.
- Outlook: No specific earnings or financial guidance is provided. Management said it remained focused on Fintech gaming and payments initiatives, treasury services, fee-income strategies, compliance and risk staffing, and cost-saving measures. Actual results may differ due to economic, liquidity, deposit, credit, interest-rate, regulatory, technology, and cybersecurity risks.
- Other disclosures: The company reported effective disclosure controls as of March 31, 2023, no material changes to its disclosed risk factors, and no known material pending legal proceedings. It had $258.36 million of LIBOR-referencing loans expected to transition to SOFR effective June 30, 2023.
Key facts for investors to verify
- How much of Q1 earnings, EPS, ROA, and ROE reflects the one-time Chartwell gain, and what recurring profitability looks like without it.
- The credit quality and collectability of the $14.4 million Chartwell buyer note, including scheduled payments and the company’s continuing service obligations.
- The stability, cost, and concentration of deposits—particularly gaming and the largest-client balances—and the composition and terms of off-balance-sheet deposits.
- Whether the increased CECL allowance adequately reflects subprime auto losses, criticized commercial credits, and management’s economic forecasts.
- Liquidity and capital resilience after the March market disruption, including available borrowing capacity, securities liquidity, uninsured or concentrated deposits, and the 10.0% leverage ratio.
- The operational and financial effects of terminating the IFH merger and the planned transition of LIBOR-referencing loans to SOFR.