MVB Financial Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Dollar amounts below are in millions unless stated otherwise.
Business context
MVB is a financial holding company operating through MVB Bank and subsidiaries across commercial and retail banking, mortgage banking, professional services, and fintech. Fintech banking and related businesses serve customers nationwide, including payments, gaming, and other emerging industries.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Comparable period / prior date |
|---|---|---|
| Net interest income | $21.8 | $17.5 in Q1 2021 |
| Noninterest income | $11.9 | $12.5 in Q1 2021 |
| Net income attributable to parent | $2.9; diluted EPS $0.22 | $8.1; diluted EPS $0.66 in Q1 2021 |
| Net interest margin, tax-equivalent | 3.18% | 3.26% in Q1 2021 |
| Total assets | $2,893.5 | $2,792.4 at December 31, 2021 |
| Loans receivable, net | $1,879.0 | $1,851.6 at December 31, 2021 |
| Total deposits | $2,509.1 | $2,377.6 at December 31, 2021 |
| Cash and cash equivalents | $354.0 | $307.4 at December 31, 2021 |
| Subordinated debt / repurchase agreements | $73.1 / $12.1 | No FHLB or other borrowings outstanding |
| Allowance for loan losses | $18.8; 1.0% of loans | $18.3; 1.0% at December 31, 2021 |
| Nonperforming loans | $18.0; 1.0% of loans | $11.6; 0.7% in Q1 2021 |
Operating cash flow was negative $57.3 million, investing cash flow was negative $27.0 million, and financing cash flow was positive $130.9 million. Cash rose $46.5 million during the quarter. The filing attributes significant operating cash outflows to tax-refund-related BaaS assets and loans originated for sale.
Other capital and return measures: return on average assets was 0.4% and return on average equity was 4.2%, versus 1.3% and 13.6% in Q1 2021. The Bank’s Community Bank Leverage Ratio was 10.8%. Equity-to-assets was 9.1% at quarter-end. Common dividends were $0.17 per share.
Material changes versus Q1 2021
- Net interest income increased 24.8%, largely reflecting growth in average earning assets; the tax-equivalent margin nevertheless declined 8 basis points to 3.18%.
- Net income attributable to the parent fell to $2.9 million from $8.1 million. Noninterest expense increased $9.7 million to $28.9 million, including higher personnel costs and professional fees supporting fintech growth, risk, and compliance.
- Noninterest income decreased $0.6 million. Lower equity-method investment income, primarily from mortgage affiliate ICM, and lower securities-sale gains were partly offset by higher compliance and consulting income, payment-card income, and loan-sale gains.
- Deposits grew $131.5 million from year-end; noninterest-bearing deposits were 52.2% of deposits, compared with 47.1% at year-end. Fintech deposits rose to $1.25 billion, including $970.4 million in gaming deposits.
- Available-for-sale securities fell to $395.3 million from $421.5 million. The portfolio had $19.8 million of pretax unrealized losses at quarter-end; accumulated other comprehensive loss increased to $17.2 million from $3.6 million at year-end.
- Reported nonperforming loans were higher than in Q1 2021. The filing also reports Q1 net charge-offs of $0.6 million in MD&A; the allowance rollforward shows charge-offs of $1.124 million and recoveries of $0.385 million.
Outlook, risks, and unusual items
- Management said loan activity was expected to remain strong in the near term and expects fintech deposits to continue growing. It is focused on margin improvement, organic loan growth, operating efficiency, treasury services, and fee-generating fintech offerings. The filing provides no specific earnings or revenue guidance.
- On March 13, 2022, the Bank agreed to acquire a 37.5% fully diluted interest in Warp Speed Holdings; on April 28, the parent assumed the purchase obligations. Consideration is $38.4 million cash plus $9.6 million in MVB shares, with closing expected mid-2022. This is a pending investment, not a completed quarter-end transaction.
- Management identifies risks including interest-rate and market exposure, credit quality, inflation and economic uncertainty, operational and cybersecurity risks, and concentrated deposits in large customers and emerging industries. Gaming deposits are a material component of fintech deposits.
- Management stated it did not intend to sell securities in unrealized-loss positions and believed it could hold them until principal recovery. Market-value declines in securities drove most of the quarter’s other comprehensive loss.
- The company expects to adopt CECL on January 1, 2023; the financial impact is not yet reasonably estimable. Management said legal matters were not expected to have a significant adverse effect and reported no material change in risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether earnings recover as fintech and compliance-related investment and operating costs increase; monitor expense growth and margin trends.
- Fintech deposit concentration, especially gaming deposits, and the stability and liquidity implications of these balances.
- Loan-quality trends, including nonperforming loans, subprime auto exposure, charge-offs, and the adequacy of the allowance; reconcile the differing charge-off figures in MD&A and the allowance rollforward.
- The effect of interest-rate movements on net interest margin and the value of available-for-sale securities, including the reported unrealized losses.
- Closing, funding, dilution, and performance implications of the proposed Warp Speed investment.
- The eventual CECL adoption impact and whether the Bank continues to maintain regulatory capital above applicable requirements.