MVB Financial Corp. — Q1 2018 Form 10-Q
Business context and reporting period. MVB Financial is a West Virginia-based financial holding company operating community and retail banking, mortgage banking, insurance, and related businesses. This unaudited filing covers the three months ended March 31, 2018; balance-sheet comparisons are to December 31, 2017. Amounts below are in millions unless noted.
Financial performance and condition
| Metric | Q1 2018 / March 31, 2018 | Comparable / prior date |
|---|---|---|
| Net interest income | $11.5 | $10.3 in Q1 2017 |
| Noninterest income | $9.0 | $8.8 in Q1 2017 |
| Net income | $2.6; diluted EPS $0.23 | $1.6; diluted EPS $0.14 in Q1 2017 |
| Net interest margin | 3.29% | 3.19% in Q1 2017 |
| Efficiency ratio | 81.64% | 85.30% in Q1 2017 |
| Total assets | $1,581.5 | $1,534.3 at Dec. 31, 2017 |
| Loans, net of allowance | $1,147.1 | $1,096.1 at Dec. 31, 2017 |
| Total deposits | $1,153.9 | $1,159.6 at Dec. 31, 2017 |
| Cash and cash equivalents | $23.6 | $20.3 at Dec. 31, 2017 |
| Stockholders’ equity | $150.4 | $150.2 at Dec. 31, 2017 |
| Operating / investing / financing cash flow | $15.2 / $(60.6) / $48.7 | $19.7 / $(35.6) / $16.8 in Q1 2017 |
Interest expense increased to $3.6 million from $2.8 million, including higher costs on FHLB and other borrowings. Noninterest expense rose to $16.7 million from $16.3 million. The company declared a common dividend of $0.025 per share.
At March 31, borrowings included $207.4 million of FHLB and other borrowings, $20.7 million of repurchase agreements, and $33.5 million of subordinated debt. The company reported a 9.51% equity-to-assets ratio, 10.60% common equity Tier 1 ratio, 11.57% Tier 1 risk-based capital ratio, and 14.80% total risk-based capital ratio. Management said it had access to more than $139.7 million in additional FHLB advances and other funding sources.
Material changes versus the prior comparable period
- Net income rose to $2.6 million from $1.6 million. Management attributed the improvement mainly to loan growth and higher asset yields, alongside improved derivative results and lower income taxes after federal tax reform.
- Net interest income increased $1.2 million; average loans and loans held for sale grew $35.3 million, while average interest-bearing liabilities increased $90.7 million. The net interest margin improved 10 basis points.
- Mortgage fee income fell to $6.6 million from $9.6 million, and mortgage closed-loan volume declined 13.2%. Derivative gains improved by approximately $2.5 million compared with the prior-year loss, partly offsetting lower mortgage fees.
- Loans increased $51.2 million from year-end, while deposits decreased $5.7 million and borrowings increased $55.2 million. Commercial loans were 71.3% of the loan portfolio.
- Nonperforming loans increased to $9.1 million, or 0.79% of loans, from $6.6 million, or 0.61%, in Q1 2017. The allowance was $10.1 million, or 0.87% of loans.
- Other comprehensive loss was $3.5 million for the quarter, largely reflecting a decline in available-for-sale securities. Unrealized losses on those securities totaled $6.1 million at quarter-end; management considered them temporary and said it did not intend or expect to need to sell before recovery.
Outlook, commentary, and risks
- No specific numerical earnings or revenue guidance is provided. Management’s stated priorities are margin improvement, leveraging capital, organic loan growth, and operating efficiency; it identified attracting core deposits to fund growth as a key challenge.
- Management said cash, available funding sources, maturing assets, and available-for-sale securities support liquidity needs. Results remain exposed to competition for deposits, rising funding costs, interest-rate changes, and mortgage-volume and derivative variability. A prior-year-end sensitivity model estimated that an immediate 100-basis-point rate increase would reduce 12-month net interest income by 1.6%; a 200-basis-point increase by 3.2%. These are model estimates, not current-period forecasts.
- Credit risks include commercial real estate and geographic concentration. A $3.2 million commercial TDR loan had recently paid slowly but was current at quarter-end; the borrower was involved in ongoing litigation. Total TDR loans were $6.4 million. Management reported $1.9 million of other real estate owned.
- The company reported no legal proceeding expected by management to have a significant adverse effect and no material change in risk factors. It cautioned that forward-looking statements are subject to economic, market, regulatory, credit, technology, and execution risks.
- Convertible subordinated debt contributed 1.84 million shares to diluted weighted-average shares in Q1; diluted weighted-average shares were 12.71 million versus 10.47 million basic shares. The filing describes conversion rights through 2019.
Important facts for investors to verify
- Whether loan growth can be funded with stable core deposits or will continue to require higher-cost FHLB borrowings.
- Trends in nonperforming loans, criticized credits, TDR performance, charge-offs, and allowance adequacy, particularly given the commercial-loan concentration.
- Whether mortgage production and fees stabilize, and how much reported noninterest income depends on volatile derivative gains.
- Whether unrealized securities losses recover or further reduce accumulated other comprehensive income and reported equity.
- The potential dilution and capital implications of conversion of subordinated notes and preferred shares.