MVB Financial Corp. — Q3 2023 Form 10-Q
Business context and period: Unaudited results for the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. MVB operates CoRe and Fintech banking, mortgage banking investments, and related businesses. Balance-sheet comparisons are against December 31, 2022. Dollar amounts below are in millions unless noted.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $29.9 | $29.8 | $92.2 | $78.4 |
| Net interest margin, tax-equivalent | 3.90% | 4.25% | 4.03% | 3.84% |
| Noninterest income | $5.8 | $5.5 | $15.3 | $24.1 |
| Noninterest expense | $30.7 | $28.2 | $89.3 | $83.4 |
| Net income attributable to parent | $3.9 | $2.7 | $23.3 | $8.5 |
| Diluted EPS | $0.29 | $0.21 | $1.79 | $0.66 |
| Return on average assets | 0.5% | 0.4% | 0.9% | 0.4% |
- Nine-month 2023 parent-attributable net income includes $8.8 million from discontinued operations, including an $11.8 million pretax gain on the Chartwell sale. Continuing-operations diluted EPS was $1.12 for the nine months, versus $0.51 in 2022.
- Q3 net interest margin fell year over year as funding costs rose faster than asset yields. For the nine-month period, margin improved year over year, reflecting higher loan yields and asset mix, partly offset by more expensive funding.
- At September 30, assets were $3.44 billion; loans, net, were $2.25 billion; deposits were $3.04 billion; and stockholders’ equity was $271.4 million. Deposits rose $468.4 million from year-end, while loans declined $102.2 million.
- Cash and cash equivalents were $587.1 million, compared with $40.3 million at year-end. Nine-month cash flows were $39.5 million from operations, $155.2 million from investing, and $352.2 million from financing. Financing cash flow included the deposit increase and repayment of $102.3 million in FHLB and other borrowings.
- Period-end borrowings included $73.5 million of subordinated debt and an $8.5 million senior term loan; there were no short-term FHLB or Federal Reserve borrowings. Remaining FHLB borrowing capacity was reported as $707.8 million. The Bank’s Community Bank Leverage Ratio was 10.4%, above the stated 9% well-capitalized threshold.
- Allowance for credit losses was $24.3 million, or 1.07% of loans, versus $23.8 million and 1.00% at year-end. Nonperforming loans were $10.6 million, or 0.5% of loans, compared with $22.4 million, or 0.9%, in the prior-year comparison. Nine-month net charge-offs were $8.8 million; $12.0 million of gross charge-offs related to subprime auto loans.
- The available-for-sale securities portfolio had $50.5 million of gross unrealized losses, which management attributed to market conditions rather than credit deterioration; no securities credit-loss allowance was recorded. Accumulated other comprehensive loss was $40.3 million.
Material changes and unusual items
- Q3 net interest income was nearly flat year over year, while deposit interest expense increased substantially. Interest expense was $18.5 million versus $4.1 million; the cost of interest-bearing liabilities rose to 3.58% from 1.15%.
- Nine-month noninterest income declined $8.9 million year over year, including lower loan-sale gains, securities-sale results, and equity-method investment gains. Q3 expenses increased $2.5 million year over year, with professional fees cited in connection with market-response measures and expanded risk-management and compliance infrastructure.
- MVB sold Chartwell in February 2023 for $14.4 million of consideration in the form of a buyer note, recognizing an $11.8 million gain. It also agreed to divest its Flexia interests in May, recording a loss of approximately $1.1 million.
- Loans decreased in the first nine months, including a $101.2 million decline in consumer loans, as the company reduced subprime auto exposure and moderated originations amid liquidity management. The ACL adoption of CECL in January increased the allowance by $8.9 million and reduced retained earnings by $6.6 million, net of tax.
Outlook, risks, and contingencies
- The filing provides no quantified earnings, margin, or loan-growth guidance. Management described a strategy to continue serving gaming and payments Fintech clients and to expand treasury services, deposit acquisition, fee income, compliance, and risk-management capabilities.
- Management cited elevated industry uncertainty after bank failures, deposit competition and potential outflows, higher funding costs, and possible limits on access to liquidity. Fintech and gaming deposit concentration is a risk: the three largest gaming clients held $322.5 million of the $451.5 million in gaming deposits at September 30. MVB also reported $1.1 billion of custodial deposits placed at third-party program banks, associated with gaming, banking-as-a-service, and digital-asset clients.
- Management’s credit-loss forecast anticipated weaker economic conditions, higher unemployment, and increased delinquencies over the next one to two years. Credit exposures include commercial real estate, healthcare (23% of loans), construction, and higher-risk consumer auto lending.
- Other disclosed risks include interest-rate and securities valuation risk, liquidity and deposit concentration, regulatory scrutiny of Fintech and banking-as-a-service activities, cybersecurity and third-party operational risks, and uncertainty in digital assets. Management said it was not aware of material pending legal proceedings and reported no material changes to previously disclosed risk factors.
Investor verification points
- Separate recurring continuing-operations earnings from the Chartwell-related gain and other divestiture effects; confirm the earnings contribution of equity-method investments.
- Track deposit composition, pricing and concentration, including the largest Fintech clients and the nature and liquidity implications of custodial program deposits.
- Assess whether the higher cash position and available borrowing capacity remain adequate under deposit outflow stress, and monitor funding costs and net interest margin.
- Review loan delinquencies, nonperforming assets, charge-offs—especially subprime auto—and CECL assumptions against actual portfolio performance and economic conditions.
- Monitor unrealized securities losses, tangible capital and regulatory capital, and the effect of any future securities sales or additional liquidity actions.