MVB Financial Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Figures are in U.S. dollars; financial amounts are in millions unless stated otherwise. Comparisons are with Q1 2020 for income and cash flows, and with March 31, 2020 or December 31, 2020 where indicated for balance-sheet measures.
Business context and financial performance
MVB is a financial holding company focused on commercial and retail banking, alongside mortgage-related and financial technology businesses. Its operations include Chartwell Compliance and Paladin Fraud; it also holds an equity-method investment in Intercoastal Mortgage Company (ICM) and consolidated Flexia Payments beginning in Q1 2021.
| Metric | Q1 2021 | Comparable period |
|---|---|---|
| Net interest income | $17.5 | $16.2 in Q1 2020 |
| Noninterest income | $12.5 | $10.9 in Q1 2020 |
| Net interest income plus noninterest income | $30.0 | $27.0 in Q1 2020 |
| Provision for loan losses | $0.6 | $1.1 in Q1 2020 |
| Noninterest expense | $19.1 | $24.7 in Q1 2020 |
| Net income attributable to parent | $8.1 | $1.0 in Q1 2020 |
| Net income available to common shareholders | $8.1; basic EPS $0.70, diluted EPS $0.66 | $0.9; basic and diluted EPS $0.08 |
| Net interest margin | 3.19% GAAP; 3.26% tax-equivalent | 3.60% GAAP; 3.66% tax-equivalent in Q1 2020 |
| Return on average assets / equity | 1.3% / 13.6% | 0.2% / 1.9% in Q1 2020 |
Q1 net income growth reflects lower expenses and provision, as well as a change in the composition of noninterest income. MVB recorded $6.5 million of ICM equity-method income and $1.1 million of net gains on available-for-sale securities. The 2020 comparison included $11.2 million of mortgage fee income and a $3.6 million derivative loss; after the July 2020 ICM combination, mortgage activity is reflected differently in the statements.
Balance sheet, cash flow, debt and liquidity
- Total assets were $2.65 billion at March 31, up $314.6 million from year-end 2020. Loans were $1.69 billion, up about $240.6 million; deposits were $2.22 billion, up $234.2 million.
- Cash and cash equivalents were $339.6 million, versus $263.9 million at December 31, 2020. Management said liquidity was adequate and cited cash, deposit growth, maturing assets, available-for-sale securities and borrowing capacity as funding sources.
- Q1 cash flows: $10.2 million provided by operating activities, $263.4 million used in investing activities and $328.9 million provided by financing activities. Cash increased $75.7 million during the quarter.
- Funding at quarter-end included $102.2 million of FHLB and other borrowings, identified as PPPLF borrowing against pledged PPP loans; $43.4 million of subordinated debt; and $10.6 million of repurchase agreements. The Bank reported $440.4 million of remaining FHLB borrowing capacity.
- Noninterest-bearing deposits were $837.2 million, or 37.8% of deposits. The Bank’s community bank leverage ratio was 11.3%, above the applicable 8.5% well-capitalized threshold. The company’s equity-to-assets ratio was 8.9%, down from 10.3% at year-end 2020.
- The allowance for loan losses was $26.2 million, or 1.5% of loans, versus $25.8 million, or 1.8%, at year-end. Nonperforming loans were $11.6 million, or 0.7% of loans, compared with $13.7 million at year-end and $5.9 million, or 0.4%, a year earlier.
Material changes and unusual items
- Interest expense fell to $1.6 million from $4.5 million, as the cost of interest-bearing liabilities declined to 0.48% from 1.34%. This more than offset lower interest income, which fell to $19.1 million from $20.7 million as earning-asset yields declined.
- Noninterest expense declined by $5.5 million year over year. Management attributed much of the personnel and mortgage-processing reductions to the ICM combination and the 2020 sale of four branches to Summit.
- MVB redeemed all outstanding preferred stock in January 2021 for $7.3 million. Stockholders’ equity also reflected $4.1 million of other comprehensive loss and $1.2 million of common dividends.
- In February, the Bank acquired an 80% interest in Flexia for approximately $2.5 million and consolidated the business, including a 20% noncontrolling interest. Flexia acquired a license for casino-linked reloadable payment-card technology.
- In April, after quarter-end, MVB acquired a majority interest in software firm Trabian for 17,597 unregistered common shares and an undisclosed cash amount. It also agreed to sell four West Virginia branches to Summit, which is expected to assume about $193 million of deposits and acquire about $57 million of loans; closing was expected early in Q3 2021.
Outlook, risks and contingencies
Management stated it would focus on margin improvement, organic loan growth, operating efficiency, core deposit growth and expansion of treasury services and Fintech capabilities. It anticipated continued strong loan activity and Fintech banking growth, but gave no numerical earnings or balance-sheet guidance. Management cited low rates and competition as pressures on margins and said an eventual upward shift in the Treasury curve could support net interest income.
COVID-19’s economic and credit effects remained uncertain. Management noted potential borrower stress and continued to monitor credit quality; $34.7 million of commercial loans and $9.0 million of mortgage loans had approved payment modifications at quarter-end. PPP lending totaled $190.6 million across MVB’s internal and Fintech-partner channels. The filing also identifies interest-rate, credit, liquidity, technology, cybersecurity, regulatory, acquisition-integration and LIBOR-transition risks. Its December 31, 2020 interest-rate shock analysis showed modeled net interest income declines exceeding policy limits in the -200 to -400 basis-point scenarios.
The filing reports ordinary-course legal matters but says management and counsel did not expect them to have a significant adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How sustainable the $6.5 million ICM equity-method contribution and securities gains are, and how mortgage-related results will evolve under the equity-method presentation.
- Whether rapid loan and deposit growth—particularly Fintech and gaming-related deposits—continues, and how concentrated or rate-sensitive those deposits are.
- Credit trends behind the rise in year-over-year nonperforming loans, the adequacy of the allowance, and the eventual performance of COVID-modified, PPP and acquired PCI loans.
- The effects of low interest rates and adverse rate scenarios on future net interest income, margins and capital.
- The closing terms, consideration and financial impacts of the Trabian acquisition and Summit branch sale, and progress integrating Flexia and other technology investments.