MVB Financial Corp. — 2013 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2013. MVB is a West Virginia-based financial holding company operating community banking, mortgage banking and insurance businesses. It reported total assets of $987.1 million and 274 full-time-equivalent employees at year-end.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Total assets | $987.1 million | $726.8 million |
| Total loans | $622.3 million | $446.4 million |
| Total deposits | $695.8 million | $486.5 million |
| Net interest income | $21.0 million | $17.3 million |
| Net income | $4.0 million | $4.2 million |
| Net income available to common shareholders | $3.9 million | $4.0 million |
| Net interest margin | 2.94% | 3.12% |
- Total operating income was $55.4 million, including $28.9 million of noninterest income. Income on loans held for sale was $21.9 million, up from $3.9 million, primarily reflecting the expanded mortgage operation following the 2012 PMG acquisition.
- Noninterest expense increased to $42.6 million from $16.4 million, largely due to higher staffing and operating costs associated with mortgage banking, new branches and insurance operations. Provision for loan losses was $2.3 million, down from $2.8 million.
- Return on average assets was 0.51% versus 0.71%; return on average equity was 5.11% versus 8.33%. Management attributed the lower ROE in part to equity growth from capital raises while earnings were relatively flat.
- Cash and cash equivalents were $39.8 million, compared with $25.3 million. Cash from operating activities was $1.2 million; investing activities used $244.0 million and financing activities provided $257.4 million.
- Year-end liabilities included $695.8 million of deposits, $81.6 million of repurchase agreements, $104.6 million of FHLB and other borrowings, and $4.1 million of subordinated debt. Total stockholders’ equity was $94.0 million, up from $67.5 million.
- Regulatory capital ratios exceeded well-capitalized thresholds: the Bank reported total risk-based capital of 13.2%, Tier 1 risk-based capital of 12.4%, and Tier 1 leverage of 9.0%.
Material changes versus the prior comparable period
- Loans grew $175.9 million and deposits grew $209.3 million. The loan increase included a $74.3 million commercial-loan purchase in December and growth in commercial and nonresidential real estate lending.
- Average earning assets expanded, supporting a $3.7 million increase in net interest income. However, earning-asset yields and net interest margin declined amid competitive loan pricing and a low-rate environment.
- Equity increased by about $26.5 million, including $23.1 million from a stock offering and $0.9 million through the dividend reinvestment plan. The company also reported a separate confidential offering with proceeds intended to support the proposed CFG transaction and continued growth.
- Fourth-quarter net income declined to $591,000 from $1.4 million. Higher noninterest income and net interest income were more than offset by increased expenses.
Outlook, risks and contingencies
- Management expected loan activity to remain strong and planned to continue deposit gathering, invest in technology and customer service, and pursue quality banking locations. It cited infrastructure costs and a weak economic climate that had slowed mortgage lending.
- The company had agreed to acquire certain CFG Community Bank assets and assume specified liabilities for $30 million, subject to regulatory approvals and other closing conditions. The proposed transaction was expected to expand its presence in Maryland; it was pending at year-end.
- Credit quality indicators were mixed: nonperforming loans were 0.14% of total loans versus 0.77%, while impaired loans increased to $6.6 million from $3.1 million. Net charge-offs were $1.4 million, or 0.25% of average loans. Commercial lending represented about 73% of the loan portfolio.
- Unfunded credit commitments and letters of credit totaled $92.3 million. Management said these may not result in equivalent cash outflows because commitments can expire undrawn.
- The investment portfolio carried $5.7 million of gross unrealized losses at year-end. Management considered the declines temporary and stated it did not intend to sell the affected securities and could hold them until principal recovery.
- Management identified general economic conditions, interest-rate changes, competition, legal or accounting changes, and securities-market conditions as factors that could cause actual results to differ from forward-looking statements. It reported no legal proceedings expected to materially adversely affect financial condition or results.
- The audited financial statements received an unqualified opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Reported EPS inconsistency: the MD&A summary states 2013 basic/diluted EPS of $1.18/$1.15, while the audited statements report $0.59/$0.57. The filing also says share and per-share data were adjusted for a two-for-one stock split effected in February 2014. Verify the correct split-adjusted figures and comparability with 2012.
- Confirm the closing status, purchase accounting, funding and integration costs of the pending CFG transaction, and whether the planned Maryland expansion proceeds as described.
- Assess whether rapid loan and deposit growth can be sustained without further margin compression, elevated funding needs or deterioration in underwriting and credit quality.
- Review the commercial real estate concentration, the purchased loan portfolio’s performance, and the allowance for loan losses relative to future charge-offs and impaired loans.
- Monitor mortgage banking earnings and expenses, which became a significant part of results, and the sensitivity of securities values and equity to interest-rate movements.