MVB Financial(MVBF) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for MVB Financial Corp as of June 30, 2024 Consolidated Balance Sheets Total assets decreased slightly to $3.29 billion, while stockholders' equity increased to $296.7 million Consolidated Balance Sheet Highlights (in thousands) | Financial Metric | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Total Assets | $3,288,004 | $3,313,882 | | Total cash and cash equivalents | $455,517 | $398,229 | | Loans receivable, net | $2,184,709 | $2,295,470 | | Total Liabilities | $2,991,341 | $3,024,540 | | Total deposits | $2,882,852 | $2,901,476 | | Total Stockholders' Equity | $296,663 | $289,342 | Consolidated Statements of Income Net income declined to $4.1 million in Q2 2024, driven by lower net interest income and a provision for credit losses Income Statement Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $27,570 | $29,582 | $57,709 | $62,311 | | Provision for credit losses | $254 | $(4,235) | $2,251 | $341 | | Noninterest Income | $7,142 | $6,419 | $14,976 | $9,486 | | Noninterest Expense | $28,930 | $30,282 | $59,121 | $58,599 | | Net Income (to parent) | $4,089 | $8,112 | $8,571 | $19,454 | | Diluted EPS | $0.31 | $0.63 | $0.66 | $1.50 | Notes to the Consolidated Financial Statements The notes detail the company's accounting policies, segment structure, and significant financial events like the Chartwell sale - The company operates through two primary banking activities: Commercial and Retail (CoRe) banking and Fintech banking, which provides services to clients in gaming, payments, and banking-as-a-service industries[27][28][29] - In February 2023, the company completed the sale of its subsidiary, Chartwell Compliance, resulting in a pre-tax gain of $11.8 million, which is reported in discontinued operations[164][165] - The company adopted ASC 326 (CECL) in January 2023, which resulted in a $10.0 million increase in the Allowance for Credit Losses (ACL) and a cumulative adjustment to retained earnings of $6.6 million[40] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, highlighting impacts from interest rates, strategic shifts, and the winding down of its digital asset program Executive Summary and Market Conditions The company is winding down its digital asset program while maintaining focus on the gaming, payments, and BaaS verticals - The company initiated the winding down of its digital asset program account relationships during Q2 2024 due to changing market conditions and profitability challenges[168] - The company remains committed to serving the gaming, payments, and banking-as-a-service industries and is expanding its treasury services and risk management teams to support this focus[168] - Management notes continued focus on liquidity following the 2023 bank failures; as of June 30, 2024, liquid assets totaled $592.5 million, which is considered sufficient to meet obligations[169][225] Financial Results Q2 2024 net income fell to $4.1 million due to lower net interest income and a compressed net interest margin Quarterly Financial Performance (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Income | $4.1M | $8.1M | | Diluted EPS | $0.31 | $0.63 | | Return on Average Assets | 0.5% | 1.0% | | Return on Average Equity | 5.7% | 12.0% | | Tax-Equivalent Net Interest Margin | 3.75% | 3.80% | Six-Month Financial Performance (H1 2024 vs H1 2023) | Metric | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Income | $8.6M | $19.5M | | Diluted EPS | $0.66 | $1.50 | | Return on Average Assets | 0.5% | 1.2% | | Return on Average Equity | 5.93% | 14.1% | | Tax-Equivalent Net Interest Margin | 3.79% | 4.09% | Statement of Financial Condition Analysis Total assets were $3.29 billion, with a stable deposit base, a declining loan portfolio, and a strong Community Bank Leverage Ratio - The loan portfolio decreased by $110.8 million in the first six months of 2024 to $2.21 billion, with commercial and non-residential real estate loans being the largest component[209][196] - The Allowance for Credit Losses (ACL) was $22.1 million, or 1.00% of loans receivable, at both June 30, 2024, and December 31, 2023[211] - The decrease in noninterest-bearing deposits is primarily linked to the decision to exit the digital asset program, with these account balances declining by $156.5 million since year-end 2023[217] - The Bank's Community Bank Leverage Ratio (CBLR) was 10.7% at June 30, 2024, exceeding the 9% minimum requirement[224] Deposit Composition (in millions) | Deposit Type | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Noninterest-bearing | $983.8 | $1,197.3 | | Interest-bearing | $1,899.0 | $1,704.2 | | Total Deposits | $2,882.8 | $2,901.5 | Supervision and Regulation The company is monitoring a proposed FDIC rule that may require reclassifying certain BaaS deposits as brokered deposits - On July 30, 2024, the FDIC approved a Notice of Proposed Rulemaking (NPR) that could revise regulations on brokered deposits[230] - The proposed elimination of the 'exclusive deposit placement arrangement exception' in the NPR may require the Bank to reclassify certain BaaS deposits as brokered deposits, which is being monitored[231] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is managed by the Asset and Liability Committee (ALCO) - The company's main market risk is interest rate risk, which is managed by the ALCO to balance profitability with risk exposure[241][242] - Counter-party credit risk from derivatives and forward sales contracts is managed by dealing with well-capitalized, investment-grade partners whose financial condition is monitored annually[244] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2024[245] - No changes in internal control over financial reporting occurred during Q2 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[245] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any material pending legal proceedings - The company reports that it is not aware of any material pending legal proceedings against it or its subsidiaries[247] Item 1A. Risk Factors No material changes to risk factors have occurred since the 2023 year-end report - There have been no material changes in risk factors from those disclosed in the 2023 Form 10-K[248] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None[248]