MVB Financial(MVBF) - 2025 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements The company's total assets decreased to $3.02 billion as of March 31, 2025, from $3.13 billion at year-end 2024, primarily due to a decrease in loans and cash equivalents; net income for Q1 2025 was $3.6 million, a decrease from $4.5 million in the prior year's quarter, driven by lower net interest income; total stockholders' equity increased to $310.1 million from $305.8 million at the end of 2024 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 (Unaudited) | December 31, 2024 (Audited) | | :--- | :--- | :--- | | Total Assets | $3,019,687 | $3,128,704 | | Total cash and cash equivalents | $251,450 | $317,913 | | Loans receivable, net | $2,044,131 | $2,080,468 | | Total Liabilities | $2,709,633 | $2,822,913 | | Total deposits | $2,583,798 | $2,693,615 | | Total Stockholders' Equity | $310,054 | $305,791 | Consolidated Income Statement Highlights (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Interest Income | $26,676 | $30,139 | | Provision for credit losses | $177 | $1,997 | | Noninterest Income | $7,008 | $7,834 | | Noninterest Expense | $28,701 | $30,191 | | Net income attributable to parent | $3,577 | $4,482 | Key Per Share Data | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Earnings per common shareholder - basic | $0.28 | $0.35 | | Earnings per common shareholder - diluted | $0.27 | $0.34 | - Cash flow from operating activities was a net inflow of $14.1 million in Q1 2025, a significant reversal from the $25.3 million net outflow in Q1 2024; financing activities resulted in a net cash outflow of $111.9 million, primarily due to a net decrease in deposits of $111.0 million[22] Note 1 – Nature of Operations and Basis of Presentation MVB Financial Corp. is a financial holding company operating through its subsidiary, MVB Bank, Inc.; the company's business activities are divided into Commercial and Retail (CoRe) banking services and Fintech banking; the Fintech division provides specialized banking services, including operational risk management and compliance, to clients in the gaming, payments, and banking-as-a-service industries; in January 2025, the company divested its 80.8% interest in Trabian Technology, Inc - The company operates through two primary business lines: CoRe (Commercial and Retail) Banking and Fintech Banking[24][25] - The Fintech Banking segment focuses on providing services to corporate clients in complex industries like gaming, payments, and banking-as-a-service, aiming to capture stable, lower-cost deposits and fee income[25] - In January 2025, MVB divested its controlling interest in Trabian Technology, Inc. through a stock repurchase agreement[24] Note 2 – Investment Securities As of March 31, 2025, the fair value of investment securities available-for-sale was $419.6 million, with a total amortized cost of $450.8 million, resulting in a net unrealized loss of $31.2 million; the company states it has no intent to sell securities in an unrealized loss position and believes it is more likely than not that it will not be required to sell them before recovery of value; no allowance for credit losses (ACL) was recorded for these securities Investment Securities Available-for-Sale (in thousands) | Category | Fair Value (Mar 31, 2025) | Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | | United States government agency securities | $39,353 | $39,846 | | United States sponsored mortgage-backed securities | $172,790 | $147,580 | | United States treasury securities | $82,754 | $103,975 | | Municipal securities | $101,063 | $102,140 | | Corporate debt securities | $15,475 | $9,918 | | Total available-for-sale debt securities | $418,935 | $410,959 | - The portfolio had unrealized losses of $32.2 million as of March 31, 2025; management attributes these declines to general market conditions rather than credit-related factors and has not recorded an ACL[38] - Investment securities with a carrying value of $258.4 million were pledged to secure public funds, repurchase agreements, and potential borrowings as of March 31, 2025[36] Note 3 – Loans and Allowance for Credit Losses Total loans receivable decreased to $2.06 billion at March 31, 2025, from $2.10 billion at year-end 2024; the commercial loan portfolio, comprising business, real estate, and construction loans, remains the largest segment at $1.39 billion; the Allowance for Credit Losses (ACL) stood at $19.2 million, or 0.93% of total loans; non-accrual loans totaled $20.3 million; during the quarter, the company modified loans with an amortized cost basis of $6.4 million for borrowers experiencing financial difficulty, primarily through payment delays Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial (Business, RE, ADC) | $1,391,857 | $1,416,856 | | Residential real estate | $642,482 | $650,708 | | Home equity lines of credit | $11,738 | $12,933 | | Consumer | $16,704 | $18,620 | | Total loans receivable | $2,063,296 | $2,100,131 | Allowance for Credit Losses (ACL) Activity (in thousands) | ACL Activity | Three Months Ended March 31, 2025 | | :--- | :--- | | Beginning Balance (Dec 31, 2024) | $19,663 | | Provision for credit losses | $359 | | Charge-offs | ($1,387) | | Recoveries | $530 | | Ending Balance (Mar 31, 2025) | $19,165 | - As of March 31, 2025, total loans past due were $33.3 million, with non-accrual loans amounting to $20.3 million[62] - During Q1 2025, the company modified loans totaling $6.4 million for borrowers in financial distress, all through payment delays for commercial business loans[74] Note 4 – Equity Method Investments The company holds three equity method investments: a 40% stake in Intercoastal Mortgage Company (ICM), a 37.5% stake in Warp Speed Holdings, and a 10% stake in Ayers Socure II; for Q1 2025, MVB's share of net income from ICM was $0.3 million, and its share from Warp Speed (on a three-month lag) was also $0.3 million; this represents a significant turnaround from Q1 2024, where both investments resulted in losses for MVB Equity Method Investment Performance (MVB's Share, in thousands) | Investment | Q1 2025 Net Income/(Loss) | Q1 2024 Net Income/(Loss) | | :--- | :--- | :--- | | ICM | $300 | ($200) | | Warp Speed | $300 | ($900) | - The carrying value of the investment in ICM was $23.9 million and in Warp Speed was $53.5 million as of March 31, 2025[80][81] Note 5 – Deposits Total deposits decreased to $2.58 billion at March 31, 2025, from $2.69 billion at the end of 2024; the decrease was primarily in interest-bearing accounts, particularly savings, money markets, and time deposits; noninterest-bearing demand deposits, however, increased to $1.03 billion, constituting 40% of total deposits Deposit Composition (in thousands) | Deposit Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing demand | $1,033,056 | $940,994 | | NOW | $528,632 | $473,225 | | Savings and money markets | $280,731 | $437,145 | | Time deposits | $741,379 | $842,251 | | Total deposits | $2,583,798 | $2,693,615 | Note 9 – Derivatives The company utilizes derivative instruments, including fair value hedges and matched interest rate swaps, to manage interest rate risk; in Q1 2025, MVB discontinued two fair value swaps with notional amounts of $30.0 million and $50.0 million; as of March 31, 2025, the notional amount of active fair value swaps was $92.8 million; matched interest rate swaps with commercial borrowers had a notional amount of $132.3 million - In January 2025, the company discontinued two portfolio layer method fair value swaps: one hedging fixed-rate mortgages ($30.0 million notional) and one hedging fixed-rate municipal bonds ($50.0 million notional)[111][112] Outstanding Derivative Instruments (March 31, 2025, in thousands) | Derivative Type | Notional Amount | Fair Value of Asset (Liability) | | :--- | :--- | :--- | | Fair value hedge (Pay fixed rate swaps) | $92,827 | ($543) | | Matched interest rate swaps with borrowers | $132,325 | $4,349 | | Matched interest rate swaps with counterparty | $132,325 | ($4,349) | Note 12 – Segment Reporting The company reports across three main segments: CoRe Banking, Mortgage Banking, and Financial Holding Company; for Q1 2025, the CoRe Banking segment generated $11.0 million in operating income; the Mortgage Banking segment, driven by equity method investments, contributed $0.8 million in operating income, a significant improvement from a $1.0 million loss in Q1 2024; the Financial Holding Company segment recorded an operating loss of $5.5 million Segment Operating Income (Loss) (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | CoRe Banking | $11,047 | $12,895 | | Mortgage Banking | $751 | ($1,026) | | Financial Holding Company | ($5,464) | ($5,211) | | Other | ($1,528) | ($873) | | Total Operating Income | $4,806 | $5,785 | - The CoRe Banking segment includes the Fintech division and represents the primary source of revenue through loans, deposits, and service charges[122] - The Mortgage Banking segment's revenue is primarily comprised of the company's share of net income or loss from its equity method investments in ICM and Warp Speed[122] Note 13 – Divestiture In January 2025, MVB completed the divestiture of its 80.8% controlling interest in Trabian Technology, Inc.; Trabian repurchased all shares held by MVB for $3.5 million; this transaction resulted in a recognized gain of $0.6 million for the first quarter of 2025 - The company sold its controlling interest in Trabian Technology, Inc. in January 2025 for $3.5 million[128] - The divestiture resulted in a pre-tax gain of $0.6 million, which was recognized in the first quarter of 2025[128] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports that the company is adapting to a challenging market characterized by high interest rates and a slowing economy; for Q1 2025, net income fell to $3.6 million from $4.5 million year-over-year, driven by an 11.5% decline in net interest income; the tax-equivalent net interest margin compressed to 3.66% from 3.83%; the loan portfolio contracted, and the provision for credit losses decreased significantly to $0.2 million; the company continues to focus on its Fintech verticals (gaming, payments, banking-as-a-service) and maintains strong capital, with a Community Bank Leverage Ratio of 10.9% - The company is adapting its business model in response to high interest rates and a slowing economy, while remaining committed to its Fintech verticals: gaming, payments, and banking-as-a-service[131] Q1 2025 vs. Q1 2024 Performance | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $3.6M | $4.5M | | Diluted EPS | $0.27 | $0.34 | | Return on Average Assets | 0.4% | 0.5% | | Return on Average Equity | 4.7% | 6.2% | | Tax-Equivalent Net Interest Margin | 3.66% | 3.83% | - The company's capital position remains strong, with a Community Bank Leverage Ratio (CBLR) of 10.9% at March 31, 2025, exceeding the 9% minimum requirement[176] - Off-balance sheet custodial deposits, primarily from the gaming and banking-as-a-service industries, totaled $1.52 billion at March 31, 2025[168] Net Interest Income and Margin Net interest income for Q1 2025 decreased by 11.5% to $26.7 million compared to Q1 2024; the tax-equivalent net interest margin (NIM) compressed by 17 basis points to 3.66%; this was primarily due to a decline in earning asset yields, driven by lower average loan and cash balances, which was only partially offset by a 51 basis point reduction in the cost of interest-bearing liabilities - Net interest income declined by $3.5 million year-over-year, primarily due to a $205 million decrease in average earning assets[144] - The tax-equivalent net interest margin fell to 3.66% from 3.83% in the prior year's quarter, reflecting lower earning asset yields[143] - The average cost of interest-bearing liabilities decreased to 3.71% in Q1 2025 from 4.22% in Q1 2024[147] Allowance and Provision for Credit Losses The provision for credit losses was significantly lower at $0.2 million for Q1 2025, compared to $2.0 million in Q1 2024; this decrease was driven by a reduction in the required reserve for pooled loans, resulting from lower portfolio balances and improved allocation rates; the Allowance for Credit Losses (ACL) ended the quarter at $19.2 million, or 0.93% of total loans, a slight decrease from 0.94% at year-end 2024; net charge-offs for the quarter were $0.9 million - The provision for credit losses decreased to $0.2 million in Q1 2025 from $2.0 million in Q1 2024, mainly due to lower required reserves from the pooled loan analysis[148] - The ACL as a percentage of total loans was 0.93% at March 31, 2025, compared to 0.94% at December 31, 2024[163] - Net charge-offs for Q1 2025 totaled $0.9 million, down from $1.3 million in Q1 2024[149] Noninterest Income and Expense Noninterest income decreased to $7.0 million in Q1 2025 from $7.8 million in Q1 2024; the decline was mainly due to a $1.6 million drop in other operating income and a $0.7 million reduction in gains on securities sales; this was partially offset by a significant turnaround in equity method investment income (a $0.6 million gain vs. a $1.1 million loss) and a $0.6 million gain from the Trabian divestiture; noninterest expense fell to $28.7 million from $30.2 million, primarily due to a $2.2 million decrease in professional fees - Noninterest income declined year-over-year, primarily due to lower other operating income and gains on securities sales[151] - Positive contributors to noninterest income included a $1.7 million positive swing in equity method investment results and a $0.6 million gain on the sale of Trabian[151] - Noninterest expense decreased by $1.5 million year-over-year, largely driven by a $2.2 million reduction in professional fees[152] Financial Condition and Capital Total assets declined by $109.0 million during Q1 2025 to $3.02 billion, while stockholders' equity increased by $4.4 million to $310.1 million, improving the equity-to-assets ratio to 10.3%; the loan portfolio contracted by $36.8 million to $2.06 billion; deposits, the primary funding source, decreased by $109.8 million to $2.58 billion, with a notable shift from interest-bearing accounts to noninterest-bearing deposits, which grew to 40% of the total; the Bank remains well-capitalized with a Community Bank Leverage Ratio of 10.9% - Stockholders' equity increased by $4.4 million in Q1 2025, driven by net income and other comprehensive income, partially offset by dividends[171] - The equity to assets ratio improved to 10.3% at March 31, 2025 from 9.8% at year-end 2024[172] Deposit Concentration (March 31, 2025, in millions) | Vertical | Deposit Balance | | :--- | :--- | | Payments | $489.6 | | Banking-as-a-Service | $317.0 | | Gaming | $190.8 | 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 objective is to maintain consistent growth in net interest income while minimizing risk exposure; management strategies include managing balance sheet liquidity, using interest rate swaps, and structuring loan terms; the company also faces counterparty credit risk from derivative contracts, which it mitigates by working with well-capitalized, investment-grade third parties - The primary market risk is interest rate risk, managed by the ALCO to structure the balance sheet for consistent net interest income growth[194][195] - Interest rate risk management tools include interest rate swaps, commercial loan swap transactions, and structuring loan terms to reinvest cash flows throughout the rate cycle[195] - Counterparty credit risk is managed by dealing with well-capitalized, investment-grade partners and is monitored annually[197] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2025, and concluded they were effective; there were no material changes to the company's internal control over financial reporting during the first quarter of 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[198] - No material changes were identified in the internal control over financial reporting during the first quarter of 2025[199] PART II OTHER INFORMATION Legal Proceedings The company is not aware of any material pending legal proceedings; while it may be subject to various claims in the ordinary course of business, management and counsel do not expect the outcomes to have a significant adverse effect on the consolidated financial statements - The company is not currently a party to any material pending legal proceedings[201] - In the opinion of management and counsel, any legal actions arising from the ordinary course of business will not have a significant adverse effect on the company's financial statements[188] Risk Factors The company highlights a specific risk factor related to its growth strategy; failure to effectively manage its expected growth in loans, deposits, and fee income could negatively impact its business, financial condition, and results of operations; this includes challenges in hiring qualified employees, finding desirable business opportunities, and scaling operational infrastructure to handle an increasing number of customer relationships - A key risk is the failure to manage expected business growth effectively, which could negatively affect financial results[202] - Successful growth depends on hiring qualified employees, finding good business opportunities, and competition[203] - Future growth could strain administrative and operational infrastructure, potentially increasing costs and reducing profitability[204] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[205] Other Information During the first quarter of 2025, no directors or officers of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or other trading arrangement during the quarter[208] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the principal executive officer and principal financial officer pursuant to the Sarbanes-Oxley Act of 2002, as well as XBRL data files - The report includes required certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[209] - Interactive Data Files (XBRL) are included as exhibits[209]