MVB Financial(MVBF) - 2020 Q4 - Annual Report

Part I Business MVB Financial Corp. operates through MVB Bank, Inc., focusing on CoRe banking, mortgage, and strategic Fintech services, with significant M&A activity and regulatory oversight Corporate and Business Overview MVB Financial Corp. is a financial holding company focused on CoRe banking and Fintech, operating through three segments and actively engaging in M&A - MVB Financial Corp. is a financial holding company operating primarily through MVB Bank, Inc., focusing on Commercial and Retail (CoRe) banking with a strategic emphasis on Financial Technology (Fintech) services for corporate clients nationwide[17][18] - Significant M&A activity includes acquiring Chartwell (compliance services), divesting four bank branches, forming a mortgage joint venture (ICM), and acquiring assets from The First State Bank via an FDIC receivership[19] - Operations are structured into three reportable segments: CoRe banking (including Fintech division, Chartwell, and Paladin Fraud), mortgage banking (primarily from ICM equity investment), and the financial holding company[24][25] Lending Activities The company's loan portfolio is predominantly commercial, with residential loans also present, and both types are subject to specific risk management practices Loan Portfolio Composition as of December 31, 2020 | Loan Type | Amount (approx.) | % of Total Loans | | :--- | :--- | :--- | | Commercial Loans | $1.16 billion | 80.0% | | Residential Loans | $288.0 million | 19.8% | - Commercial lending poses higher risk due to reliance on business cash flow, necessitating annual reviews and specific evaluations for COVID-19 impacts[27][28][29] - Residential real estate loans generally require an 80% loan-to-value ratio or private mortgage insurance, while construction financing is deemed higher risk, with residential construction loans to individuals totaling approximately $119.4 million at year-end[31][32] Human Capital and Competition The company manages its 344 employees through culture and training initiatives while navigating intense competition from traditional and Fintech banks - As of December 31, 2020, the company had 344 employees, with human capital initiatives focused on fostering a strong culture, investing in training, and ensuring employee safety during the COVID-19 pandemic, leading to over 85% of team members transitioning to remote work[35][36][38] - The company faces significant competition in lending and deposits from traditional banks, credit unions, and Fintech-focused banks/neobanks, employing a strategy centered on customer relationships and a needs-based selling approach rather than solely on interest rates[33][34] Supervision and Regulation The company is extensively regulated by federal and state authorities, adhering to frameworks like Dodd-Frank and maintaining strong capital ratios - The company and its subsidiaries are subject to extensive regulation by federal and state authorities, including the Federal Reserve Board, FDIC, and SEC, primarily for the protection of depositors and the financial system[43][50][51] - Major regulatory frameworks include the Dodd-Frank Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which modified certain Dodd-Frank provisions for smaller banks[46][47] - As a financial holding company, MVB must ensure its depository institution subsidiaries are well capitalized and well managed, and it believes it qualifies for the Federal Reserve's Small Bank Holding Company Policy Statement, exempting it from consolidated capital requirements[54][58] - The Bank is subject to minimum capital ratios under the Capital Rules, including a capital conservation buffer, with effective minimums of 7% for CET1, 8.5% for Tier 1, and 10.5% for Total capital to risk-weighted assets as of January 1, 2019[82][83] Risk Factors The company faces significant risks from economic conditions, the COVID-19 pandemic, PPP exposure, non-residential loan concentration, Fintech investments, regulatory changes, cybersecurity, and stock volatility - The full impact of the COVID-19 pandemic remains unknown and could materially affect the company's business, financial condition, and results of operations, including negative impacts on interest income and credit quality through loan deferral programs[123][124][125] - Participation in the SBA's Paycheck Protection Program (PPP) exposes the company to litigation risk regarding loan processing and credit risk if the SBA denies its guarantee due to origination deficiencies[141][142][144] - Approximately 80% of the loan portfolio comprises non-residential real estate loans, which carry greater risk of non-payment and and loss compared to residential mortgages[145] - Strategic Fintech initiatives, serving clients in payments, cryptocurrency, and gaming industries, introduce increased business, reputational, operational, and regulatory risks, with gaming deposits representing approximately 18% of total deposits as of December 31, 2020[158][159][160] - Reliance on information systems exposes the company to cybersecurity risks, where a breach could damage its reputation, lead to a loss of business, and result in litigation and financial liability[170][171][174] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Properties The company owns its main office and 7 of 13 full-service branches, with 6 leased, and underwent branch closures and sales in 2020 - The company owns its main office and 7 of its 13 full-service banking branches, with the remaining 6 branches being leased[207] - In 2020, the company closed one branch in Morgantown, WV, and sold four branches in Berkeley and Jefferson Counties, WV[208][209] Legal Proceedings The company reports no awareness of any material pending legal proceedings involving itself or its subsidiaries - The company reports that it is not aware of any material pending legal proceedings[210] Mine Safety Disclosures This section is not applicable to the company - Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MVB Financial Corp.'s common stock trades on Nasdaq under 'MVBF', with 920 stockholders, paid $0.36 dividends in 2020, and repurchased 668,390 shares in Q4 2020 - The company's common stock trades on the Nasdaq Capital Market under the symbol "MVBF", with approximately 920 stockholders of record as of March 8, 2021[214] Dividends Per Share | Year | Dividend per Share | | :--- | :--- | | 2020 | $0.36 | | 2019 | $0.195 | | 2018 | $0.11 | Share Repurchases (Q4 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2020 | 130,400 | $17.00 | | Nov 2020 | 1,500 | $16.37 | | Dec 2020 | 536,490 | $20.25 | | Total | 668,390 | | Selected Financial Data In 2020, total assets grew to $2.33 billion and net income to $37.0 million, driven by deposit growth, though nonperforming loans increased to 0.9% Selected Financial Data (2019 vs 2020) | (Dollars in thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | Balance Sheet Data: | | | | Total Assets | $2,331,476 | $1,944,114 | | Loans receivable, net | $1,427,900 | $1,362,766 | | Deposits | $1,982,389 | $1,265,042 | | Stockholders' equity | $239,483 | $211,936 | | Income Statement Data: | | | | Net interest income | $68,826 | $59,400 | | Provision for loan loss | $16,579 | $1,789 | | Noninterest income | $91,837 | $64,604 | | Net income available to common shareholders | $36,950 | $26,512 | | Per Share Data: | | | | Earnings per share - basic | $3.13 | $2.26 | | Book value | $20.14 | $17.13 | | Asset Quality Ratios: | | | | Nonperforming loans to total loans | 0.9% | 0.4% | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, MVB's assets grew to $2.33 billion and net income to $37.4 million, driven by Fintech deposits and ICM, while increasing loan loss provisions due to COVID-19 and maintaining strong capital Executive Summary and COVID-19 Impact The company achieved strong financial results in 2020, actively participated in PPP, and implemented loan modifications in response to COVID-19 Key Financial Results (2020 vs. 2019) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $2.33 billion | $1.94 billion | | Deposits | $1.98 billion | $1.27 billion | | Net Income | $37.4 million | $27.0 million | | Diluted EPS | $3.06 | $2.20 | | Return on Average Assets | 1.7% | 1.4% | | Return on Average Equity | 16.7% | 13.6% | - The company actively participated in the Paycheck Protection Program (PPP), originating 455 loans with original balances of $92.8 million, with $82.0 million in PPP loans outstanding at year-end[234] - In response to the pandemic, the company approved loan modifications for commercial loans totaling $34.7 million and mortgage loans totaling $13.5 million as of December 31, 2020[234] Net Interest Income and Margin Net interest income increased by $9.4 million to $68.8 million in 2020, driven by lower cost of funds, resulting in a slightly improved net interest margin - Net interest income increased by $9.4 million (15.9%) to $68.8 million in 2020, primarily due to the cost of interest-bearing liabilities (down 83 bps to 0.85%) decreasing more than the yield on earning assets (down 70 bps to 4.17%)[245][251] - The tax-equivalent net interest margin (NIM) slightly increased to 3.57% in 2020 from 3.53% in 2019, with the net interest spread widening to 3.32% from 3.19%, aided by a $243.9 million increase in average noninterest-bearing demand deposits[242][243] Provision for Loan Losses The provision for loan losses significantly increased to $16.6 million in 2020, primarily due to qualitative adjustments and risk grade changes in response to COVID-19 Provision for Loan Losses | Year | Provision Amount | | :--- | :--- | | 2020 | $16.6 million | | 2019 | $1.8 million | | 2018 | $2.4 million | - The substantial increase in the 2020 provision was primarily driven by qualitative adjustment factor changes in response to the COVID-19 pandemic, with $12.8 million from framework enhancements and $3.8 million from risk grade adjustments for significant loans[254][256][257] Noninterest Income and Expense Noninterest income grew by $27.2 million to $91.8 million, driven by ICM and M&A gains, while noninterest expense rose by $9.9 million to $97.1 million due to salaries and professional fees - Noninterest income increased by $27.2 million to $91.8 million in 2020, primarily driven by $24.2 million from the ICM equity method investment, $17.6 million in gains from acquisition/divestiture activity, and a $3.5 million increase in compliance consulting income[259][260][261] - Noninterest expense increased by $9.9 million to $97.1 million in 2020, mainly due to a $5.5 million rise in salaries and benefits from team build-outs and acquisitions, and a $3.5 million increase in professional fees related to M&A transactions[265][266] Financial Condition Analysis Total loans grew to $1.45 billion, driven by PPP, while asset quality indicators showed some deterioration; deposits surged to $1.98 billion, largely from Fintech, and capital ratios remained strong - Total loans grew by $79.2 million to $1.45 billion, with commercial and non-residential real estate loans forming 79.9% of the portfolio, primarily driven by $82.0 million in outstanding PPP loans[279][280] Asset Quality Indicators (as of Dec 31) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Non-performing assets | $19.4 million | $6.5 million | | Allowance for loan losses | $25.8 million | $11.8 million | | Non-performing assets to total assets | 0.8% | 0.3% | | Allowance for loan losses to non-performing loans | 188.5% | 229.8% | - Total deposits increased by $717.3 million to $1.98 billion, with noninterest-bearing deposits growing to $715.8 million (36.1% of total deposits) from $278.5 million (22.0% of total deposits) in 2019, primarily driven by Fintech deposits[302][304] - The Bank's capital ratios remained strong and above well-capitalized standards, with a Total risk-based capital ratio of 15.8% and a Tier 1 leverage ratio of 11.0% at December 31, 2020[310] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by ALCO, showing asset sensitivity with NII benefiting from rising rates, alongside heightened credit risk due to COVID-19 - The company's primary market risk is interest rate fluctuation, managed by its Asset and Liability Committee (ALCO) using simulation analysis to model impacts on net interest income (NII) and economic value of equity (EVE)[328][330][333] Estimated Change in Net Interest Income from Rate Shocks (as of Dec 31, 2020) | Change in Interest Rates (bp) | % Change in NII | | :--- | :--- | | +400 | 42.7% | | +200 | 19.3% | | +100 | 9.6% | | -100 | (6.6)% | | -200 | (9.6)% | - As of December 31, 2020, the company is in an asset-sensitive position, generally more favorable in a rising rate environment, marking a shift from its 2019 exposure to falling rates[337][338] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020, with an unqualified opinion from Dixon Hughes Goodman LLP, including balance sheets, income statements, and detailed notes Consolidated Financial Statements Dixon Hughes Goodman LLP issued an unqualified opinion on the 2020 consolidated financial statements, which show total assets of $2.33 billion and net income of $37.4 million - The independent auditor, Dixon Hughes Goodman LLP, issued an unqualified opinion on the consolidated financial statements and the company's internal control over financial reporting as of December 31, 2020[354][367] Consolidated Balance Sheet Highlights (as of Dec 31) | (Dollars in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $2,331,476 | $1,944,114 | | Loans receivable, net | $1,427,900 | $1,362,766 | | Goodwill | $2,350 | $19,630 | | Total Deposits | $1,982,389 | $1,265,042 | | Total Stockholders' Equity | $239,483 | $211,936 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (Dollars in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $68,826 | $59,400 | | Provision for loan losses | $16,579 | $1,789 | | Noninterest Income | $91,837 | $64,604 | | Noninterest Expenses | $97,141 | $87,201 | | Net Income | $37,411 | $26,991 | Notes to Consolidated Financial Statements Notes detail the allowance for loan losses, ICM equity investment, goodwill reduction, and significant M&A transactions including the First State Bank acquisition and branch divestitures - The allowance for loan losses (ALL) methodology uses historical experience adjusted for qualitative factors, with the ALL balance increasing to $25.8 million at year-end 2020 from $11.8 million in 2019 (Note 3)[400][499] - The investment in Intercoastal Mortgage Company (ICM) is an equity method investment that contributed $24.2 million to income in 2020 (Note 5)[520] - Goodwill decreased from $19.6 million to $2.4 million, primarily due to a $16.9 million reduction related to the ICM mortgage combination transaction (Note 12)[565] - Significant 2020 transactions include the acquisition of assets from The First State Bank (a $4.7 million bargain purchase gain), the divestiture of four branches (a $9.6 million gain), and the combination with Intercoastal to form ICM (a $3.3 million gain) (Note 24)[616][622][630][632] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, excluding the recently acquired First State Bank - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[637] - Management assessed internal control over financial reporting as effective as of December 31, 2020, based on the COSO framework, identifying no material weaknesses[642][643] - The assessment of internal controls excluded the operations of The First State Bank, acquired during 2020, as permitted by SEC guidance[639] Other Information The company reports no other information for this item - None Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive 2021 Proxy Statement - This information is incorporated by reference from the registrant's definitive proxy statement for the 2021 Annual Meeting of Shareholders[650] Executive Compensation Information for this item is incorporated by reference from the company's definitive 2021 Proxy Statement - This information is incorporated by reference from the registrant's definitive proxy statement for the 2021 Annual Meeting of Shareholders[651] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information is incorporated from the 2021 Proxy Statement, detailing 947,988 outstanding options at $14.66 and 569,997 available for future issuance Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be issued upon exercise of outstanding options | Weighted-average exercise price of outstanding options | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 947,988 | $14.66 | 569,997 | Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive 2021 Proxy Statement - This information is incorporated by reference from the registrant's definitive proxy statement for the 2021 Annual Meeting of Shareholders[654] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's definitive 2021 Proxy Statement - This information is incorporated by reference from the registrant's definitive proxy statement for the 2021 Annual Meeting of Shareholders[655] Part IV Exhibits and Financial Statement Schedules This section lists financial statements filed under Item 8 and provides an index of all exhibits, including governance documents and certifications - This section lists the consolidated financial statements filed under Item 8 and provides an index of exhibits filed with the report, including governance documents, material agreements, and required certifications[657][659][661] Form 10-K Summary The company reports no Form 10-K summary - None