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Is MVB Financial Corp. (NASDAQ:MVBF) Over-Exposed To Risk?

Felix Olson

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Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. Economic growth impacts the stability of salaries and interest rate level which in turn affects borrowers’ demand for, and ability to repay, their loans. As a small-cap bank with a market capitalisation of US$190m, MVB Financial Corp.’s (NASDAQ:MVBF) profit and value are directly affected by economic activity. Risk associate with repayment is measured by the level of bad debt which is an expense written off MVB Financial’s bottom line. Since the level of risky assets held by the bank impacts the attractiveness of it as an investment, I will take you through three metrics that are insightful proxies for risk.

See our latest analysis for MVB Financial

NASDAQCM:MVBF Historical Debt February 6th 19

Does MVB Financial Understand Its Own Risks?

MVB Financial’s ability to forecast and provision for its bad loans relatively accurately indicates it has a good understanding of the level of risk it is taking on. If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does MVB Financial understand its own risk?. MVB Financial’s low bad loan to bad debt ratio of 89.05% means the bank has under-provisioned by -10.95%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.

What Is An Appropriate Level Of Risk?

MVB Financial’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Loans that cannot be recovered by the bank are known as bad loans and typically should make up less than 3% of its total loans. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts MVB Financial’s bottom line. A ratio of 0.99% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

MVB Financial profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. MVB Financial’s total deposit level of 89% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.

Next Steps:

MVBF’s acquisition will impact the business moving forward. Keep an eye on how this decision plays out in the future, especially on its financial health and earnings growth. I’ve bookmarked MVBF’s company page on Simply Wall St to stay informed with changes in outlook and valuation. This is also the source of data for this article. The three main sections I’d recommend you check out are:

  1. Future Outlook: What are well-informed industry analysts predicting for MVBF’s future growth? Take a look at our free research report of analyst consensus for MVBF’s outlook.
  2. Valuation: What is MVBF worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether MVBF is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.