MVB Financial Corp. Reports Strong Third Quarter 2020 Results with a 50% Increase in Net Income, a 134% Increase in Noninterest-Bearing Deposits, and a 25% Increase In Tangible Book Value from Previous Year

FAIRMONT, W. Va.--(BUSINESS WIRE)-- MVB Financial Corp. (NASDAQ: MVBF) (“MVB Financial,” “MVB,” or the “Company”) today reported net income of $6.5 million, or $0.53 basic and diluted earnings per share for the three months ended September 30, 2020.

THIRD QUARTER 2020 HIGHLIGHTS

• Transactions: The Company continued to be active during the third quarter of 2020 and completed two strategic transactions: the MVB Mortgage combination with Intercoastal Mortgage Company (“ICM”) and the acquisition of the assets of Invest Forward, Inc.
• Growth in Tangible Book Value (“TBV”) per Share: TBV per share was $18.66 as of September 30, 2020, an increase of $2.01, or 12.1%, from June 30, 2020, and an increase of $3.79, or 25.5%, from September 30, 2019.
• Mortgage: MVB Mortgage’s income from its equity method investment of ICM was $13.6 million for the quarter ended September 30, 2020. The Company also recognized a gain on the mortgage combination transaction of $3.3 million.
• Deposits: Noninterest-bearing deposits were $642.8 million as of September 30, 2020, an increase of $114.3 million, or 21.6%, from June 30, 2020, and an increase of $367.9 million, or 133.8%, from September 30, 2019. As of September 30, 2020, total noninterest-bearing deposits were 33.9% of total deposits, compared to 28.4% as of June 30, 2020, and 18.9% as of September 30, 2019.
• Asset Quality: Allowance for loan losses to total loans was 1.81% as of September 30, 2020, an increase of 62 basis points from June 30, 2020, and an increase of 95 basis points from September 30, 2019. Excluding Paycheck Protection Program (“PPP”) loans of $87.9 million, allowance for loan losses to total loans was 1.93% as of September 30, 2020, an increase of 67 basis points from June 30, 2020, and an increase of 107 basis points from September 30, 2019.
• Capital: MVB Bank, Inc. (“MVB Bank” or the “Bank”) finished the third quarter with strong capital ratios. The Bank’s leverage ratio was 10.64%, the Tier 1 risk-based capital ratio was 14.63%, and the total risk-based capital ratio was 15.89%. The Company’s tangible common equity to tangible assets was 10.04% as of September 30, 2020.

FINTECH HIGHLIGHTS

• Fintech deposits were $364.8 million as of September 30, 2020, an increase of $138.6 million, or 61.3%, from June 30, 2020, and an increase of $251.5 million, or 221.9%, from September 30, 2019.
• Gaming deposits, included in total fintech deposits, were $206.6 million as of September 30, 2020, an increase of $64.7 million, or 45.6%, from June 30, 2020, and an increase of $129.8 million, or 169.0%, from September 30, 2019.
• Through the existing partnership with Credit Karma, MVB is now a Top 30 bank in terms of total number of deposit accounts in the United States. Also in the third quarter, MVB signed a sponsorship agreement with Credit Karma to launch a debit card program.
• In an effort to increase noninterest income, MVB signed agreements with two of the largest payment processors for card acquiring sponsorships.

MANAGEMENT OVERVIEW

The Company continued to be “offensively defensive” to further strengthen capital and to bolster the provision for loan losses, all while generating competitive earnings of $6.5 million to position the Company for success now and in the future. As a result of increasing the provision for loan losses, allowance for loan losses as a percentage of total loans of 1.81% as of September 30, 2020, increased 62 basis points from June 30, 2020, and increased 95 basis points from September 30, 2019.

As the COVID-19 pandemic continues, the Company is fulfilling its purpose of being a trusted partner to Clients, Communities, Team Members, and Shareholders. Members of the Commercial and Retail Banking Team are serving Clients with social distancing measures in place and a majority of Team Members are still working remotely. The Company remains committed to the Community by continuing to partner with non-profit entities and local businesses and was able to return value to Shareholders through meaningful growth in earnings and tangible book value for the second straight quarter. In addition, the Company saw a decrease in commercial loans requiring additional modifications, down from $223.9 million in the second quarter to $41.1 million in the third quarter of 2020.

In addition, the Company reduced its reliance on brokered CDs and higher-cost deposits by replacing these deposits with noninterest-bearing deposits. Total noninterest-bearing deposits increased $114.3 million, or 21.6%, from June 30, 2020, and increased $367.9 million, or 133.8%, from September 30, 2019, to a balance of $642.8 million as of September 30, 2020. The growth in noninterest-bearing deposits was primarily driven by MVB’s continued execution of strategic initiatives in Fintech and specialty deposits. As of September 30, 2020, total noninterest-bearing deposits were 33.9% of total deposits, compared to 28.4% as of June 30, 2020, and 18.9% as of September 30, 2019.

During the third quarter of 2020, the Company completed MVB Mortgage’s combination with ICM on July 1, 2020 to become one of the largest independently-owned residential mortgage lending operations in the Mid-Atlantic region. MVB Mortgage’s combination with Intercoastal Mortgage Company to form ICM served as further validation of the Company’s strategic initiatives to protect earnings in a down-rate environment. After the combination, management at ICM continues to execute on favorable market conditions while generating cost savings through synergies gained in the combination. During the third quarter, MVB recognized $13.6 million in equity method investment income. This income amount is directly proportional to MVB’s ownership interest in ICM. In addition, MVB recognized a gain for the fair value recognition of the equity investment in ICM of $3.3 million during the third quarter of 2020.

“I’m very pleased with MVB’s strong third quarter performance results. Team MVB has executed during an extraordinary year with noninterest-bearing deposits up 134% and, most importantly, with tangible book value up 25% from the third quarter of 2019, enhancing shareholder value,” said Larry F. Mazza, President and CEO, MVB Financial Corp. “The already strong mortgage companies integrated quickly and have been successfully seeking synergies. Our long-held belief that investment in our mortgage company is a protection against down side risk in the cyclical mortgage industry has been validated. As the industry moves into its next phase, the company will be well prepared with cost saves and efficiencies.”

Also during the third quarter of 2020, the Company acquired the assets of Invest Forward, Inc., doing business as Grand. Grand is a mobile app that incentivizes savings through digital banking.

“Our strategy continues to differentiate MVB among our peers. In addition to completing the MVB Mortgage combination with Intercoastal Mortgage Company this quarter, MVB also acquired technology through Invest Forward, Inc., which will strengthen our expanding fintech vertical. We signed sponsorship agreements with the top two processors in the U.S., and we provided banking services for Credit Karma to launch debit card issuance,” Mazza said.

LOANS

Loans, excluding PPP loans of $87.9 million, totaled $1.34 billion as of September 30, 2020, a decrease of $64.2 million, or 4.6%, from June 30, 2020, and a decrease of $41.7 million, or 3.0%, from September 30, 2019. The decrease in loans was driven by mortgage construction loans contributed to ICM totaling $54.0 million and expected runoff in commercial loans. The tax-equivalent yield on loans, including PPP loans, was 4.51% for the quarter ended September 30, 2020, a decrease of 23 basis points from the quarter ended June 30, 2020, and a decrease of 66 basis points from the quarter ended September 30, 2019.

Loans held for sale totaled $2.3 million as of September 30, 2020, a decrease of $239.8 million, or 99.1%, from June 30, 2020, and a decrease of $157.7 million, or 98.6%, from September 30, 2019. Loans held for sale decreased as a result of the MVB Mortgage combination to form ICM.

DEPOSITS

Deposits totaled $1.90 billion of September 30, 2020, an increase of $35.0 million, or 1.9%, from June 30, 2020, and an increase of $442.6 million, or 30.4%, from September 30, 2019.

Driven by increased mortgage activity as a result of the historically low rates late in the first three quarters of 2020, deposits related to title businesses totaled $175.6 million as of September 30, 2020, up from $155.3 million as of June 30, 2020, and up from $60.3 million as of September 30, 2019.

During the first half of 2020, the Company used the influx of noninterest-bearing deposits to pay down FHLB and other borrowings. As a result of the increases in noninterest-bearing deposits continuing throughout the third quarter of 2020, the Company was able to further decrease reliance on higher-cost funding sources by reducing the balance of brokered deposits by $110.3 million from June 30, 2020.

NET INTEREST INCOME

Net interest income for the quarter ended September 30, 2020, was $16.0 million, a decrease of $2.4 million, or 13.3%, from the quarter ended June 30, 2020, and an increase of $1.0 million, or 6.5%, from the quarter ended September 30, 2019. Net interest margin, on a fully tax-equivalent basis, for the quarter ended September 30, 2020, was 3.35%, a decrease of 43 basis points versus the quarter ended June 30, 2020, and a decrease of 13 basis points versus the quarter ended September 30, 2019. Net interest margin was primarily impacted by three items: excess liquidity, PPP loans originated during the second quarter of 2020, and a prepayment penalty for paying off long-term borrowings. For the quarter ended September 30, 2020, the excess liquidity from increased cash balances accounted for 26 basis points of the decrease, the PPP loans originated during the second quarter accounted for 15 basis points of the decrease, and a $500 thousand prepayment penalty for paying off long-term borrowings accounted for 10 basis points of the decrease. The tax-equivalent adjustments are added to net interest income and are $301 thousand for the quarter ended September 30, 2020, $284 thousand for the quarter ended June 30, 2020, and $260 thousand for the quarter ended September 30, 2019. Excluding the impact from the FDIC-assisted acquisition of First State, the fully-tax equivalent net interest margin for the quarter ended September 30, 2020 would have decreased 21 basis points.

Interest income decreased 14.5% during the quarter ended September 30, 2020, compared to the quarter ended June 30, 2020, and decreased 11.5% compared to the quarter ended September 30, 2019. The 56-basis point decrease in the tax-equivalent yield on earning assets compared to the quarter ended June 30, 2020, was the result of a 11-basis point decrease in the yield on commercial loans and a 95-basis point decrease in the yield on real estate loans. The 97-basis point decrease in the tax-equivalent yield on earning assets compared to the quarter ended September 30, 2019, was the result of a 56-basis point decrease in the yield on commercial loans and a 134-basis point decrease in the yield on real estate loans.

Interest expense decreased 21.1% during the quarter ended September 30, 2020, compared to the quarter ended June 30, 2020, as a result of a decrease of 14 basis points in the cost of interest-bearing liabilities. Interest expense decreased 56.4% compared to the quarter ended September 30, 2019, due to a decrease of 95 basis points in the cost of interest-bearing liabilities. The decrease in the cost of interest-bearing liabilities compared to the quarter ended June 30, 2020, was the result of a 22-basis point decrease in the cost of money market accounts, a 18-basis point decrease in the cost of CDs, and a 33-basis point decrease in the cost of NOW accounts The decrease in the cost of interest-bearing liabilities compared to the quarter ended September 30, 2019, was the result of a 134-basis point decrease in the cost of money market accounts, a 105-basis point decrease in the cost of CDs, and a 45-basis point decrease in the cost of NOW accounts.

An increase in the Company's average noninterest-bearing balances of $88.0 million from the quarter ended June 30, 2020, helped to maintain a 26-basis point favorable spread on the tax-equivalent net interest margin for the quarter ended September 30, 2020, compared to a 27-basis point favorable spread for the quarter ended June 30, 2020.

An increase in the Company’s average noninterest-bearing balances of $271.2 million from the quarter ended September 30, 2019, helped to maintain a 26-basis point favorable spread on the tax-equivalent net interest margin in 2020 compared to a 37-basis point favorable spread for the same period in 2019.

ASSET QUALITY

Provision for loan losses totaled $8.6 million for the quarter ended September 30, 2020, an increase of $2.0 million from the quarter ended June 30, 2020, and an increase of $8.0 million from the quarter ended September 30, 2019. The drastic increase in loan loss provision is mainly the result of changes to the qualitative adjustment factor framework within the allowance methodology, in addition to adjustments to the risk grading of significant loans within the portfolio, and changes in the outstanding balances of the loan portfolios. As a result of the increases in provision, allowance for loan losses as a percentage of total loans was 1.81% as of September 30, 2020, an increase of 62 basis points from June 30, 2020, and an increase of 95 basis points from September 30, 2019. The Company is continuing to evaluate the effects of COVID-19 as it relates to the asset quality of the loan portfolio and will continue to evaluate and assess the need for additional loan loss provision in the remainder of 2020 and beyond.

Nonperforming loans totaled $14.9 million, or 1.04%, of total loans as of September 30, 2020, compared to 0.94% of total loans as of June 30, 2020, and compared to 0.41% of total loans as of September 30, 2019. The increase in nonperforming loans from June 30, 2020 was primarily the result of the recognition of $3.0 million in nonperforming loans acquired from The First State Bank, which was partially offset by a $750 thousand curtailment of a nonperforming commercial loan and the foreclosure upon a $377 thousand commercial loan which was transitioned to other real estate owned. In addition, net charge-offs for the quarter ended September 30, 2020, increased $91 thousand compared to the quarter ended June 30, 2020, and increased $155 thousand compared to the quarter ended September 30, 2019. In the third quarter of 2020, commercial loans totaling $41.1 million and mortgage loans totaling $15.5 million were approved for modifications such as interest-only payments and payment deferrals. Of the $41.1 million of commercial loan modifications, $35.5 million were related to hotels. These modifications were not considered to be troubled debt restructurings.

NONINTEREST INCOME

Noninterest income totaled $19.4 million for the quarter ended September 30, 2020, a decrease of $26.1 million, or 57.4%, from the quarter ended June 30, 2020, and an increase of $4.7 million, or 32.0%, from the quarter ended September 30, 2019.

The $26.1 million decrease in noninterest income from the quarter ended June 30, 2020, was due to a decrease of $20.9 million in the gain on derivatives and a decrease of $7.7 million in mortgage fee income due to the transition to the equity method investment accounting from the MVB Mortgage transaction. These decreases were partially offset by an increase of $13.6 million in equity method investments income related to the Company’s investment in ICM and an increase of $3.3 million in the gain on mortgage combination transaction. The decrease in noninterest income was also impacted by transactions closed and gains recognized in the second quarter of 2020, as follows: $9.6 million in the gain on sale of banking centers and $4.7 million in the bargain purchase gain from the acquisition of The First State Bank.

The $4.7 million increase in noninterest income from the quarter ended September 30, 2019, was due to an increase of $13.6 in equity method investments income related to the Company’s investment in ICM and an increase of $3.3 million in the gain on mortgage combination transaction. These increases were partially offset by a decrease of $8.6 million in the gain on derivatives and a decrease of $4.2 million in mortgage fee income. The decreases in both the gain on derivatives and mortgage fee income are directly related to the mortgage transaction that occurred on July 1, 2020.

NONINTEREST EXPENSE

Noninterest expense totaled $18.3 million for the quarter ended September 30, 2020, a decrease of $15.1 million, or 45.2%, from the quarter ended June 30, 2020, and a decrease of $5.1 million, or 21.9%, from the quarter ended September 30, 2019. The mortgage transaction that occurred on July 1, 2020 had the largest impact to the decreases noted in noninterest expense as a result of the transition to the equity method investment accounting.

The $15.1 million decrease in noninterest expense from the quarter ended June 30, 2020, was due to a decrease of $12.1 million in salaries and employee benefits, a decrease of $1.4 million in professional fees, and a decrease of $887 thousand in mortgage processing expense. Of the decrease in salaries and employee benefits expense, $13.5 million was primarily driven by the MVB Mortgage combination to form ICM.

The $5.1 million decrease in noninterest expense from the quarter ended September 30, 2019, was due to a decrease of $4.9 million in salaries and employee benefits and a decrease of $725 thousand in mortgage processing expense. Of the decrease in salaries and employee benefits expense, $8.2 million was primarily driven by the MVB Mortgage combination to form ICM.

STOCK REPURCHASE PROGRAM

As previously announced on August 19, 2020, the Board of Directors of the Company approved an extension of the current stock repurchase program, of which 49,100 shares were repurchased for $706 thousand. Under the extended program, the Company is authorized to repurchase up to an additional $5 million of its outstanding shares of common stock over the next 12 months or until the purchase is fully absorbed, whichever date comes first. During the third quarter of 2020, the Company repurchased 82,424 shares totaling $1.3 million. A total of 128,024 shares totaling $1.9 million have been repurchased in 2020.

DIVIDEND

As previously announced on August 21, 2020, MVB issued its third quarterly dividend for 2020, totaling a $0.27 per share payout year-to-date. The Company declared a quarterly cash dividend of $0.09 per share payable on September 15, 2020, to shareholders of record at the close of business on September 1, 2020.

About MVB Financial Corp.

MVB Financial Corp. (“MVB Financial” or “MVB”), the holding company of MVB Bank, Inc., is publicly traded on The Nasdaq Capital Market® under the ticker “MVBF.” Nasdaq is a leading global provider of trading, clearing, exchange technology, listing, information and public company services. Through its subsidiary, MVB Bank, Inc., and the Bank’s subsidiaries, MVB Community Development Corporation, Chartwell Compliance, Paladin Fraud, and MVB Technology, the Company provides financial services to individuals and corporate clients in the Mid-Atlantic region and beyond. For more information about MVB, please visit http://ir.mvbbanking.com.

Forward-looking Statements

MVB Financial Corp. (the “Company”) has made forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in this Earnings Release. These forward-looking statements are based on current expectations about the future and subject to risks and uncertainties. Forward-looking statements include, without limitation, information concerning possible or assumed future results of operations of the Company and its subsidiaries. When words such as “may,” “plans,” “believes,” “expects,” “anticipates,” “continues,” “may” or similar expressions occur in this Earnings Release, the Company is making forward-looking statements. Note that many factors could affect the future financial results of the Company and its subsidiaries, both individually and collectively, and could cause those results to differ materially from those expressed in the forward-looking statements contained in this Earnings Release. Those factors include but are not limited to: credit risk; changes in market interest rates; inability to achieve anticipated synergies; ability to successfully integrate recent mergers and acquisitions, including First State and Summit; competition; length and severity of the recent COVID-19 (coronavirus) outbreak and its impact on the Company’s business and financial condition; economic downturn or recession; and government regulation and supervision. Additional factors that may cause actual results to differ materially from those described in the forward-looking statements can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as well as its other filings with the SEC, which are available on the SEC website at www.sec.gov. Except as required by law, the Company undertakes no obligation to update or revise any forward-looking statements.

Accounting standards require the consideration of subsequent events occurring after the balance sheet date for matters that require adjustment to, or disclosure in, the consolidated financial statements. The review period for subsequent events extends up to and including the filing date of a public company’s financial statements when filed with the Securities and Exchange Commission. Accordingly, the consolidated financial information in this announcement is subject to change.

Questions or comments concerning this Earnings Release should be directed to:

MVB Financial Corp. Donald T. Robinson, Executive Vice President and CFO (304) 598-3500 drobinson@mvbbanking.com