MVB Financial Corp. Announces Second Quarter 2022 Results

MVB Financial Corp. (NASDAQ: MVBF) (“MVB Financial,” “MVB” or the “Company”), the holding company for MVB Bank, Inc. ("MVB Bank"), today announced financial results for the second quarter of 2022, with reported net income of $3.0 million, or $0.24 basic and $0.23 diluted earnings per share.

“We continue to implement our MVB-F1: Success Loves Speed Strategy. Despite seasonality of our niche industries, our fast track growth vehicles remained strong because of our large noninterest-bearing deposit base, while our cost of funds held relatively steady. At the same time, robust loan growth and a favorable liquidity profile helped drive significant net interest margin expansion during the second quarter, while measures of asset quality remained stable,” said Larry F. Mazza, Chief Executive Officer, MVB Financial. “Our effort to diversify our net interest income through Fintech-related fee income increases also gained grip on the track. All in all, our growth vehicles are gaining speed through significant investment, highlighting the diversification inherent in our business strategy as we continue to maneuver in wet track conditions.

“Due to strong loan growth, we reported a significant increase in provision for loan losses, creating downward pressure on the quarter, which, along with the continued slowdown in the mortgage business, contributed to masking some very positive underlying trends.”

SECOND QUARTER 2022 HIGHLIGHTS

• Strong deposit growth despite seasonal variability
  • Total deposits were $2.61 billion as of June 30, 2022, an increase of $105.9 million, or 4.2%, from March 31, 2022 and $385.8 million, or 17.3%, from June 30, 2021.
  • Noninterest-bearing (“NIB”) deposits were $1.34 billion as of June 30, 2022, an increase of $33.9 million, or 2.6%, from March 31, 2022 and $410.3 million, or 44.0%, from June 30, 2021. NIB deposits represented 51% of total deposits as of June 30, 2022, as compared to 52% and 42% as of March 31, 2022 and June 30, 2021, respectively.
  • Growth in total deposits and NIB deposit balances was primarily attributable to the Company’s Fintech business and gaming growth vehicle. Gaming deposits totaled $1.01 billion as of June 30, 2022, up $40.4 million, or 4.2% from March 31, 2022 and $432.1 million, or 74.7%, from June 30, 2021. The pace of deposit growth slowed on a quarter over quarter basis relative to recent prior periods due to seasonal factors.
  • The cost of funds was 22 basis points for the quarter ended June 30, 2022, up one basis point compared to the quarter ended March 31, 2022 and down nine basis points compared to the quarter ended June 30, 2021. The quarter over quarter increase was driven primarily by the slight change in deposit mix, led by relatively faster growth in interest-bearing deposits as compared to NIB deposits and higher interest rates. The decline compared to the prior year period mostly reflected the relatively higher contribution of NIB deposits relative to the prior year.

• Robust loan growth and margin expansion drive strong growth in net interest income
  • Total loan balances of $2.19 billion as of June 30, 2022 increased by $313.3 million, or 16.7%, compared to March 31, 2022 and $519.9 million, or 31.1%, compared to June 30, 2021. Loan growth during the quarter was driven primarily by the Company’s strategic lending partnerships growth vehicle, primarily within residential mortgage, subprime consumer automobile and healthcare loans.
  • Loans held-for-sale were $11.9 million as of June 30, 2022, compared to $9.2 million as of March 31, 2022 and none as of June 30, 2021, led by MVB Bank’s Small Business Administration (“SBA”) lending growth vehicle.
  • On a tax-equivalent basis, net interest margin for the quarter ended June 30, 2022 was 4.10%, an increase of 92 basis points versus the quarter ended March 31, 2022 and 86 basis points versus the quarter ended June 30, 2021. The quarter over quarter increase in net interest margin was due primarily to strong loan growth, higher loan yields, accelerated accretion of the discount on purchased credit impaired (“PCI”) loans sold during the quarter and significantly lower cash balances, partially offset by a modest increase in funding costs. Accelerated accretion of the discount on the PCI loan portfolio contributed approximately 20 basis points to net interest margin during the second quarter of 2022.
  • Net interest income on a tax-equivalent basis totaled $27.0 million for the quarter ended June 30, 2022, up $4.9 million, or 22.0%, and $7.5 million, or 38.8%, from the quarters ended March 31, 2022 and June 30, 2021, respectively.

• Fintech fee income growth offsets continued investments and mortgage slowdown
  • Total noninterest income was $11.9 million for the quarter ended June 30, 2022 as compared to $11.9 million for the quarter ended March 31, 2022, and $13.6 million for the quarter ended June 30, 2021.
  • Payment card and service charge income for the quarter ended June 30, 2022 increased $1.4 million, or 52.0%, from the quarter ended March 31, 2022 and $2.1 million, or 108.5%, from the quarter ended June 30, 2021. The increase in payment card income was driven by growth in interchange income of $1.5 million, or 191.2%, from the quarter ended March 31, 2022 and $1.3 million, or 128.5%, from the quarter ended June 30, 2021, primarily driven by the Company’s Banking-as-a-Service relationships.
  • The Company continues to invest in the building of Fintechs to transform its business model and adapt to changing market conditions and opportunities. For the quarter ended June 30, 2022, earnings were impacted by approximately $1.3 million of net loss from its MVB Edge Ventures segment, as compared to net losses of $1.1 million and $0.2 million for the quarters ended March 31, 2022 and June 30, 2021, respectively.
  • Mortgage income was $0.7 million, down $0.5 million, or 41.4%, from the quarter ended March 31, 2022 and down $3.8 million, or 111.4%, from the quarter ended June 30, 2021. Lower mortgage income relative to both prior periods reflected the continued sharp increase in market interest rates during the second quarter of 2022.

• Measures of asset quality were stable
  • Nonperforming loans totaled $19.3 million, or 0.9% of total loans, as of June 30, 2022, as compared to $18.0 million, or 1.0% of total loans, as of March 31, 2022. Criticized loans as a percentage of total loans were 4.0%, as compared to 5.2% as of March 31, 2022.
  • Net charge-offs were $1.9 million, or 0.21% of total loans on an annualized basis, for the quarter ended June 30, 2022, compared to $0.7 million, or 0.12% of total loans on an annualized basis, for the quarter ended March 31, 2022, and compared to net recoveries totaling $0.2 million, or 0.05% of total loans on an annualized basis, for the quarter ended June 30, 2021.
  • The provision for loan losses totaled $5.1 million for the quarter ended June 30, 2022, compared to $1.3 million for the quarter ended March 31, 2022 and a release of allowance for loan losses of $1.5 million for the quarter ended June 30, 2021. Allowance for loan losses was 1.03% of total loans as of June 30, 2022, an increase of four basis points from March 31, 2022 and a decline of 44 basis points from June 30, 2021. The increase in provision for loan losses for the quarter ended June 30, 2022 primarily reflected the strong growth in loan balances during the quarter, including the expansion of the Company’s subprime consumer automobile portfolio of loans.

INCOME STATEMENT

Net interest income on a tax-equivalent basis totaled $27.0 million for the quarter ended June 30, 2022, up $4.9 million, or 22.0%, from the quarter ended March 31, 2022 and $7.5 million, or 38.8%, from the quarter ended June 30, 2021. The increase in net interest income compared to both periods generally reflects strong loan growth and higher loan yields, particularly driven by the consumer loan portfolio and by accelerated accretion of the discount on PCI loans sold during the quarter of $1.0 million.

Interest income increased $4.8 million, or 20.8%, to $51.4 million from the quarter ended March 31, 2022 and $7.3 million, or 34.8%, from the quarter ended June 30, 2021. The tax-equivalent yield on loans was 5.06% for the quarter ended June 30, 2022, compared to 4.71% for the quarter ended March 31, 2022 and 4.31% for the quarter ended June 30, 2021. Higher loan yields generally reflect new loan production at favorable interest rates and the changing mix of MVB Bank’s loan portfolio, including the expansion of its consumer subprime auto loan portfolio and the accelerated accretion on PCI loans.

Interest expense remained consistent from the quarter ended March 31, 2022 and decreased $0.3 million, or 19.6%, from the quarter ended June 30, 2021. The cost of funds was 22 basis points for the quarter ended June 30, 2022, up one basis point compared to the quarter ended March 31, 2022 and down nine basis points compared to the quarter ended June 30, 2021. The increase in cost of funds relative to the quarter ended March 31, 2022 reflects an increase in interest rates driving the cost of interest-bearing deposits, and a faster pace of growth in interest-bearing deposits as compared to NIB deposits for the quarter. The decrease in cost of funds relative to the comparable prior year quarter reflects a shift in the overall mix of deposit funding due to the growth in NIB deposits and a lessening focus on higher-cost deposits. The cost of interest-bearing liabilities increased by eight basis points as compared to the quarter ended March 31, 2022, primarily reflecting a six basis point increase in the cost of negotiable order of withdrawal (“NOW”) accounts and a four basis point increase in the overall cost of deposits. The cost of interest-bearing liabilities remained flat as compared to the quarter ended June 30, 2021, primarily driven by a 20 basis point decline in the cost of NOW accounts and a 12 basis point decrease in the overall cost of deposits, offset by the decrease in the average balance of NOW accounts and overall interest-bearing deposits of 18.5% and 8.7%, respectively.

On a tax-equivalent basis, net interest margin for the quarter ended June 30, 2022 was 4.10%, an increase of 92 basis points versus the quarter ended March 31, 2022 and 86 basis points versus the quarter ended June 30, 2021. Excluding accretion from the sale of PCI loans during the quarter, net interest margin for the quarter ended June 30, 2022, was 3.94%. Please see the table below for a reconciliation between net interest margin and net interest margin on a fully tax-equivalent basis, a non-GAAP measure. The increase in net interest margin from the quarter ended March 31, 2022 reflected the impact of strong loan growth and the impact of lower cash balances, partially offset by an increase in deposit costs. The average loan-to-deposit ratio during the quarter ended June 30, 2022 was 82.9%, compared to 69.7% for the quarter ended March 31, 2022. The increase in net interest margin relative to the quarter ended June 30, 2021 reflected strong loan growth and an improving deposit mix.

Noninterest income totaled $11.9 million for the quarter ended June 30, 2022, which is consistent with the quarter ended March 31, 2022 and a decrease of $1.7 million, or 12.7%, from the quarter ended June 30, 2021.

Noninterest income was unchanged from the prior quarter due to increases in payment card and service charge income of $1.4 million, or 52.0%, other operating income of $1.3 million, or 272.9%, and gain on sale of loans of $0.3 million, or 29.7%. Partially offsetting these increases were decreases in gain on sale of available-sale securities of $0.7 million, or 100.0%, and equity method investment income of $0.6 million, or 51.8%. Additionally, the Company experienced a decrease in equity method investment gain as compared to the preceding quarter. The decrease is due to a $1.8 million gain recognized in the first quarter related to a strategic investment within the Fintech investment portfolio, with no comparable gain in the current quarter. A sale of mortgaging servicing rights in June 2022 resulted in $1.2 million of the increase in other operating income. The increase in payment card and service charge income is driven by increased interchange income. Equity method investment income was lower by 51.8%, primarily due to lower mortgage banking revenue. Further disaggregation of the Company’s noninterest income is available below.

Noninterest expense totaled $29.8 million for the quarter ended June 30, 2022, an increase of $1.0 million, or 3.3%, from the quarter ended March 31, 2022 and an increase of $6.4 million, or 27.4%, from the quarter ended June 30, 2021. The increase from the quarter ended March 31, 2022 in expenses primarily reflects an increase in salaries and employee benefits of $1.0 million, or 5.7%. The increase relative to the prior year period primarily reflects higher salaries and employee benefits costs of $5.3 million, or 39.0%. The increases in salaries and employee benefits were due to continued hiring during the second quarter that resulted in a 35% increase in average full time equivalent employees for the first half of 2022 as compared to the first half of 2021, including front-line revenue producers and enhanced risk management infrastructure, amidst the transformation of the Company’s business model, mitigated in part by a focused reallocation of resources, including lower infrastructure costs related to a reduction in branch count.

BALANCE SHEET

Loans totaled $2.19 billion at June 30, 2022, an increase of $313.3 million, or 16.7%, and $519.9 million, or 31.1%, as compared to March 31, 2022 and June 30, 2021, respectively, and included outstanding paycheck protection program (“PPP”) loans of $22.3 million at June 30, 2022. Adjusted for the removal of PPP loans from all periods, loan balances increased by 18.1% from the quarter ended March 31, 2022 and by 47.2% from the quarter ended June 30, 2021. Loan growth for both periods was driven primarily by the Company’s strategic lending partnerships growth vehicle. Loans held-for-sale were $11.9 million as of June 30, 2022, compared to $9.2 million at March 31, 2022 and $0 at June 30, 2021, led by MVB Bank’s SBA lending growth vehicle.

Deposits totaled $2.61 billion as of June 30, 2022, an increase of $105.9 million, or 4.2%, from March 31, 2022 and $385.8 million, or 17.3%, from June 30, 2021. NIB deposits totaled $1.34 billion as of June 30, 2022, an increase $33.9 million, or 2.6%, from March 31, 2022 and $410.3 million, or 44.0%, from June 30, 2021. Growth in total and NIB deposit balances primarily reflects the Company’s Fintech business and gaming growth vehicle. Slower deposit growth is mostly attributable to seasonal variability, particularly in gaming deposits. At 51% of total deposits, NIB deposits continue to exceed all other deposits combined.

CAPITAL

The Community Bank Leverage Ratio was 11.6% as of June 30, 2022, compared to 10.8% as of March 31, 2022 and 11.0% as of June 30, 2021. MVB’s Tier 1 Risk-Based Capital Ratio was 13.7% as of June 30, 2022, compared to 15.0% as of March 31, 2022 and 14.8% as of June 30, 2021. The Bank’s Total Risk-Based Capital Ratio was 14.7% as of June 30, 2022, compared to 15.9% as of March 31, 2022 and 16.0% as of June 30, 2021.

The Company issued a quarterly cash dividend of $0.17 per share for the quarter ended June 30, 2022, consistent with the quarter ended March 31, 2022 and up $0.05, or 42%, from the quarter ended June 30, 2021.

ASSET QUALITY

Nonperforming loans totaled $19.3 million, or 0.9% of total loans, as of June 30, 2022, as compared to $18.0 million, or 1.0% of total loans, as of March 31, 2022. There were no notable changes in the composition of nonperforming loans relative to March 31, 2022. Criticized loans as a percentage of total loans were 4.0%, as compared to 5.2% as of March 31, 2022.

Net charge-offs were $1.9 million, or 0.21% of total loans on an annualized basis, for the quarter ended June 30, 2022, compared to $0.7 million, or 0.12% of total loans on an annualized basis, for the quarter ended March 31, 2022 and compared to net recoveries totaling $0.2 million, or 0.05% of total loans on an annualized basis, for the quarter ended June 30, 2021.

Changes to the outstanding balances of the loan portfolios, the level of recognized charge-offs and the resulting historical loss rates and adjustments to the risk grading of loans within the portfolio are all contributing factors in the provision for loan losses. The provision for loan losses totaled $5.1 million for the quarter ended June 30, 2022, compared to $1.3 million for the quarter ended March 31, 2022 and a release of allowance for loan losses of $1.5 million for the quarter ended June 30, 2021. Allowance for loan losses to total loans was 1.03% as June 30, 2022, as compared to 0.99% as of March 31, 2022 and 1.47% as of June 30, 2021.

About MVB Financial Corp.

MVB Financial, the holding company of MVB Bank, is publicly traded on The Nasdaq Capital Market® (“Nasdaq”) under the ticker “MVBF.”

MVB Financial is a financial holding company headquartered in Fairmont, WV. Through its subsidiary, MVB Bank, Inc., and the bank’s subsidiaries, the Company provides financial services to individuals and corporate clients in the Mid-Atlantic region and beyond.

Nasdaq is a leading global provider of trading, clearing, exchange technology, listing, information and public company services.

For more information about MVB, please visit ir.mvbbanking.com.

Forward-looking Statements

MVB Financial 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 press release that are intended to be covered by the protections provided under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations about the future and are 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. Forward-looking statements can be identified by the use of words such as “may,” “could,” “should,” “would,” “will,” “plans,” “believes,” “estimates,” “expects,” “anticipates,” “intends,” “continues” or the negative of those terms or similar expressions. 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 forward-looking statements. Therefore, undue reliance should not be placed upon any forward-looking statements. Those factors include but are not limited to: market, economic, operational, liquidity and credit risk; changes in market interest rates; inability to achieve anticipated synergies and successfully integrate recent mergers and acquisitions; inability to successfully execute business plans, including strategies related to investments in Fintech companies; competition; length and severity of the COVID-19 pandemic and its impact on the Company’s business and financial condition; changes in economic, business and political conditions; changes in demand for loan products and deposit flow; operational risks and risk management failures; 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, 2021, as well as its other filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov. Except as required by law, the Company disclaims any obligation to update, revise or correct 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 SEC. Accordingly, the consolidated financial information in this announcement is subject to change.