MVB Financial Corp. Announces Second Quarter 2023 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 2023, with reported net income of $8.1 million, or $0.64 basic and $0.63 diluted earnings per share.

Balance sheet loan to deposit ratio of 78.1%

Off-balance sheet deposits increased to $1.1 billion

CRE concentration of 217% of total risk based capital

Total risk based capital of 14.9%

From Larry F. Mazza, Chief Executive Officer, MVB Financial:

"Following the market events of March 2023, we took decisive action. Out of an abundance of caution, we maintained our already-strong balance sheet liquidity position, and in anticipation of new regulatory and compliance requirements for the industry, took additional steps to enhance our risk management and compliance infrastructure. These actions increased our funding costs and noninterest expenses during the second quarter, but helped to strengthen our foundation during a tumultuous period for the industry. Moreover, we further de-risked our loan portfolio with the sale of a portion of our subprime automobile loans, and during the quarter, we had no outstanding FHLB or other short-term borrowings, no held-to-maturity investment securities and a limited concentration of CRE loans and office exposure. Despite these unexpected challenges, we generated strong earnings for the second quarter. Looking ahead, I am encouraged by our team's continuous adaptability, the stability of our asset quality and our strong liquidity, funding and capital position as we look to a pick-up in high-quality loan growth as we move forward."

SECOND QUARTER 2023 HIGHLIGHTS

• Anticipated industry seasonality and a shifting mix impacted deposit growth trends.
  • Total deposits declined 6.1%, or $191.9 million, to $2.96 billion, compared to the prior quarter-end, primarily reflecting seasonal considerations in gaming and Banking-as-a-Service ("BaaS") deposits, primarily offset by growth in certificates of deposit ("CDs") and other interest-bearing deposits. Relative to the comparable period of the prior year, total deposits increased 13.2%, or $344.0 million.
  • Total off-balance sheet deposits increased to $1.1 billion as compared to $1.0 billion at the prior quarter-end. Off-balance sheet deposit networks are being utilized to generate fee income, enhance capital and manage liquidity and concentration risk.
  • Noninterest-bearing ("NIB") deposits declined 12.9%, or $146.7 million, to $987.6 million, and represented 33% of total deposits, as compared to 36% of total deposits at the prior quarter-end. Lower NIB deposits primarily reflected the desire to build liquidity through CDs, the highly competitive deposit environment and rising interest rates.
• Measures of foundational strength were stable to improved.
  • The Community Bank Leverage Ratio, Tier 1 Risk-Based Capital Ratio and MVB Bank's Total Risk-Based Capital Ratio were 10.0%, 13.8%, and 14.9%, respectively, from 10.0%, 13.7%, and 14.9%, respectively, at the prior quarter end.
  • Tangible book value per share, a non-U.S. GAAP measure discussed below, grew 0.7% to $21.31 from $21.17 at the prior quarter end.
  • Nonperforming loans totaled $13.6 million, or 0.6% of total loans, compared to $13.1 million, or 0.6% of total loans at the prior quarter end. Criticized loans as a percentage of total loans were 3.1%, as compared to 3.6% at the prior quarter end. Net charge-offs were $1.2 million, or 0.2% of total loans on an annualized basis, for the second quarter of 2023, compared to $1.7 million for the prior quarter. Of the net charge-offs for the second quarter of 2023, 92% were attributable to subprime automobile loans.
  • The release of allowance for credit losses totaled $4.2 million compared to a provision for credit losses of $4.6 million for the prior quarter. MVB sold $20.4 million of subprime automobile loans and released the reserve associated with those loans, resulting in the net reserve release for the quarter. The allowance for credit losses was 1.3% of total loans, as compared to 1.5% as of the prior quarter-end, largely reflecting the aforementioned changes in loan portfolio composition.
• Net interest income and net interest margin declined primarily due to building liquidity, rising interest rates, seasonal and other factors.
  • Net interest income on a fully tax-equivalent basis declined 9.6%, or $3.2 million, to $29.8 million relative to the prior quarter, primarily due to contraction in net interest margin on a fully tax-equivalent basis and a decline in average loans, partially offset by growth in the total average earning asset balance. As compared to the comparable period of the prior year, net interest income increased 10.7%, or $2.9 million.
  • Net interest margin on a fully tax-equivalent basis was 3.80%, down 60 basis points during the second quarter of 2023, primarily reflecting a higher cost of funds and a shift in the mix of earning assets, as certain higher yielding loan balances declined modestly while lower yielding cash balances increased significantly. A shift in the mix of deposits due to seasonal considerations related to the Company's gaming deposits also contributed to the increase in funding costs and negatively impacted net interest margin during the second quarter of 2023.
  • Average earning asset balances increased 3.5% during the second quarter of 2023 reflecting materially higher interest-bearing balances with banks, partially offset by a modest decline in average loans. Average loan balances declined 0.9%, reflecting deliberate efforts to improve balance sheet liquidity and the aforementioned sale of subprime automobile loans during the second quarter of 2023.
  • The loan to deposit ratio was 78.1% as of June 30, 2023, compared to 74.9% as of March 31, 2023 and 84.7% as of June 30, 2022.
• Fees and expenses trended higher.
  • Noninterest income was $6.4 million for the second quarter of 2023, as compared to $3.1 million for the prior quarter. The increase reflects higher income from equity method investments of $1.9 million as compared to a loss of $1.2 million for the prior quarter, primarily due to higher income from MVB's investment in Warp Speed Holdings LLC, and to a lesser extent, higher other operating income. Partially offsetting these increases was a loss on the divestiture of Flexia Payments, LLC ("Flexia") of $1.1 million during the second quarter of 2023. Further, payment card and service charge income of $3.5 million declined 3.0%, or $0.1 million, from the prior quarter, due primarily to the aforementioned seasonal considerations and loss on sale of sub-prime automobile and nonperforming loans of $1.0 million increased $0.6 million from the prior quarter.
  • Noninterest expense increased 6.9% to $30.3 million from $28.3 million from the prior quarter. While we added personnel in certain areas during the current quarter, overall salary and benefit costs declined; however, higher total noninterest expenses reflect professional fees and other operating expenses, primarily attributable to recent actions taken in response to the market events in March 2023 to further enhance risk management and compliance-related infrastructure. Noninterest expenses other than professional fees and other operating expenses declined 1.3% as compared to the prior quarter, reflecting ongoing efforts to meet cost savings initiative targets.

INCOME STATEMENT

Net interest income on a tax-equivalent basis totaled $29.8 million for the second quarter of 2023, down $3.2 million, or 9.6%, from the first quarter of 2023 and up $2.9 million, or 10.7%, from the second quarter of 2022. The decline in net interest income compared to the first quarter of 2023 reflects net interest margin contraction and higher than average cash balances, partially offset by higher earning asset balances. The increase compared to the second quarter of 2022 generally reflects strong loan growth at favorable interest rates, primarily driven by MVB Bank's strategic lending partnerships growth vehicle and broad-based growth throughout CoRe Banking business, as well as the beneficial effects of higher interest rates on earning asset yields, including loans, investment securities and interest-bearing deposits with other banks.

Interest income increased $2.3 million, or 5.1%, from the first quarter of 2023 and increased $18.9 million, or 67.4%, from the second quarter of 2022. The tax-equivalent yield on loans was 6.7% for the second quarter of 2023, compared to 6.6% for the first quarter of 2023 and 5.1% for the second quarter of 2022. The higher loan yields compared to the first quarter of 2023 generally reflect the beneficial impact of Fed rate increases, while higher loan yields compared to the second quarter of 2022 reflect the cumulative impact of robust loan growth booked at higher yields than the prevailing portfolio yield in the prior year.

Interest expense increased $5.4 million, or 45.0%, from the first quarter of 2023 and increased $16.0 million from the second quarter of 2022. The cost of funds was 2.26% for the second quarter of 2023, up from 1.61% for the first quarter of 2023 and 0.22% for the second quarter of 2022. The increase from the prior quarter primarily reflected the impact of higher interest rates, including an increase in rates paid on money market checking deposits and CDs, a decline in noninterest-bearing demand deposits and actions taken to enhance liquidity in response to the market events of March 2023. The increase in cost of funds compared to the prior year period reflects the impact of liquidity actions taken in 2023 in response to market conditions, higher interest rates and the senior term loan, which was entered into during October 2022.

On a tax-equivalent basis, net interest margin for the second quarter of 2023 was 3.80%, a decrease of 60 basis points versus the first quarter of 2023 and a decrease of 30 basis points versus the second quarter of 2022. 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. Contraction in net interest margin from the first quarter of 2023 to the second quarter of 2023 primarily reflected higher funding costs and a shift in the mix of earning assets (higher yielding loan balances declined, while lower yielding cash balances increased), partially offset by higher loan yields.

Noninterest income totaled $6.4 million for the second quarter of 2023, an increase of $3.4 million from the first quarter of 2023 and a decrease of $3.0 million from the second quarter of 2022. The increase compared to the prior quarter is primarily driven by a $3.1 million increase in equity method investment income, a $1.2 million decrease in loss on sale of available-for-sale investment securities and a $0.5 million increase in holding gain on equity securities. These gains were partially offset by a loss of $1.0 million resulting from divestiture activity and an increase $0.6 million in loss on sale of loans. The $3.0 million decrease in noninterest income from the second quarter of 2022 was primarily driven by decreases of $2.4 million in gain on sale of loans, a $1.0 million loss on divestiture activity and a $0.5 million loss in payment card and service charge income, partially offset by an increase of $1.3 million in equity method investment income.

Noninterest expense totaled $30.3 million for the second quarter of 2023, an increase of $2.0 million, or 6.9%, from the first quarter of 2023 and an increase of $2.3 million, or 8.3%, from the second quarter of 2022. The increase from the prior periods primarily reflects higher other operating expenses, specifically higher professional fees, partially offset by decreases in salaries and employee benefits expense of $1.0 million, or 6.0%, and $0.8 million, or 5.1%, as compared to the first quarter of 2023 and the second quarter of 2022, respectively.

In February 2023, the Company completed the sale of the Bank's wholly owned subsidiary, Chartwell Compliance, for total consideration of $14.4 million. The results of Chartwell operations are included in discontinued operations on the consolidated statements of income. There was no net income from discontinued operations in the second quarter of 2023. Net income from discontinued operations totaled $8.8 million for the first quarter of 2023, which included a gain on sale of $11.8 million.

In May 2023, MVB entered into an agreement with Flexia, to facilitate the divestiture of MVB's interests in the ongoing business of Flexia. As a result of the divestiture, MVB incurred a loss of $1.1 million during the quarter ended June 30, 2023.

BALANCE SHEET

Loans totaled $2.31 billion at June 30, 2023, a decrease of $48.8 million, or 2.1%, and an increase of $97.3 million, or 4.4%, as compared to March 31, 2023 and June 30, 2022, respectively. The decrease in loan balances compared to the prior quarter primarily reflects deliberate efforts to improve balance sheet liquidity and ensure appropriate risk adjusted pricing on loans, in addition to the sale of $20.4 million of subprime automobile loans during the second quarter of 2023. The remaining balance of subprime automobile loans totaled $27.0 million at June 30, 2023. Loan growth compared to June 30, 2022 was driven primarily by MVB Bank's strategic lending partnerships. Loans held-for-sale, which represent MVB Bank's government guaranteed lending growth vehicle, were $7.0 million as of June 30, 2023, compared to $19.9 million at March 31, 2023 and $11.9 million at June 30, 2022.

Deposits totaled $2.96 billion as of June 30, 2023, a decrease of $191.9 million, or 6.1%, from March 31, 2023, and an increase of $344.0 million, or 13.2%, from June 30, 2022. NIB deposits totaled $987.6 million as of June 30, 2023, a decrease of $146.7 million, or 12.9%, from March 31, 2023 and $355.4 million, or 26.5%, from June 30, 2022. The decline in total deposit balances compared to March 31, 2023 primarily reflects seasonal considerations in MVB's gaming and BaaS deposits and an increase in off-balance sheet deposits, primarily offset by growth in CDs and other interest-bearing deposits. The increase relative to June 30, 2022, reflects higher CDs and BaaS account deposits. The decrease in NIB deposits relative to both prior periods primarily reflects the highly-competitive deposit environment, rising interest rates and MVB's utilization of off-balance sheet deposit networks to generate fee income, enhance capital and manage liquidity and concentration risk.

CAPITAL

The Community Bank Leverage Ratio was 10.0% as of June 30, 2023, compared to 10.0% as of March 31, 2023 and 11.6% as of June 30, 2022.

The Company issued a quarterly cash dividend of $0.17 per share for the second quarter of 2023, consistent with the first quarter of 2023 and the second quarter of 2022.

ASSET QUALITY

Nonperforming loans totaled $13.6 million, or 0.6% of total loans, as of June 30, 2023, as compared to $13.1 million, or 0.6% of total loans, as of March 31, 2023, and $19.3 million, or 0.9% of total loans, as of June 30, 2022. Criticized loans as a percentage of total loans were 3.1%, compared to 3.6% as of March 31, 2023 and 4.0% as of June 30, 2022.

Net charge-offs were $1.2 million, or 0.2% of total loans, for the second quarter of 2023, compared to $1.7 million, or 0.3% of total loans, for the first quarter of 2023 and $1.2 million, or 0.2% of total loans, for the second quarter of 2022.

The release of allowance for credit losses totaled $4.2 million compared to a provision for credit losses of $4.6 million for the prior quarter. The Company sold $20.4 million of subprime automobile loans and released the reserve associated with those loans, resulting in the net reserve release for the quarter. The allowance for credit losses was 1.3% of total loans at June 30, 2023, as compared to 1.5% at March 31, 2023 and 1.0% at June 30, 2022. The decline in the allowance ratio compared to the prior quarter largely reflects the aforementioned changes in loan portfolio composition. The increase in the allowance compared to June 30, 2022 primarily reflects changes in loan portfolio composition and the implementation of the Current Expected Credit Loss allowance methodology as of January 1, 2023.

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 is a financial holding company headquartered in Fairmont, West Virginia. Through its subsidiary, MVB Bank, and MVB Bank's subsidiaries, MVB Financial 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; impacts related to or resulting from recent bank failures and volatility; 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; the pace of recovery following the continued effects 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, 2022, 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.

Non-U.S. GAAP Financial Measures

This document contains supplemental financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Management uses these non-U.S. GAAP measures in its analysis of the Company's performance. These measures should not be considered a substitute for U.S. GAAP basis measures nor should they be viewed as a substitute for operating results determined in accordance with U.S. GAAP. Management believes the presentation of non-U.S. GAAP financial measures that exclude the impact of specified items provide useful supplemental information that is essential to a proper understanding of the Company's financial condition and results. Non-U.S. GAAP measures are not formally defined under U.S. GAAP, and other entities may use calculation methods that differ from those used by us. As a complement to U.S. GAAP financial measures, our management believes these non-U.S. GAAP financial measures assist investors in comparing the financial condition and results of operations of financial institutions due to the industry prevalence of such non-U.S. GAAP measures. See the tables below for a reconciliation of these non-U.S. GAAP measures to the most directly comparable U.S. GAAP financial measures.