MVB Financial Corp. Announces Third Quarter 2024 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 third quarter of 2024, with reported net income of $2.1 million, or $0.16 basic and diluted earnings per share.

Third Quarter 2024 Highlights

Previously disclosed digital asset program exit reduced EPS by $0.29 in third quarter and $0.37 year-to-date.

Noninterest bearing deposits represent 33.0% of total deposits.

On balance sheet payments-related deposits increased by 60.8% due to growth in existing relationships.

Tangible book value per share of $23.20, up 2.2% from the prior quarter.

Capital strength further enhanced.

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

"MVB continues to be proactive, and we have adapted our growth strategy related to changing market conditions. To this end, we have simplified our number of strategic initiatives to five as we move into fourth quarter. This laser focus by Team MVB will enhance our ability to effectively execute on our revised strategy.

"One example of this laser focus is our payments strategy. Growth in existing account relationships, along with new leadership and initiatives, drove a 60.8% quarter over quarter increase in payments-related deposit balances. Excluding the impact of the digital asset program wind-down and termination costs related to the decision to call two brokered certificates of deposit, net interest income and net interest margin are approaching a positive inflection point. Finally, while loan balances declined partly due to elevated payoff activity, our loan pipeline has improved from earlier this year.

"As previously disclosed, we began winding down MVB's digital asset program account relationships during the second quarter due to changing market conditions and profitability challenges. While this process is now mostly complete, our third-quarter results reflected both the full quarter impact of this decision and lingering costs associated with the wind-down, without any associated revenue benefit. Alongside a higher cost base, these factors negatively affected earnings in the third quarter, overshadowing some of the positive trends we've seen.

"Through it all, MVB's foundational strength remains intact, evidenced by stable asset quality, an enhanced capital base and growth in tangible book value per share. While our strategic shift has weighed on earnings in the short-term, we are increasingly well-positioned for future growth and improved profitability."

THIRD QUARTER 2024 HIGHLIGHTS

• Growth in payments and gaming deposits drive increased total deposits.
  • Total deposits increased 4.1%, or $118.8 million, to $3.00 billion compared to the prior quarter-end. Deposit growth was led by payments-related deposits, which increased by 60.8%, primarily due to the expansion of existing relationships. Deposit growth also reflected increased gaming deposits, partially offset by the movement of $70.2 million of banking-as-a-service deposits off balance sheet.
  • Noninterest bearing ("NIB") deposits increased 0.5%, or $5.3 million, to $989.1 million. NIB deposits represent 33.0% of total deposits as of September 30, 2024.
  • The loan-to-deposit ratio was 72.3% as of September 30, 2024, compared to 76.5% as of June 30, 2024, and 74.7% as of September 30, 2023.
• Net interest income and net interest margin lower on digital asset program wind-down and certificate of deposit termination costs.
  • Net interest income on a fully tax-equivalent basis, a non-U.S. GAAP financial measure, declined 3.4%, or $0.9 million, to $26.8 million relative to the prior quarter, reflecting net interest margin contraction and lower earning assets balances.
  • Net interest margin on a fully tax-equivalent basis, a non-U.S. GAAP financial measure, was 3.61%, down 14 basis points from the prior quarter. Approximately 11 basis points of the decline in net interest margin is attributable to the wind down of the digital asset program. Also, approximately five basis points of net interest margin compression reflected termination costs of $0.3 million related to the Company's decision to call two brokered certificates of deposit ("CDs") with a value of $49.5 million during the third quarter. Total cost of funds was 2.77%, up 23 basis points compared to the prior quarter, primarily reflecting the full quarter impact of the shift in deposit mix from the wind-down of the digital asset program and the brokered CD termination costs.
  • Average earning assets balance declined 0.9%, or $26.1 million, from the prior quarter to $2.95 billion, reflecting lower average loan balances, partially offset by higher interest-bearing balances with banks. Average total loan balances declined 2.4%, or $53.3 million, from the prior quarter to $2.18 billion, reflecting elevated loan payoff activity and muted market demand.
• Noninterest income lower on digital asset program exit, masking progress on Fintech fee income and continued mortgage rebound.
  • Total noninterest income declined 6.8%, or $0.5 million, relative to the prior quarter, to $6.7 million. The decline is attributable to lower other operating income, primarily a $0.8 million decrease in wire transfer fees reflecting the full quarter impact of the digital asset program wind-down. Excluding other operating income, noninterest income increased 12.8%, reflecting a continued rebound in equity method investment income from our mortgage segment, as well as higher payment card and service charge income, consulting and compliance income and holding gains on equity securities.
  • Relative to the prior year period, total noninterest income increased by 15.0%, or $0.9 million, inclusive of the impact of the digital asset program wind-down, to $6.7 million, primarily reflecting higher payment card and service income, which increased by 35.1% year-over-year.
• Foundational strength intact, led by enhanced capital position, growth in tangible book value per share and stable asset quality.
  • The Community Bank Leverage Ratio, Tier 1 Risk-Based Capital Ratio and MVB Bank's Total Risk-Based Capital Ratio were 10.9%, 14.9% and 15.7%, respectively, compared to 10.7%, 14.6% and 15.4%, respectively, at the prior quarter end.
  • The tangible common equity ratio, a non-U.S. GAAP financial measure, was 8.8% as of September 30, 2024, down from 8.9% as of June 30, 2024 and up from 7.8% as of September 30, 2023. As of September 30, 2024, accumulated other comprehensive loss declined $5.9 million, or 20.9%, and $17.8 million, or 44.2%, to $22.5 million as compared to $28.4 million at June 30, 2024 and $40.3 million at September 30, 2023, respectively. Adjusted for accumulated other comprehensive loss, the tangible common equity ratio was 9.4% as of September 30, 2024.
  • Book value per share and tangible book value per share, a non-U.S. GAAP measure, were $23.44 and $23.20, respectively, which represent increases of 2.2% and 2.2% relative to the prior quarter-end and 9.9% and 10.1% from the year-ago period.
  • Nonperforming loans increased $5.5 million, or 23.6%, to $28.6 million, or 1.3% of total loans, from $23.1 million, or 1.0% of total loans, at the prior quarter end. Approximately 47.2% of the balance of nonperforming loans is a single commercial multifamily loan, which had a balance of $13.5 million as of September 30, 2024, down $1.1 million from the prior quarter. The loan is current as of September 30, 2024 and the Company believes the loan is properly collateralized with a loan to value of less than 70%. Criticized loans as a percentage of total loans were 5.7%, consistent with the prior quarter end.
  • Net charge-offs were $0.7 million, or 0.1% of loans, for the third quarter of 2024, compared to $0.9 million, or 0.2% of loans, for the prior quarter.
  • Provision for credit losses totaled $1.0 million, compared to $0.3 million for the prior quarter and included a credit impairment of an available-for-sale debt security of $0.5 million during the third quarter.
  • Allowance for credit losses was 0.99% of total loans, as compared to 1.00% at the prior quarter end.

INCOME STATEMENT

Net interest income on a tax-equivalent basis totaled $26.8 million for the third quarter of 2024, a decline of $0.9 million, or 3.4%, from the second quarter of 2024 and $3.3 million, or 11.0%, from the third quarter of 2023. The decline from both prior periods reflects net interest margin contraction and lower average earning asset balances.

Interest income increased $0.5 million, or 1.1%, from the second quarter of 2024 and declined $1.7 million, or 3.5%, from the third quarter of 2023. The increase in interest income relative to the prior quarter reflects an increase in cash balances due to growth of payment deposits and seasonal considerations. The decline in interest income relative to the year-ago period reflects a decline in cash balances, driven by the exit of digital asset program accounts, and a decline in loan balances, partially offset by a higher tax-equivalent yield on loans and cash balances.

Interest expense increased $1.5 million, or 8.0%, from the second quarter of 2024 and $1.6 million, or 8.6%, from the third quarter of 2024. The cost of funds increased to 2.77% for the third quarter of 2024, as compared to 2.54% for the second quarter of 2024 and 2.43% for the third quarter of 2023. The higher cost of funds compared to the prior quarter was primarily attributable to the full quarter impact of the exit of the digital asset program account relationships and $0.3 million of termination costs related to the Company's decision to call two brokered CDs during the third quarter. The process of winding down the digital asset program account relationships was initiated during the second quarter of 2024, and the deposits were replaced with higher cost funding throughout the third quarter of 2024. Relative to the year-ago period, the increase reflects the impact of higher interest rates on our deposits, a shift in the mix of average deposits, the exit of the digital asset program account relationships and the termination costs associated with the two brokered CDs that were called.

On a tax-equivalent basis, net interest margin for the third quarter of 2024 was 3.61%, a decline of 14 basis points versus the second quarter of 2024 and 29 basis points versus the third quarter of 2023. See the table below for a reconciliation between net interest margin and net interest margin on a fully tax-equivalent basis, a non-U.S. GAAP measure.

Noninterest income totaled $6.7 million for the third quarter of 2024, a decline of $0.5 million from the second quarter of 2024 and an increase of $0.9 million from the third quarter of 2023. The decline compared to the prior quarter is primarily driven by a decline of $1.2 million in other operating income, partially offset by increases of $0.5 million in holding gains on equity securities and $0.3 million in equity method investments income from our mortgage segment. The $0.9 million increase in noninterest income from the third quarter of 2023 was primarily driven by increases of $1.5 million in equity method investments income from our mortgage segment and $1.0 million in payment card and service charge income, partially offset by a decline of $1.6 million in other operating income.

Noninterest expense totaled $29.5 million for the third quarter of 2024, an increase of $0.6 million from the second quarter of 2024 and a decline of $1.2 million from the third quarter of 2023. The increase from the second quarter of 2024 primarily reflects increases of $0.8 million in salaries and employee benefits and $0.3 million in travel, entertainment, dues and subscriptions, partially offset by a $0.5 million decline in professional fees. The decline from the third quarter of 2023 primarily reflects declines of $1.0 million in professional fees and $0.9 million in other operating expense, partially offset by an increase of $0.7 million in salaries and employee benefit expense.

BALANCE SHEET

Loans totaled $2.17 billion as of September 30, 2024, a decline of $35.5 million, or 1.6%, from June 30, 2024, and $99.2 million, or 4.4%, from September 30, 2023. The decline in loan balances relative to the prior quarters primarily reflects slower loan growth based on overall market conditions and the impact of loan amortization and payoffs.

Deposits totaled $3.00 billion as of September 30, 2024, an increase of $118.8 million, or 4.1%, from June 30, 2024, and a decline of $37.2 million, or 1.2%, from September 30, 2023. The increase in deposits relative to the prior quarter reflects an increase in payment deposits of $190.9 million and higher CD balances. The increase in CD balances of $77.0 million, or 10.0%, to $846.8 million was primarily driven by a $25.1 million, or 5.0%, increase in brokered CDs and a $52.2 million, or 19.9%, increase in core CDs. Relative to the year-ago period, the decline in total deposits reflects a decline in NIB deposits and increased utilization of off-balance sheet deposit networks to generate fee income, enhance capital efficiency and manage liquidity and concentration risk.

NIB deposits totaled $989.1 million as of September 30, 2024, an increase of $5.3 million, or 0.5%, from June 30, 2024 and a decline of $104.8 million, or 9.6%, from September 30, 2023. Relative to the prior year period, the decline in NIB deposits reflected the exit of digital asset program accounts. Digital asset program account balances declined $6.7 million and $180.1 million to $21.4 million as compared to June 30, 2024 and September 30, 2023, respectively. NIB deposits represented 33.0% of total deposits as of September 30, 2024, compared to 34.1% of total deposits at the prior quarter-end and 36.0% for the year-ago period.

Off-balance sheet deposits totaled $1.44 billion as of September 30, 2024, an increase of $85.2 million, or 6.3%, compared to $1.36 billion at June 30, 2024, and $329.0 million, or 30%, from $1.11 billion at September 30, 2023. Management proactively moved $70.2 million of banking-as-a-service deposits off balance sheet due to uncertainty of the existing regulatory framework for brokered deposits and potential reclassification of certain banking-as-a-service deposits as brokered deposits. Off-balance sheet deposit networks are utilized to generate fee income, enhance capital efficiency and manage liquidity and concentration risk.

CAPITAL

The Community Bank Leverage Ratio was 10.9% as of September 30, 2024, compared to 10.7% as of June 30, 2024, and 10.4% as of September 30, 2023. MVB's Tier 1 Risk-Based Capital Ratio was 14.9% as of September 30, 2024, compared to 14.6% as of June 30, 2024 and 14.0% as of September 30, 2023. The Bank's Total Risk-Based Capital Ratio was 15.7% as of September 30, 2024, compared to 15.4% as of June 30, 2024 and 14.8% as of September 30, 2023.

The tangible common equity ratio, a non-U.S. GAAP financial measure, was 8.8% as of September 30, 2024, consistent with June 30, 2024, and up from 7.8% as of September 30, 2023. See the reconciliation of the tangible common equity ratio to its most directly comparable U.S. GAAP financial measure later in this release.

The Company issued a quarterly cash dividend of $0.17 per share for the third quarter of 2024, consistent with the second quarter of 2024 and the third quarter of 2023.

ASSET QUALITY

Nonperforming loans totaled $28.6 million, or 1.3% of total loans, as of September 30, 2024, as compared to $23.1 million, or 1.0% of total loans, as of June 30, 2024, and $10.6 million, or 0.5% of total loans, as of September 30, 2023. Criticized loans as a percentage of total loans were 5.7% as of September 30, 2024 and June 30, 2024, compared to 6.1% as of September 30, 2023.

Net charge-offs were $0.7 million, or 0.1% of average total loans, for the third quarter of 2024, compared to $0.9 million, or 0.2% of average total loans, for the second quarter of 2024 and $5.9 million, or 1.0% of average total loans, for the third quarter of 2023.

The provision for credit losses totaled $1.0 million, compared to $0.3 million for the prior quarter ended June 30, 2024, and a release of allowance of $0.2 million for the quarter ended September 30, 2023. The allowance for credit losses for loans was 0.99% of total loans at September 30, 2024, compared to 1.00% at June 30, 2024, and 1.1% at September 30, 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 Financial 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 Financial, 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 turmoil in the banking industry; inability to successfully execute business plans, including strategies related to investments in Fintech companies; risks, uncertainties and losses involved with the developing digital assets industry, including the evolving regulatory framework; competition; unforeseen events, such as pandemics or natural disasters, and any governmental or societal responses thereto; changes in economic, business and political conditions; changes in demand for loan products and deposit flow; changes in deposit classifications; 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, 2023, 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.

Questions or comments concerning this earnings release should be directed to:

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.