Fintech Initiatives Continue to Power Core Funding Transformation

MVB Financial Corp. (NASDAQ: MVBF) (“MVB Financial,” “MVB” or the “Company”) today reported net income of $11.8 million, or $1.00 basic and $0.92 diluted earnings per share for the three months ended September 30, 2021.

“MVB’s third quarter results and actions reflect our embrace of the transformative power of technology in our industry,” said Larry F. Mazza, President and CEO, MVB Financial. “During the third quarter, we made further progress in our efforts to build a world-class deposit franchise, with noninterest-bearing Fintech deposits now representing nearly 42% of our total deposit funding. We remain the clear leader in the online gaming segment, and the wind is at our back, with 33 states, 29 of which are operational, representing 57% of the U.S. adult population, having legalized sports betting to date. In addition to the beneficial impact to our margin, especially in a rising rate environment, low-cost funding from our Fintech business allows us to redeploy resources to faster-growth markets and additional technology spend and investments. Toward that end, during the third quarter, we exited our Southern West Virginia banking market, entered into a partnership agreement with NYDIG that allows our Fintech clients to offer Bitcoin-related products and expanded our investment in Interchecks Technologies, Inc., a Fintech portfolio investment that has become more integrated in our core business.”

THIRD QUARTER 2021 HIGHLIGHTS

• Strong core deposit growth reflects continued expansion of Fintech and gaming verticals
  • Noninterest-bearing (“NIB”) deposits were $999.3 million as of September 30, 2021, up $66.7 million, or 7%, and $356.5 million, or 55%, from June 30, 2021 and September 30, 2020, respectively. NIB deposits as a percentage of total deposits were 42% as of September 30, 2021, as compared to 42% and 34% as of June 30, 2021 and September 30, 2020, respectively.
  • Fintech deposits totaled $975.7 million as of September 30, 2021, up $209.8 million, or 27%, and $610.9 million, or 167%, from June 30, 2021 and September 30, 2020, respectively.
  • Gaming deposits, which are included in total Fintech deposits, totaled $774.1 million as of September 30, 2021, up $178.2 million, or 30%, and $567.5 million, or 275%, from June 30, 2021 and September 30, 2020, respectively.
  • Since the ruling by the U.S. Supreme Court that overturned the Professional and Amateur Sports Protection Act in 2018, 33 states have passed legislation that allows sports betting including 19 since the start of 2020, representing approximately 57% of the U.S. adult population.
• Loan expansion despite banking center sales and PPP forgiveness
  • Loans grew $66.9 million, or 4%, compared to the quarter ended June 30, 2021. The loan growth was despite the Company selling $53.9 million loans in the previously-announced branch sale and recognizing $60.0 million of PPP loan forgiveness during the quarter.
• Continued strong growth in tangible book value per share
  • Tangible book value (“TBV”) per share, a non-U.S. GAAP measure, was $21.64 as of September 30, 2021, an increase of 5% and 16% from June 30, 2021 and September 30, 2020, respectively. A reconciliation of TBV to its most comparable U.S. GAAP measure is included below.
  • As a result of this strong capital position and earnings as of September 30, 2021, the Company increased the quarterly dividend to $0.14 per share for the third quarter of 2021, up from $0.12 per share in the second quarter, an increase of 17%.
  • The Community Bank Leverage Ratio was 12.0% compared to 11.0% as of June 30, 2021. The increase is due to increases in capital due to earnings outpacing the increase in average assets and completion of the $30 million subordinated debt offering.
• Recent corporate actions reflect a focused reallocation of resources amid Fintech success
  • During the third quarter, MVB completed the sale of four banking centers in Southern West Virginia, recording a pre-tax gain of $10.8 million, marking its complete exit from the market. The transformation of the funding base resulting from the pivot toward Fintech has allowed the Company to eliminate physical infrastructure, most notably its banking center footprint, which has been reduced by nearly half, from 15 in 2018 to eight currently.
  • Resources have been refocused on MVB’s core, higher-growth markets and new business verticals. For example, in April 2021, MVB acquired Trabian Technology, Inc. (“Trabian”), a software development company that builds digital products, web and mobile applications for financial institutions, to enhance development of technology to support both internal efficiencies and external client growth. During the three months ended September 30, 2021, there was an increase of 16 employees within Trabian, primarily due to the continued hiring of software developers. Also during the third quarter of 2021, the Company entered into a new partnership agreement with NYDIG, a leading technology and financial services firm dedicated to Bitcoin, that allows MVB’s Fintech clients to offer Bitcoin-related products and expanded its investment in Interchecks Technologies, Inc. (“Interchecks”). Interchecks is a leading payment disbursement platform, which is a Fintech portfolio investment whose business and founding principles are becoming more integrated into MVB’s Fintech business vertical. During the three months ended September 30, 2021, Interchecks entered into a management contract with MVB Technology, LLC to support the continued development and sales of the Grand product.

INCOME STATEMENT

On a fully tax-equivalent basis, net interest margin for the quarter ended September 30, 2021 was 3.25%, an increase of one basis points versus the quarter ended June 30, 2021 and a decrease of ten basis points versus the quarter ended September 30, 2020. 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 tax-equivalent adjustments impacting net interest income were $0.3 million for the quarter ended September 30, 2021, $0.4 million for the quarter ended June 30, 2021 and $0.3 million for the quarter ended September 30, 2020.

Interest income decreased $0.3 million, or 2%, compared to the quarter ended June 30, 2021 and increased $1.9 million, or 10%, compared to the quarter ended September 30, 2020. The tax-equivalent yield on commercial loans decreased 17 basis points compared to the quarter ended June 30, 2021. The 44-basis point decrease in the yield on commercial loans and the 94-basis point decrease in the yield on investments drove the 40-basis point decrease in the tax-equivalent yield on earning assets compared to the quarter ended September 30, 2020.

Interest expense decreased $0.4 million, or 22%, compared to the quarter ended June 30, 2021 and decreased $1.2 million, or 47%, compared to the quarter ended September 30, 2020. The eight-basis point decrease in the cost of interest-bearing liabilities compared to the quarter ended June 30, 2021 was driven by an 18-basis point decrease in the cost of NOW accounts and overall a decrease of nine-basis points in the cost of deposits. The 40-basis point decrease in the cost of interest-bearing liabilities compared to the quarter ended September 30, 2020 was driven by a 34-basis point decrease in the cost of NOW accounts.

The Company's average NIB balances increased by $42.6 million from the quarter ended June 30, 2021 and the Company maintained a 16-basis point favorable spread on the tax-equivalent net interest margin for the quarter ended September 30, 2021, compared to a 17-basis point favorable spread for the quarter ended June 30, 2021. An increase in the Company’s average NIB balances of $310.4 million from the quarter ended September 30, 2020 helped to maintain a 16-basis point favorable spread on the tax-equivalent net interest margin for the quarter ended September 30, 2021, compared to a 26-basis point favorable spread for the same period in 2020.

Noninterest income totaled $22.0 million for the quarter ended September 30, 2021, an increase of $8.3 million, or 61%, from the quarter ended June 30, 2021 and an increase of $2.6 million, or 13%, from the quarter ended September 30, 2020.

The $8.3 million increase in noninterest income from the quarter ended June 30, 2021 was due primarily to the gain on sale of branches of $10.8 million and an increase in compliance and consulting income of $1.1 million. These increases were partially offset by decreases in equity method investment income related to the Company’s investment in Intercoastal Mortgage Company, LLC (“ICM”) of $1.0 million, gains on the sale of available-for-sale investments of $1.2 million and gains on the sale of loans of $0.5 million.

The $2.6 million increase in noninterest income from the quarter ended September 30, 2020 was primarily due to the gain on acquisition and divestiture activity of $10.8 million from the sale of four banking centers in Southern West Virginia, as well as increases of $1.9 million and $1.0 million in compliance and consulting income and payment card and service charge income, respectively. The increase in compliance and consulting income was due to Chartwell Compliance’s continued client expansion and additional income from Trabian, which was acquired in April 2021. The increase in payment card and service charge income was the result of the Company’s banking-as-a-service relationships and card acquiring business growth. These increases were partially offset by decreases in equity method investment income related to the Company’s investment in ICM of $10.0 million from the transition to the equity method from the mortgage combination with ICM that occurred in July 2020.

Noninterest expense totaled $25.8 million for the quarter ended September 30, 2021, an increase of $2.4 million, or 10%, from the quarter ended June 30, 2021 and an increase of $7.6 million, or 41%, from the quarter ended September 30, 2020.

The $2.4 million increase in noninterest expense from the quarter ended June 30, 2021 was due to an increase in salaries and employee benefits of $2.9 million, primarily driven by new hires to further build-out the Fintech vertical at the Bank, Chartwell Compliance, Trabian and the shared services at the Holding Company.

The $7.6 million increase in noninterest expense from the quarter ended September 30, 2020 was primarily due to increases in salaries and employee benefits of $6.0 million and professional fees of $1.1 million.

BALANCE SHEET

Loan growth will continue to enhance future profitability and loan balances grew $66.9 million as compared to June 30, 2021 and $335.6 million as compared to September 30, 2020. Included in loans are PPP loans totaling $147.3 million at September 30, 2021, a decrease of $60.0 million, or 29%, from June 30, 2021, and an increase of $59.4 million, or 68%, from September 30, 2020. Additionally, $54.2 million of loans were included in the sale of the four Southern West Virginia market branches to Summit Community Bank.

The tax-equivalent yield on loans, including PPP loans, was 4.25% for the quarter ended September 30, 2021, a decrease of six basis points from the quarter ended June 30, 2021 and a decrease of 26 basis points from the quarter ended September 30, 2020. These decreases were primarily the result of a decrease in the yield on commercial loans.

Deposits totaled $2.40 billion as of September 30, 2021, an increase of $169.8 million, or 8%, from June 30, 2021 and an increase of $500.0 million, or 26%, from September 30, 2020. With NIB deposits as a percentage of total deposits at 42% as of September 30, 2021, the Company’s strategy to evolve its deposit mix by replacing high-cost deposits with NIB deposits has proved to be successful and viable long-term.

CAPITAL

Subordinated debt of $30.0 million was issued on September 28, 2021 with a rate fixed at 3.25% for five years then floating, adjustable annually, to the Three-Month Term SOFR, plus 254 basis points. These notes qualify as Tier 2 capital for regulatory purposes.

Due to strong earnings and the issuance of subordinated debt, all regulatory capital ratios increased quarter over quarter. The Community Bank Leverage Ratio was 12.0% and 11.0% as of September 30, 2021 and June 30, 2021, respectively. The Bank’s Tier 1 Risk-Based Capital was 15.7% and 14.8% as of September 30, 2021 and June 30, 2021, respectively. The Bank’s Total Risk-Based Capital was 17.0% and 16.0% as of September 30, 2021 and June 30, 2021, respectively.

ASSET QUALITY

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. Nonperforming loans totaled $17.5 million, or 1.0% of total loans, as of September 30, 2021, compared to 0.9% of total loans as of June 30, 2021 and compared to 1.0% of total loans as of September 30, 2020. Criticized loans as a percentage of total loans were 6.5%, a decrease of 77 basis points, or 11%, from June 30, 2021, and a decrease of 174 basis points, or 21%, from September 30, 2020.

The provision for loan losses totaled $0.4 million for the quarter ended September 30, 2021, compared to a release of allowance for loan losses of $1.5 million for the quarter ended June 30, 2021 and a provision of $8.6 million for the quarter ended September 30, 2020.

Allowance for loan losses to total loans was 1.4% as of September 30, 2021, a decrease of four basis points from June 30, 2021 and a decrease of 39 basis points from September 30, 2020. Excluding PPP loans of $147.3 million, allowance for loan losses to total loans was 1.6% as of September 30, 2021.

There were no significant net charge-offs for the quarter ended September 30, 2021 and none in the quarter ended June 30, 2021, compared to $1.9 million of net charge-offs for the quarter ended September 30, 2020.

About MVB Financial Corp.

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

MVB 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 financial technology 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, 2020, 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.