MVB Financial Corp. Reports Strong Second Quarter 2019 Driven by a 72% Increase in Core Earnings

FAIRMONT, W.Va.–(BUSINESS WIRE)–MVB Financial Corp. (the “Company”) (NASDAQ: MVBF) today reported net income of $14.9 million, or $1.27 basic and $1.15 diluted earnings per share, excluding discontinued operations, for the three months ended June 30, 2019, an increase of 367.8%, compared to $3.2 million, or $0.26 basic and diluted for the three months ended March 31, 2019, and an increase of 427.4%, compared to $2.8 million, or $0.25 basic and diluted for the same time period in 2018.

As previously announced on April 29, 2019, the Company recognized a $13.5 million pre-tax gain after a valuation on its fintech investment portfolio that was recognized in the second quarter of 2019. The after-tax gain was $10.1 million. Excluding discontinued operations and this fintech investment gain, second quarter 2019 core earnings increased 72.2% compared to the quarter ended June 30, 2018.

Noninterest-bearing deposits increased $34.5 million, or 14.6%, from March 31, 2019, and increased $106.6 million, or 65.0%, from June 30, 2018, to a balance of $270.6 million as of June 30, 2019. The growth in noninterest-bearing deposits was primarily driven by MVB’s strategy to focus on Fintech and specialty deposits. As of June 30, 2019, noninterest-bearing deposits were 19.6% of total deposits, compared to 16.5% as of March 31, 2019, and 13.7% as of June 30, 2018.

Interest income increased $847 thousand, or 4.3%, from the quarter ended March 31, 2019, and increased $3.5 million, or 20.8%, from the quarter ended June 30, 2018. The increase from the quarter ended June 30, 2018, was primarily due to a $3.4 million increase in interest and fees on loans driven by an increase in the average balances of loans of $182.9 million, coupled with a 45-basis point increase in the yield on commercial loans.

Mortgage closed loan production volume increased $185.4 million, or 66.5%, from the quarter ended March 31, 2019, and increased $17.7 million, or 4.0%, from the quarter ended June 30, 2018. As a result of this volume increase, the volume of mortgage loans sold increased $146.0 million, or 58.1%, from the quarter ended March 31, 2019, and increased $43.1 million, or 12.2%, from the quarter ended June 30, 2018. As a result of the increases in production and sold loan volume, mortgage fee income increased $3.2 million, or 47.9%, from the quarter ended March 31, 2019, and increased $801 thousand, or 8.8%, from the quarter ended June 30, 2018. Even with these increases in volume, mortgage processing expense decreased $93 thousand, or 11.5%, from the quarter ended March 31, 2019, and decreased $276 thousand, or 27.8%, from the quarter ended June 30, 2018.

MANAGEMENT OVERVIEW

“The Second Quarter and first half of the year results very much validate our adaptive MVB 3.0 strategy. All four verticals of MVB Bank – Commercial, Fintech, Mortgage and Retail – had an outstanding quarter and are firing on all cylinders. The gain realized in the Second Quarter from our forward-thinking Fintech investment portfolio was a critical boost to earnings. Our Fintech investment portfolio is yielding more than a 200% Internal Rate of Return (IRR) since inception. MVB is positioned to finish the year in a record-setting fashion across the entire company. Our strong earnings are helping us to extinguish our subordinated debt without shareholder dilution. This year’s results are from building a strong foundation to be able to provide positive impact now and in the future for our shareholders, clients, communities and teammates as our trusted partners,” said Larry F. Mazza, CEO and President, MVB Financial.

SECOND QUARTER 2019 HIGHLIGHTS

• Loans of $1.3 billion as of June 30, 2019, decreased $14.5 million, or 1.1%, from March 31, 2019, and increased $111.1 million, or 9.2%, from June 30, 2018. During the quarter ended June 30, 2019, residential mortgage loans totaling $51.6 million were sold.
• Assets of $1.8 billion as of June 30, 2019, increased $43.1 million, or 2.4%, from March 31, 2019, and increased $147.6 million, or 8.8%, from June 30, 2018.
• Deposits of $1.4 billion as of June 30, 2019, decreased $52.9 million, or 3.7%, from March 31, 2019, and increased $181.9 million, or 15.2% from June 30, 2018. Noninterest-bearing deposits of $270.6 million as of June 30, 2019, increased $34.5 million, or 14.6%, from March 31, 2019, and increased $106.6 million, or 65.0%, from June 30, 2018.
• Net interest income of $14.5 million for the quarter ended June 30, 2019, increased $557 thousand, or 4.0%, from the quarter ended March 31, 2019, and increased $1.9 million, or 14.8% from the quarter ended June 30, 2018. Net interest margin of 3.46% for the quarter ended June 30, 2019, increased 1 basis point versus the quarter ended March 31, 2019, and increased 8 basis points versus the quarter ended June 30, 2018.
• Noninterest income of $26.4 million for the quarter ended June 30, 2019, increased $17.6 million, or 201.0%, from the quarter ended March 31, 2019, and increased $15.6 million, or 144.4%, from the quarter ended June 30, 2018. During the quarter ended June 30, 2019, the Company recognized a $10.1 million after-tax gain following a valuation on its fintech investment portfolio.
• Noninterest expense of $20.4 million for the quarter ended June 30, 2019, increased $1.9 million, or 10.5%, from the quarter ended March 31, 2019, and increased $1.1 million, or 5.9%, from the quarter ended June 30, 2018.
• During the second quarter of 2019, the Company opened an office in Salt Lake City, Utah to house a new fintech sales team.

LOANS

Loans totaled $1.3 billion as of June 30, 2019, a decrease of $14.5 million, or 1.1%, from March 31, 2019, and an increase of $111.1 million, or 9.2%, from June 30, 2018. The linked quarter decrease in loans is attributable to residential mortgage loan sales totaling $51.6 million. Commercial loans have increased $22.8 million, or 2.4%, from the quarter ended March 31, 2019, and increased $100.8 million, or 11.4%, from June 30, 2018. The year-over-year growth in loans is attributable to organic growth and the addition of commercial lenders within the Company’s primary lending areas. The yield on loans was 5.22% as of the quarter ended June 30, 2019, an increase of 2 basis points from the quarter ended March 31, 2019, and an increase of 34 basis points from the quarter ended June 30, 2018.

DEPOSITS

Deposits totaled $1.4 billion as of June 30, 2019, and decreased $52.9 million, or 3.7%, from March 31, 2019, while increasing $181.9 million, or 15.2%, from June 30, 2018. As a result of the Company’s efforts to improve net interest margin, high-cost deposits have been allowed to mature. The primary driver of the decrease in deposits from March 31, 2019, was a decrease of $95.9 million in brokered certificates of deposit. Noninterest-bearing deposits totaled $270.6 million as of June 30, 2019, or 19.6%, of the total deposit base, an increase of $34.5 million, or 14.6%, from March 31, 2019, and an increase of $106.6 million, or 65.0%, from June 30, 2018. Noninterest-bearing deposits remain a core funding source for the Company. Of the $270.6 million in noninterest-bearing deposits, balances of $89.7 million are related to Fintech opportunities and balances of $37.0 million are related to Title business opportunities. Total Fintech deposits are $106.3 million and total Title business deposits are $51.9 million as of June 30, 2019.

NET INTEREST INCOME

Net interest income for the quarter ended June 30, 2019, was $14.5 million, an increase of $557 thousand, or 4.0%, from the quarter ended March 31, 2019, and an increase of $1.9 million, or 14.8%, from the quarter ended June 30, 2018. Net interest margin for the quarter ended June 30, 2019 was 3.46%, an increase of 1 basis point versus the quarter ended March 31, 2019, and an increase of 8 basis points versus the quarter ended June 30, 2018.

Interest income increased 4.3% during the quarter ended June 30, 2019, compared to the quarter ended March 31, 2019, a result of an increase of 3 basis points in the yield on earning assets, and increased 20.8% compared to the quarter ended June 30, 2018, due to an increase of 36 basis points in the yield on earning assets. The increase in the yield on earning assets compared to the quarter ended March 31, 2019, was the result of a 6-basis point increase in commercial loans. The increase in the yield on earning assets compared to the quarter ended June 30, 2018, was the result of a 45-basis point increase in commercial loans.

Interest expense increased 5.1% during the quarter ended June 30, 2019, compared to the quarter ended March 31, 2019, due to an increase of 7 basis points in the cost of interest-bearing liabilities, and increased 38.5% compared to the quarter ended June 30, 2018, due to an increase of 45 basis points in the cost of interest-bearing liabilities. The increase in the cost of interest-bearing liabilities compared to the quarter ended March 31, 2019, was the result of a 15-basis point increase in money market checking, a 11-basis point increase in CDs, a 9-basis point increase in NOW accounts, and an 8-basis point increase in IRAs. The increase in the cost of interest-bearing liabilities compared to the quarter ended June 30, 2018, was the result of a 73-basis point increase in FHLB and other borrowings, a 72-basis point increase in money market checking, a 62-basis point increase in CDs, a 34-basis point increase in IRAs, and an 18-basis point increase in NOW accounts.

An increase in the Company’s average noninterest-bearing balances of $36.1 million from the quarter ended March 31, 2019, helped to grow a 35-basis point favorable spread on net interest margin for the quarter ended June 30, 2019, compared to a 30-basis point favorable spread for the quarter ended March 31, 2019.

An increase in the Company’s average noninterest-bearing balances of $104.5 million from the quarter ended June 30, 2018, helped to grow a 35-basis point favorable spread on net interest margin in 2019 compared to an 18-basis point favorable spread in 2018.

ASSET QUALITY

Provision for loan losses totaled $600 thousand for the quarter ended June 30, 2019, an increase of $300 thousand, or 100.0%, increase from the quarter ended March 31, 2019, and a decrease of $5 thousand, or 0.8%, from the quarter ended June 30, 2018.

The $300 thousand increase from the quarter ended March 31, 2019 was primarily the result of an increase in net charge-offs of $677 thousand and an increase in certain average historical loss rates.

The $5 thousand decrease from the quarter ended June 30, 2018 was the result of the net impact of decreased loan volume in the second quarter of 2019 versus the same time period in 2018, a decrease in the specific loan loss allocations in the second quarter of 2019 versus the second quarter of 2018, and a decrease in the commercial historical loss rates in the second quarter of 2019 versus the same time period in 2018.

Nonperforming loans decreased $307 thousand, to 0.51%, of total loans as of June 30, 2019, compared to 0.53% of total loans as of March 31, 2019, and compared to 0.78% of total loans as of June 30, 2018. In addition, net charge-offs for the quarter ended June 30, 2019, increased $677 thousand compared to the quarter ended March 31, 2019, and increased $653 thousand compared to the quarter ended June 30, 2018.

NONINTEREST INCOME

Noninterest income totaled $26.4 million for the quarter ended June 30, 2019, an increase of $17.6 million, or 201.0%, from the quarter ended March 31, 2019, and an increase of $15.6 million, or 144.4%, from the quarter ended June 30, 2018.

The $17.6 million increase in noninterest income from the quarter ended March 31, 2019, was due to an increase of $13.4 million in the holding gain on equity securities, an increase of $3.2 million in mortgage fee income, an increase of $681 thousand in the gain on derivatives, and an increase of $358 thousand in commercial swap fee income. The increase in mortgage fee income of $3.2 million was the result of an increase of $146.0 million, or 58.1%, in the volume of mortgage loans sold which was driven by an increase of $185.4 million, or 66.5%, in mortgage closed production volume. The increase in the gain on derivatives of $681 thousand was the result of an increase of $40 thousand in the valuation of the open trades used to hedge the locked pipeline, as well as a 37.5% increase in the locked mortgage pipeline during the quarter ended June 30, 2019.

The $15.6 million increase in noninterest income from the quarter ended June 30, 2018, was primarily due to an increase of $13.6 million in the holding gain on equity securities, an increase of $801 thousand in mortgage fee income, an increase of $478 thousand in the gain on derivative, an increase of $438 thousand in commercial swap fee income, and an increase of $123 thousand in the gain on sale of portfolio loans. The increase in mortgage fee income was largely the result of an increase of $43.1 million, or 12.2%, in the volume of mortgage loans sold which was driven by an increase of $17.7 million, or 4.0%, in mortgage closed production volume. The increase in gain on derivatives of $478 thousand was largely the result of an increase of 37.5% in the locked mortgage pipeline during the three months ended June 30, 2019, compared to a decrease of 0.5% in the locked mortgage pipeline during the three months ended June 30, 2018.

NONINTEREST EXPENSE

Noninterest expense totaled $20.4 million for the quarter ended June 30, 2019, an increase of $1.9 million, or 10.5%, from the quarter ended March 31, 2019, and an increase of $1.1 million, or 5.9%, from the quarter ended June 30, 2018.

The $1.9 million increase in noninterest expense from the quarter ended March 31, 2019, was primarily due to an increase of $1.5 million in salaries and employee benefits and an increase of $214 thousand in travel, entertainment, dues, and subscriptions. The increase in salaries and employee benefits was primarily driven by increased mortgage closed production volume.

The $1.1 million increase in noninterest expense from the quarter ended June 30, 2018, was primarily due to an increase of $786 thousand in salaries and employee benefits, an increase of $273 thousand in travel, entertainment, dues, and subscriptions, and an increase of $169 thousand in occupancy and equipment expense. These increases were partially offset by a decrease of $276 thousand in mortgage processing expense.

DISCONTINUED OPERATIONS

On June 30, 2016, the Company entered into an Asset Purchase Agreement with USI Insurance Services, in which USI purchased substantially all of the assets and assumed certain liabilities of MVB Insurance. Based on a measurement period that ended June 30, 2019, the Company has earned and is reasonably assured to receive an earn-out payment related to the Asset Purchase Agreement with USI Services. The Company expects to receive the earn-out payment during the third quarter 2019 and as of June 30, 2019, have estimated and recorded the earn-out payment as contingent consideration from discontinued operations. The estimate of the earn-out payment is $446 thousand, net of income taxes.

SUBSEQUENT EVENT

On June 30, 2014, the Company issued its Convertible Subordinated Promissory Notes Due 2024 (the “Notes”) to various investors, of which as of June 30, 2019, $12.4 million remained outstanding. The proceeds from the Notes constitute Tier 2 capital for bank regulatory capital purposes. The Notes are redeemable by the Company at least five years after the original issuance date upon prior approval from the Federal Reserve Board.

On July 10, 2019, the Company received a notice of non-objection from the Federal Reserve for the Company to redeem all of the outstanding Notes. The Company intends to provide notice to the holders of the outstanding Notes and redeem the outstanding Notes.

DIVIDEND

As previously announced on May 20, 2019, the Company declared a quarterly cash dividend of $0.04 per share to shareholders of record at the close of business on June 1, 2019, payable June 15, 2019. This was the second quarterly dividend for 2019 and includes a one-half cent, or 14.3% increase per share, compared to the previous quarter dividend of $0.035 per share.

About MVB Financial Corp.

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

MVB is a financial holding company headquartered in Fairmont, W.Va. Through its subsidiary, MVB Bank, Inc., and the bank’s subsidiaries, MVB Mortgage and MVB Community Development Corporation, the company provides financial services to individuals and corporate clients in the Mid-Atlantic region.

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 Corp. 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 information concerning possible or assumed future results of operations of the Company and its subsidiaries. When words such as “believes,” “expects,” “anticipates,” “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 merger-related synergies, competition, economic downturn or recession and government regulation and supervision. Additional factors that may cause our actual results to differ materially from those described in our forward-looking statements can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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

[email protected]

Contacts

Amy Baker

VP, Corporate Communications & Marketing

[email protected]

844-682-2265

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