Business Overview and History
MVB Financial Corp. (MVBF), a diversified financial holding company based in Fairmont, West Virginia, has navigated a challenging market environment over the past year, marked by interest rate hikes, economic uncertainty, and heightened regulatory scrutiny. However, the company has demonstrated its resilience, implementing strategic initiatives to streamline its operations, enhance its risk management practices, and position itself for sustained growth in the years ahead.
Established in 2003 as a West Virginia corporation, MVB Financial Corp. operates principally through its wholly-owned subsidiary, MVB Bank, Inc. The Bank provides a wide range of financial services, including commercial and retail banking, mortgage banking, and fintech banking. In its early years, MVB focused on growing its traditional commercial and retail banking business in North Central West Virginia and Northern Virginia.
The company successfully weathered the financial crisis of 2008-2009 and continued to expand its footprint and service offerings. In 2014, MVB made the strategic decision to freeze accruals under its defined benefit pension plan, resulting in a remeasurement of the pension obligations and plan assets. This move was part of the company's efforts to adapt to changing market conditions and manage its long-term financial obligations.
During the 2010s, MVB made a significant strategic shift by entering the fintech banking space. The company began providing innovative strategies to independent banking and corporate clients throughout the United States. MVB's dedicated fintech team specialized in providing banking services to corporate fintech clients, primarily focusing on operational risk management and compliance. This new business segment helped diversify MVB's revenue streams and has become a key driver of the company's growth.
Throughout its history, MVB has navigated various challenges, including industry consolidation, heightened regulatory scrutiny, and evolving customer preferences. The company has remained adaptable, making strategic acquisitions and divestitures to position itself for long-term success. Through it all, MVB has maintained a focus on providing high-quality banking services to its communities and leveraging technological advancements to meet the needs of its growing fintech client base.
Over the years, MVB has built a strong presence in its core markets of North Central West Virginia and Northern Virginia, while also expanding its fintech banking division to serve clients across the United States. As of September 30, 2024, the fintech banking division accounted for approximately 35% of the Bank's total deposits.
Business Segments
MVB Financial Corp. operates through three main reportable segments: CoRe Banking, Mortgage Banking, and Financial Holding Company.
The CoRe Banking segment represents the core banking products and services offered to customers by MVB Bank, Inc. This includes a wide range of commercial and retail banking services such as various demand deposit accounts, savings accounts, money market accounts, certificates of deposit, commercial and consumer loans, real estate mortgage loans, debit cards, and safe deposit rental facilities. A key focus area within the CoRe Banking segment is the company's Fintech banking division, which provides innovative banking strategies and services to independent banking and corporate clients across the United States. This division specializes in banking for clients in the gaming, payments, and banking-as-a-service (BaaS) industries, which can be operationally and regulatory complex. By servicing these industries safely and efficiently, MVB is able to generate a source of stable, lower-cost deposits and non-interest, fee-based income.
The Mortgage Banking segment primarily consists of MVB's share of net income or loss from mortgage banking activities through its equity method investments in Intercoastal Mortgage Company, LLC (ICM) and Warp Speed Holdings, LLC. The income and volume of loans sold by these mortgage banking operations are key metrics for this segment.
The Financial Holding Company segment encompasses the parent company's activities, including intercompany service income and dividends. This segment provides oversight and support functions for the overall organization.
Financials
Despite the challenges posed by the current economic environment, MVB has demonstrated its ability to adapt and thrive. The company's net income for the full year 2024 totaled $20.1 million, or $1.53 per diluted share, while its return on average assets (ROAA) and return on average equity (ROAE) stood at 0.61% and 9.70%, respectively. The Bank's net interest margin (NIM) for the year was 3.99%, reflecting its ability to effectively manage its funding costs and asset yields.
For the most recent quarter, MVB reported revenue of $32.3 million and net income of $2.1 million. Year-over-year, revenue decreased by 7.4% and net income decreased by 46.3%. The decrease in revenue and net income was primarily driven by the Bank's decision to exit its digital asset program account relationships during the second quarter of 2024, which reduced EPS by $0.29 in the third quarter and $0.37 year-to-date.
Looking at the first nine months of 2024, MVB reported net interest income of $84.3 million, a decrease of 8.6% compared to the same period in 2023. This decline was primarily driven by higher funding costs and a shift in the mix of earning assets, partially offset by higher loan yields. Noninterest income increased 41.8% to $21.6 million, benefiting from growth in payment card and service charge income, as well as gains on securities sales. Noninterest expenses decreased slightly to $88.6 million.
Overall, MVB's net income attributable to the parent company was $10.7 million for the first nine months of 2024, down from $23.3 million in the prior year period, largely due to the $11.8 million pre-tax gain recognized on the sale of the Chartwell Compliance subsidiary in 2023. The company's return on average assets was 0.4% and return on average equity was 4.9% for the nine-month period.
Financial Strength and Liquidity
MVB's balance sheet remains strong, with a Tier 1 capital ratio of 10.90% as of September 30, 2024, well above the regulatory minimum of 9.00% for banks designated as "well-capitalized." The company's tangible book value per share stood at $23.37 at the end of the fourth quarter of 2024, up 0.7% from the previous quarter.
Liquidity is another area of strength for MVB. As of September 30, 2024, the company's liquid assets, including cash and cash equivalents and investment securities, totaled $645.0 million, providing ample flexibility to meet its funding needs and take advantage of strategic opportunities. The Bank's loan-to-deposit ratio of 72.3% at the end of the fourth quarter suggests a prudent approach to managing its balance sheet.
The company's cash position stood at $610.9 million, with a debt-to-equity ratio of 0.24. As a member of the Federal Home Loan Bank (FHLB) of Pittsburgh, Pennsylvania, MVB Bank had a maximum borrowing capacity of $689.0 million with the FHLB as of September 30, 2024, with a remaining borrowing capacity of $675.9 million.
MVB continues to maintain a strong capital position, with a Community Bank Leverage Ratio of 10.9% as of September 30, 2024, well above the 9% minimum requirement. The company's loan portfolio totaled $2.17 billion at the end of the third quarter, down from $2.32 billion at the end of 2023, reflecting slower loan demand and the impact of loan amortization and payoffs in the current economic environment. Asset quality metrics remained relatively stable, with nonperforming loans at 1.3% of total loans.
Geographic Markets
MVBF primarily operates in North Central West Virginia, Northern Virginia, North Carolina, and South Carolina. The Bank also has a national Fintech banking footprint, serving customers located throughout the United States. This geographic diversification allows MVB to tap into various markets and leverage different economic conditions across regions.
Strategic Initiatives and Outlook
In response to the evolving market conditions, MVB has implemented several strategic initiatives to streamline its operations and enhance its risk management practices. The company recently named Jeffrey Weidley as its Chief Deposit Officer, tasked with developing and executing strategies to grow the Bank's deposit base, particularly in its fintech banking division. Additionally, the company appointed industry veteran Joe Rodriguez as its Chief Risk Officer, underscoring its commitment to strengthening its risk management capabilities.
Looking ahead, MVB remains cautiously optimistic about its prospects. The Bank's loan pipeline is building, and management is confident in its ability to navigate the current interest rate environment and drive sustainable growth. However, the company is mindful of the potential risks posed by the uncertain economic outlook and the heightened regulatory scrutiny facing the banking industry, particularly with respect to the treatment of deposits in the banking-as-a-service space.
Conclusion
MVB Financial Corp. has demonstrated its resilience and adaptability in the face of a challenging market environment. The company's diversified business model, strategic investments in fintech banking, and enhanced risk management practices position it well to weather the current storm and capitalize on long-term growth opportunities. As MVB continues to execute its strategic plan, investors will be closely watching the company's ability to generate consistent financial performance and create value for its shareholders.
The company's focus on operational risk management and compliance in its Fintech banking division, along with its thorough analysis of each industry in which its customers operate, demonstrates a commitment to responsible growth. While the recent decision to exit digital asset program account relationships has impacted short-term financial results, it reflects MVB's prudent approach to risk management in a rapidly evolving regulatory landscape.
With a strong liquidity position, diversified revenue streams, and a strategic focus on high-growth areas like fintech banking, MVB Financial Corp. appears well-positioned to navigate the challenges and opportunities that lie ahead in the dynamic banking industry.