MVB Financial Corp. Common Stock 2026 Q3 Earnings Call

Thank you, operator. Good afternoon, and thank you all for joining us today for MVB's third quarter 2026 earnings conference call. The company issued its earnings press release earlier this afternoon, and it is available on the company's website at ir.mvbbanking.com. In addition, the company has included a slide presentation that you can refer to during the call, which is also available on the website. Participating on today's call are MVB's President and CEO, Larry F. Mazza, CFO, Mike Sums, and Chief Credit Officer, Tony Eastman. Larry will provide an overview of our third quarter performance and business developments, and Mike will discuss the quarter's financial results in more detail. We will then open the call for your questions. Before we begin, I would like to remind you that this conference call contains forward-looking statements regarding the future performance and financial condition of MVB Financial which involve risks and uncertainties.

Various factors could cause actual results to differ materially from those expressed or implied by such statements. These factors are discussed in the company's SEC filings, which are available on our website. The company disclaims any obligation to update forward-looking statements made during the call. Additionally, management may refer to non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. The earnings release available on our website contains the financial and other quantitative information discussed today, along with the applicable non-GAAP reconciliations. With that, I'd like to turn the call over to MVB's President and CEO, Larry Mazza.

Thank you, Amy. Good afternoon, everyone, and thank you for joining us. During the third quarter, we made significant progress on several important initiatives that are strengthening our underlying business and positioning MVB for continued improved financial performance. We continue to grow net interest income, expand our core net interest margin, diversify our funding base, and build momentum across our fintech payments business. At the same time, we maintained expense discipline and addressed specific credit exposure. Our reported earnings of $0.03 per diluted share do not fully reflect the strength of our underlying business or the operating progress we're making, largely because of the elevated provision for credit losses this quarter. I'll discuss credit in a few minutes, but first, I'd like to walk through the progress we've made across our strategic initiatives, which gives us confidence in the direction of the business.

For those who may be joining one of the earning calls for the first time, MVB combines a traditional banking franchise with a growing fintech banking platform, serving clients across payments, Banking as a Service, and gaming. The combination provides us with multiple sources of funding and revenue and creates opportunities to improve the efficiency and profitability of our overall franchise. Two of the most important developments this quarter were the continued progress in growing net interest income, along with expanding our core net interest margin and the momentum in our fintech payments business. Net interest income increased approximately 18% through the first nine months of this year compared to the same period last year. In the third quarter, our core net interest margin expanded another 15 basis points sequentially to 4.02%.

Several factors contributed to that improvement, including continued loan growth and our effort to optimize the funding side of the balance sheet. I want to spend a little time on one particular important contributor, the growth of our fintech payments deposit relationships. Fintech payment deposits increased 28% sequentially to $766 million, now representing nearly one-quarter of our total deposits and up nearly 55% from a year ago. These relationships matter more than the deposits themselves because they give us greater flexibility in managing our overall funding base. As we grow these deposits, we can reduce our reliance on more expensive sources of funding, improve our overall funding mix, and further diversify our deposit base. During the third quarter, that progress contributed to six basis points sequential decline in our total cost of funds to 2.07%.

We view that as particularly encouraging results given the interest rate environment, and it illustrates how growth in our fintech payment business translates into tangible improvements in the profitability of our core banking operations. We are also encouraged by the continued execution of our fintech partner pipeline. We've now onboarded nine new fintech partners through the first nine months of 2026, compared to five during all of 2025, and the overall pipeline remains robust. Turning briefly to our lending, we grew total loans by approximately $44 million or 7.2% annualized during the quarter, marking our sixth consecutive quarter of loan growth. We're pleased with the consistency of the growth and with the opportunities across our lending business. Now I'd like to spend a few minutes on credit.

We took decisive action during the quarter to proactively address specific credit exposure, which contributed meaningfully to the elevated provision of credit losses of approximately $9.9 million. That provision had a significant impact on our reported earnings. It's important, however, to understand both the nature of the exposures involved and the broader trends across our loan portfolio. Nearly 75% of the increase in non-performing loans during the quarter was attributed to one acquisition and development land loan involving circumstances specific to the borrower and the property. That same credit accounted for almost half of our quarterly provision. We are investigating potential misrepresentations and lack of transparency in the due diligence and appraisal process associated with this loan. Subsequent to this development, we have taken additional broader review of our existing loan portfolio, and we believe this was an isolated case.

Also, we have implemented additional steps to further enhance future underwriting standards. We believe the loan is adequately reserved based on our assessment as of September 30th, and continue to work for full resolution. Outside this specific isolated loan, the overall portfolio continues to perform in line with our expectations, and we have not seen broader credit deterioration. We also continue to work through our legacy SBA portfolio, which we began winding down in 2022. The outstanding balance of the SBA portfolio was less than $23 million as of September 30th, which includes approximately $3 million in government-guaranteed balances. Approximately 53% of the SBA portfolio is classified and has been individually analyzed for collateral impairments representing 75% of the unguaranteed exposure while the entire portfolio continues to receive enhanced monitoring and oversight. These are identifiable exposures, and we are actively managing.

I also want to put the current credit metrics in a broader perspective. Since early 2025, criticized loans have now declined approximately 45%, from roughly $135 million to $74 million. Over the same period, our allowance for credit losses increased from $19 million to $36 million. Classified loans have also declined materially over that period. We believe these developments reflect meaningful progress in strengthening our overall credit risk profile. Turning back to the growth in our fintech business, beyond the benefits we are seeing from payment-related deposit growth, our payment business continues to generate encouraging fee income growth. Payment card and service charge income has increased approximately 22% through the first nine months of the year and was up nearly 40% compared to the third quarter of 2025. The sequential decline during the quarter primarily reflected normal seasonality within our gaming-related business.

We remain encouraged by the long-term growth in payments activity and the growing fintech relationships and pipeline. Another important area of focus has been expense management. Non-interest expense declined below $30 million during the third quarter, down approximately 2% sequentially and approximately 10% from a year ago. We invested significantly over the past several years in our technology, people, compliance, and risk management infrastructure. We are also increasingly using AI and automation to improve efficiency across the organization. With more than 100 digital assistants, which we fondly call digies, either developed or in progress. These initiatives are helping us streamline workflows and create opportunities to operate more efficiently as the business grows. Additionally, we deepened our relationship with Anthropic and now have 14 trained and certified Claude engineers on our team. As I step back and look at the quarter, there are three things I would emphasize.

First, the underlying banking business continues to improve. We are growing net interest income, expanding core margin, and strengthening our funding base. Second, our fintech payment strategy is generating tangible results. We are onboarding new partners, growing payments-related deposits, and building a large base of fee-generating activity. And third, while the provision weighed on the reported earnings this quarter, we have made meaningful progress in addressing identified credit exposure early and strengthening our reserves. As I mentioned earlier, the primary driver of the elevated provision this quarter was a single isolated loan, and it is not representative of our broader portfolio. The overall loan book continues to perform in line with our expectations. With that, I will turn the call over to Mike Sums to walk through the quarter’s financial results in more detail.

Thank you, Larry, and good afternoon, everyone. I will provide some additional detail on the third quarter financial performance, including net interest income and margin, balance sheet trends, non-interest income and expenses, credit quality, and capital. Starting with earnings, we reported net income of approximately $438,000, or $0.03 per diluted share, compared with $12.3 million, or $0.93 per diluted share in the second quarter. The sequential decline primarily reflected a higher provision for credit losses and the absence of a significant investment gain recognized in the prior quarter. As Larry discussed, we continue to see encouraging trends in the underlying net interest income, core margin, and fintech payments business. Net interest income on a fully tax-equivalent basis increased to $32.7 million, compared with $32.4 million in the second quarter, despite the prior quarter including approximately $2.3 million of non-recurring interest income associated with a loan payoff.

Our reported FTE net interest margin was 4.02%, compared with 4.16% in the prior quarter. Excluding non-recurring interest income in the prior quarter, core net interest margin expanded 15 basis points sequentially from 3.87% to 4.02%, reflecting continued loan growth, lower funding costs, and ongoing balance sheet optimization. Turning to the balance sheet, total loans increased approximately $44 million or 7.2% annualized during the quarter to $2.52 billion. We are continuing to build out our specialty lending business, which offers opportunities to originate higher-yielding loans. The specialty lending pipeline is strong heading into the fourth quarter. As our portfolio mix gradually shifts towards these specialty lending opportunities, we believe we can continue to grow net interest income and improve the profitability and capital efficiency of our lending operations.