MVB Financial Corp. (MVBF) Earnings Call Transcript & Summary

Hello, and welcome to the 2020 Annual Meeting of Shareholders of MVB Financial Corp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to David Alvarez, Chairman of the Board of MVB Financial Corp. Mr. Alvarez, the floor is yours.

Good morning, team members, shareholders and everyone that's out there. This is the 22nd Annual Meeting of the Shareholders of MVB Financial Corp. here on May 19, 2020. Thank you very much for participating in our annual meeting online today. In light of COVID-19, the decision was made early on to switch to a virtual meeting. The health and safety of our shareholders, directors, MVB team members and guests are our #1 priority. We followed the protocols that federal state and local governments have imposed and may continue to impose due to this world pandemic. We appreciate your patience and support throughout this time. If you need a copy of the annual report or the proxy statement, the links are provided online. The virtual meeting Q&A and rules of conduct are also posted for your reference. If you have not yet voted or wish to change your vote, you may do so now by clicking on the cast your vote link provided on the meeting page. The voting option requires that you were a shareholder of record at the close of business on March 25 and have logged into this meeting with a valid 16-digit control number. You will be notified when the voting has officially closed towards the end of this meeting. You may submit questions online by clicking on the dialogue icon in the upper-right corner of the meeting screen. We will address as many questions as we can during this time. Should there be a few questions we not -- do not get to, we will post them online in a timely manner following this meeting. We will now proceed with the formal meeting by reviewing the proposals and reporting the preliminary votes cast for each proposal. I would now like to introduce Lisa McCormick, Corporate Secretary and Investor Relations Officer for MVB, who will be assisting us during the formal meeting. Ms. McCormick, will you please provide the certification of mailing and certify that a quorum is present so that we may conduct the business of MVB Financial Corp at this 22nd Annual Meeting of the Shareholders?

Mr. Chairman, I certify that on or around the 6th day of April 2020, a notice of Internet availability of proxy materials was mailed to shareholders of record as of March 25, 2020. I also certify on behalf of the proxy committee that 73.57% of the outstanding shares of MVB Financial Corp. are represented at this meeting or by proxy, and that in accordance with the bylaws, a quorum is present.

I declare that a quorum -- thank you, Ms. McCormick. I declare that a quorum is present, and that the 22nd Annual Meeting of Shareholders of MVB Financial Corp. is officially convened for conducting business. The directors of MVB, shown here on the screen, are also present on this call. That would be myself; Jim Cava; Ed Dean; John Ebert; Dan Holt; Gary LeDonne; Larry Mazza; Dr. Kelly Nelson; Chris Pallotta; and Cheryl Spielman. I'd like to personally thank each of you for your time and commitment to MVB. All of our directors are actively involved, and we appreciate your service to the MVB Boards. The purpose of this meeting is to transact business as discussed in the proxy statement. The items of business are those which have been set forth in the proxy in accordance with the bylaws of MVB Financial Corp. and the only items that may be acted on by the shareholders at this meeting. There are 3 proposals for consideration at this meeting of shareholders. The first proposal is for the election of directors. The directors whose terms expire in 2020 have been nominated for a 3-year term expiring in 2023. Ms. McCormick, will you please read the nominations for the directors of MVB?

Mr. Chairman, the 3 directors up for reelection for a 3-year term are: James J. Cava Jr., Larry F. Mazza and Cheryl D. Spielman.

Thank you. May I have the preliminary results for proposal #1?

I certify that 97.15% of the votes cast for proposal #1 voted in favor of all directors.

Based on the preliminary results from the vote, I declare those nominated as directors of MVB Financial Corp. for a 3-year term and hereby elected. The next proposal is required by the Securities and Exchange Commission. It is a nonbinding advisory vote to the Board of Directors indicating the shareholders opinion on the proposal. Ms. McCormick, will you please read proposal #2?

To approve a nonbinding advisory proposal on the compensation of the named executive officers.

May I please have the preliminary results of proposal #2?

I certify that 96.96% of the votes cast for proposal #2 voted in favor of the proposal, 2.12% voted against the proposal and 0.92% abstained from voting.

Based on the preliminary results from the vote, I declare proposal #2 is approved. Ms. McCormick, will you please read proposal #3?

To ratify the appointment of Dixon Hughes Goodman, LLP as the independent registered accounting firm for MVB for the year 2020.

I'd like to introduce Cheryl Spielman who would like to make a statement on behalf of the Audit Committee.

Thank you, Mr. Chairman. The MVB Audit Committee is directly responsible for the appointment, retention, negotiation and finalization of fees and oversight of our independent public accounting firm. Dixon Hughes Goodman, LLP completed our 2019 audit and found no material issues. Given Dixon's quality of work, focus in the financial services sector and their institutional knowledge of the company, we have decided to retain the firm for our 2020 audit. Thank you.

Thank you, Cheryl. I would also like to note that members of Dixon Hughes Goodman are in attendance today. May I please have the preliminary results for proposal #3?

I certify that 99.53% of the votes cast for proposal #3 voted in favor of the proposal, 0.41% voted against the proposal and 0.06% abstained from voting.

Based on the results of the preliminary vote, I declare proposal #3 approved. Are there any questions specifically relating to any of these proposals? Being no questions at this time, I would now ask that the voting be officially closed. A report confirming the final vote count will be available online in the next few days for your review. As I introduce our CEO, I would like to thank Larry for his leadership and the entire MVB family. They have come together to navigate these pandemic times. And as a Board, we really appreciate your efforts, Larry?

Thank you, Mr. Chairman. It has been a challenging time for the last 2.5 months, but MVB has been very resilient. It's something we've called, we've been defensively offensive, and there's a lot of good things that have happened not only in 2019, which I'm about to report on, but the first quarter of 2020. First, though, I want to share our gratitude to our shareholders and clients who we're here for, but also our Board of Directors who do an outstanding job, totally engaged. As a CEO, I'm very grateful for their support and help. But also our senior management team who's there day in and day out: Don Robinson, Matt West; John Schirripa, Jamie Nalls, Brad Greathouse and Ryan Linton, who are my right and left arms who do a fantastic job. But not only them as senior leaders, but all our teammates who are there every day, day in and day out, through these difficult times, who are 95% working from home in challenging situations, but delivering for our shareholders, our share -- and our clients. Starting into the presentation. Of course, we have our forward-looking statement, which is there to read in detail. And we'll go to our first slide. Our first slide is probably our most important slide of the deck to our share owners. Our financial -- our purpose of MVB Financial is to be a trusted partner on the financial frontier committed to your success. We break those down into 3 pieces: one, the trusted partnership; the financial frontier; and commitment to success. We have 5 values that tie to those 3 pieces. The first one, trusted partnerships. 3 values tied to trusted partnerships out of the 5. Love, trust and commitment is the first 3 of those values. And to be a trust department -- a trusted partner, you have to have those 3 unequivocally. You have to care, you have to be trustworthy and you have to be committed to be a trusted partner at MVB. And that's the way we treat our clients, our share owners, our teammates, our communities. The financial frontier, we have the value of adaptivity. And we know, I think Darwin said it best, Darwin said, "It's not the strongest or the smartest that survive, but it's the one that's most adaptive that survive." And I think adaptivity and being on the financial frontier of fintech and even the COVID environment has created a new financial frontier for us. And the last piece of our purpose, which is committed to your success, is the value of teamwork. And teamwork, just like raising a child in a community or a client, it takes a village, and teamwork is how we pull together to make success happen for all our constituency. What have we done in the COVID-19 environment to reach out? It's been extremely important to us. What we have determined as a team, we want to come out better from COVID-19 than when we entered COVID-19. Our team's done a heck of a job, one, reaching out to our clients. We've reached out to 100% of our clients, even though 95% of our team's working from. We had a great success in our SBA program, the PPP program, the Paycheck Protection Program. We've done a fantastic job, nearly $100 million in those loans, helping a number of clients and keeping a number of people employed, impacting our communities in a very positive way. We still maintain a very strong capital position. We have robust capital ratios, robust liquidity, and we're prepared for the challenge today and the challenge ahead of us. We've been very offensive in the first quarter, starting from the end of 2019. And we had 4 previously announced deals that added $16 million to pretax gains, which is very positive to us and very positive to our shareholders. Our Fintech vertical also performed extremely well in the first quarter, continuing to execute on that strategy, and we continue to add new capabilities to the team. Lastly, in the COVID response, our mortgage team has worked extremely hard. It's the busiest they've ever been in the history of MVB. They've helped a number of clients all over and have done a good job of pulling those loans together and helping clients to lower their interest rates, to even fund new homes, and I'm really proud of what they've accomplished. And we've also expanded our net interest margin, which is not easy to do today. Our next slide shows our footprint today as well as our 3 groups that we've narrowed down to. We've merged Commercial and Retail together, and we call it CoRe, Co for commercial, Re for retail. Jamie Nalls leads that area and has done a terrific job of pulling that together. And it's especially noted, with our new team in the South, we had an acquisition of -- through the FDIC of FSB, and they've done a great job of pulling that together. Our mortgage area, headed by Ed Dean, throughout the Eastern Seaboard there, through Florida -- from West Virginia to Florida, have done a great job and continue to do well. And we have more to talk about on our mortgage alliance and agreement with Intercoastal Mortgage to -- more to come on that in a second. And lastly, our treasury and deposit services that includes our Fintech team. We opened up in 2019, our Salt Lake City office. Ryan Linton is leading that group, and it's really expanded. You can see we're in over 20 states from coast-to-coast in that area. Byron Schulze leads the deposit service area. He's done a good job with our title group as well as all depository services, which we've had great gains in 2019 and looks very positive for 2020. When you look at our growth journey on the next slide here, we continue to grow. Our asset base is now nearly $2 billion at the end of 2019, and our total loans have grown as well. Our net income more than doubled from 2018 to 2019. And then we've had -- deposits are basically flat in this slide. But when you see our growth in repositioning and noninterest-bearing deposits, which is our most important part of our deposit mix, it has grown tremendously for us. And when you compare it against peers, it's in one of the top percentiles. Looking at shareholder value, our dividends have had a 25% compounded annual growth rate over the last 4 years. In the past year, nearly 70% growth over -- plus, and we're very happy that we're able to pay this dividend to our shareholders and return value to them. The first quarter highlights. First quarter was extremely busy for the team. Even in the COVID environment, they delivered. They executed nearly flawlessly, in my opinion. Deposits increased over -- nearly 23% or over $333 million to equal $1.8 billion. Our commercial loans increased 2.4% or up $26 million, and now that balance is over $1.1 billion in commercial lending, which is the core of our business in assets. Our noninterest-bearing deposits, which we are really focused on and have focused on, they increased over 37% or $112 million. The balance is now $410 million. And we're nearing a critical benchmark for us, which is 25% of noninterest-bearing deposits out of our total deposit base. Our net interest margin increased 8%, where I think most of our peers have decreased, and we're happy about that. The next slide shows our noninterest-bearing growth in our journey since 2015. We've grown from 8% to nearly 25% in noninterest-bearing deposits as a percent of total deposits. This change in mix has helped our margin, increased our franchise value and has really delivered, I think, for our team. Our next slide is showing our net interest margin expansion. It's one of my favorite slides, I call it, the mouth of the alligator. You can see the mouth of the alligator in this up here. Initially, we were not competitive in 2014. Our margins were nearly 106 basis points away from our nearest peer. Our team has worked extremely hard to close that gap, and I believe by the end of this year, we may nearly exceed our peer group in the way of margin expansion. So this has come a long way. And it's not only come from the noninterest-bearing deposits, but our asset team, which are lenders, have done a great job in maintaining our -- not only our asset quality, but the yields on those assets. The next slide, the reason we have this one in here, we are on a very difficult economic cycle. Some call it a recession, some even call it a depression. And we -- what we did is we went back all the way to 2008, where the Great Recession started. The top line -- in these 2 graphs, you want to be the bottom line or what -- if you can see the colors, it's a light green line, which is MVB, the dark blue line is our peer group. When you look at the analysts and the way they have looked at us historically, we've always performed well in down markets with our asset quality. Our lending team is, to me, one of the best in the country. It's not only my opinion, but I think it's validated by these 2 graphs in the way the asset quality -- in the way we've performed not only in nonperforming assets to total loans, but our net charge-offs to average assets have been some of the best results in the country through some of the worst cycles and actually through some of the best cycles. We're hoping, of course, past performance does not predict future performance, but -- and hope is not a strategy, but we have looked at our asset portfolio. As I said earlier in this presentation, our teams reached out to 100% of our client base not only of how we can help, but how we can work with them in not only the PPP loans, but how we can help them through this crisis, and I think that will deliver good results. So we continue to increase our reserves through this time to make sure that we maintain and reserve our asset quality and our value through the storm. When you look at strategic transactions that we've actually closed in the first half of the year, these transactions have increased our capital generation without a capital raise or only accretive not dilutive to our shareholders. Our sale of the Eastern Panhandle branches. We sold 4 branches in the Eastern Panhandle. That team there delivered great value to our shareholders. Strategically, though, we wanted to consolidate into what we call the CoRe that I mentioned earlier. And we had approximately a $10 million gain from the disposition of those branches in Eastern Panhandle. But strategically, though, we had an opportunity in MVB, as a lot of analysts say and as we think of ourselves, we are opportunistic. We look at situations that can continue to add value to our shareholders. We were able to acquire an FDIC-assisted bank, The First State Bank at Barboursville, which we're able to book, which will be shown in the 6th quarter -- I mean, the second quarter. A $6 million gain, bargain purchase gain is what we call it, from that purchase and acquisition, and we're very happy, and that team has done a great job. The MVB team did this through the COVID environment as well as The First State team, and I'm very happy and pleased with the results here. We're integrating quickly, and this should be a great addition to team MVB. We also continue to expand our Fintech vertical and our consulting groups. As you know from last year's results, we acquired the Chartwell Group, which has been a great success for us. But we recently acquired in April, the Paladin Group, which is a fraud prevention group. They have done a great job and will be a great complement to the Chartwell Compliance piece. And then lastly, the team, through Don Robinson's leadership, achieved a Kroll rating at BBB. And then when you look at the deposit side, it's BBB+, which we're very happy with and it rates very well within our peer group. It's investment grade, which I think is important to all of us. And especially in this time of the COVID environment, to have this rating is very beneficial for team MVB and our shareholders. What we are looking for going forward with our mortgage group? Our mortgage group has performed well in this environment, especially at the start of the second quarter. We believe they'll continue to perform well the rest of the year. We have come to an agreement with Intercoastal Mortgage in Northern Virginia, one of our partners via Lenderworks, which is our loan processing group that we own part of with Intercoastal. We will have a total combination, we call it a merger of equals. Volume in 2019, when they would have been -- if they were combined then would have been $3.1 billion. We believe we'll exceed that in 2020 as well as the efficiencies that will be picked up. And this will now become an investment to MVB versus a totally 100% owned subsidiary. Ed Dean leads this group. He's done a nice job in this -- pulling it together, and I'm very grateful for what our mortgage team has done for team MVB. We'll continue to work with them very, very closely as this MOE goes forward, but it will be a very much, what we call, a transformational impact to not only our balance sheet, but to our income statement in a very positive way. A brief update on Chartwell Compliance. This is the acquisition we made in the third quarter of 2019. This group has come on very strong. It's helped team MVB. It's helped our client base. And not only are we going extremely well with our compliance and regulatory environment with the Chartwell team assisting and our team working very hard on that area, but we're doing very well with helping our clients, which I think is extremely important. We believe one of our biggest risk in the fintech world is compliance and fraud. I think we have 2 of the best groups in the industry, with Chartwell and Paladin, on our team to help us bolster that area. We've also turned a call center, which is compliance and regulatory and fraud, into an income earner for us as we outsource our services to clients and friends within the industry. With that, Mr. Chairman, I'll turn it back over to you to field any shareholder questions.

Thank you, Larry. Do we have any questions? Being no questions, on behalf of the Board of Directors, as we adjourn the meeting, I again, want to give a big shout out to our team members, our customers and our shareholders. Together, we will continue to navigate these unprecedented times with the utmost diligence and transparency. Thank you, and please be safe. And I now declare the 22nd Annual Meeting of MVB adjourned. Thank you.

This concludes today's meeting. You may now disconnect.