KBRA Affirms Ratings for MVB Financial Corp.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Fairmont, WV-based MVB Financial Corp. (NASDAQ: MVBF). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for lead subsidiary, MVB Bank, Inc. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

MVBF’s ratings are supported by the company’s favorable historical earnings performance, reinforced by a strong NIM (slightly above 4% during 2023 compared to the rated peer average of 3.28%) and an asset sensitive balance sheet. MVBF's strategy includes less traditional business banking methods such as a more technologically focused orientation with an emphasis on a payments based network and a compliance oriented culture, which has resulted in sustained levels of premium noninterest-bearing deposits. The company’s deposit franchise is viewed favorably (~50% NIB component historically) both in mix and availability of off-balance sheet deposits. MVBF's positive momentum in deposit gathering has been complementary to the growth in the online gaming industry and a strategic partnership with Credit Karma. The influx of gaming deposits is expected to grow as the industry is deregulated and adopted by gaming consumers across the United States. Additionally, MVBF’s fintech strategy is centered around defending the durability of the deposit franchise through continued servicing, compliance, and the prompt timing of payments. Furthermore, MVBF has ample access to secondary liquidity that includes available off-balance sheet deposits of $1.1 billion or nearly 33% of total assets as of 4Q23, which does not include FHLB borrowing availability ($700 million or ~20% of total assets) and other liquidity sources. More recently, the company's noninterest income contribution to total revenue (~10% in 2023) has been much lower relative to previous years as mortgages volumes have normalized in a higher rate environment. Of note, MVBF previously benefited from income accounted for by the equity method which was derived from its heightened mortgage activity in 2021 flowing through their JV with Intercoastal Mortgage, branch sales, and fintech related service fees. MVBF’s ratings are constrained, in part, by fluctuation within asset quality metrics, although we note the bank has experienced minimal losses (5-year average NCO ratio: ~20 bps) and an overall reduction in reported NPAs from 1.80% of total loans at YE20 to 40 bps as of YE23. A portion of the NPA balances were derived from an FDIC-assisted transaction, for which the company received a substantial purchase discount. However, classified and criticized (C&C) loan balances are somewhat elevated at near 5% of total loans as of 4Q23, compared to 2.8% as of 4Q22 primarily due to a jump in "special mention" loans as substandard loan balances remained flat year-over-year at ~1.5% of total loans. KBRA expects the company to maintain its current capital levels (bank level leverage (CBLR) and holding company TCE ratios of 10.5% and 8.6%, respectively, at YE23), which are considered weaker than peer given the elevated commercial concentration, including CRE and the bank's overall risk profile. The bank has moderated investor CRE growth and is working on the continued focus on balancing growth within its existing verticals, specifically related to C&I lending, inclusive of healthcare.

Rating Sensitivities

Consistent earnings, highlighted by solid core deposit balances, a strong capital profile and continued diversification both in geography and revenue composition could result in positive ratings momentum over time. Deteriorated profitability metrics defined by ROAA as a result of NIM compression or weakened credit quality metrics resulting in lower capital measures could result in negative ratings momentum.

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Methodologies