Segment Reporting

For the current reporting period, the Company has identified four reportable segments: commercial and retail banking; mortgage banking; financial holding company; and insurance services. Revenue from commercial and retail banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.

Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage origination process. The mortgage banking services are conducted by MVB Mortgage. Revenue from insurance services is comprised mainly of commissions on the sale of insurance products.

On June 30, 2016, the Company entered into an Asset Purchase Agreement with USI Insurance Services (“USI”), in which USI purchased substantially all of the assets and assumed certain liabilities of MVB Insurance, which resulted in a pre-tax gain of $6.9 million, as discussed in Note 12. MVB Insurance retained the assets related to, and continues to operate, its title insurance business. The title insurance business is immaterial in terms of revenue and the Company has reorganized MVB Insurance as a subsidiary of the Bank.

Information about the reportable segments and reconciliation to the consolidated financial statements for the three and nine month periods ended September 30, 2016 and 2015 are as follows:



Three months ended September 30, 2016 (Dollars in thousands)	Commercial & Retail Banking			Mortgage Banking			Financial Holding Company			Insurance		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	12,528		$	1,183		$	1		$	—	$	(189	)	$	13,523
Mortgage fee income	(95		)	11,003			—			—		(240		)	10,668
Insurance and investment services income	128			—			—			—		—			128
Other income	1,687			(31		)	1,444			—		(1,370		)	1,730
Total operating income	14,248			12,155			1,445			—		(1,799		)	26,049
Expenses:
Interest expense	2,113			552			560			—		(431		)	2,794
Provision for loan losses	1,075			—			—			—		—			1,075
Salaries and employee benefits	2,924			7,724			1,735			—		—			12,383
Other expense	4,782			2,054			888			—		(1,368		)	6,356
Total operating expenses	10,894			10,330			3,183			—		(1,799		)	22,608
Income (loss) from continuing operations, before income taxes	3,354			1,825			(1,738		)	—		—			3,441
Income tax expense (benefit) - continuing operations	1,027			704			(600		)	—		—			1,131
Net income (loss) from continuing operations	2,327			1,121			(1,138		)	—		—			2,310
Income (loss) from discontinued operations, before income taxes	—			—			—			—		—			—
Income tax expense (benefit) - discontinued operations	—			—			—			—		—			—
Net income (loss) from discontinued operations	—			—			—			—		—			—
Net income (loss)	2,327			1,121			(1,138		)	—		—			2,310
Preferred stock dividends	—			—			314			—		—			314
Net income (loss) available to common shareholders	$	2,327		$	1,121		$	(1,452	)	$	—	$	—		$	1,996

Capital expenditures for the three-month period ended September 30, 2016	$	116		$	9		$	36		$	—	$	—		$	161
Total assets as of September 30, 2016	1,462,496			150,091			159,753			—		(303,745		)	1,468,595
Total assets as of December 31, 2015	1,378,988			125,227			151,441			5,017		(276,197		)	1,384,476
Goodwill as of September 30, 2016	1,598			16,882			—			—		—			18,480
Goodwill as of December 31, 2015	$	1,598		$	16,882		$	—		$	—	$	—		$	18,480



Three months ended September 30, 2015 (Dollars in thousands)	Commercial & Retail Banking			Mortgage Banking			Financial Holding Company			Insurance			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	10,426		$	1,029		$	1		$	—		$	(40	)	$	11,416
Mortgage fee income	(28		)	9,293			—			—			(310		)	8,955
Insurance and investment services income	98			—			—			—			—			98
Other income	846			(1,544		)	1,126			—			(1,028		)	(600		)
Total operating income	11,342			8,778			1,127			—			(1,378		)	19,869
Expenses:
Interest expense	1,778			415			555			—			(350		)	2,398
Provision for loan losses	636			—			—			—			—			636
Salaries and employee benefits	2,895			5,302			1,087			—			—			9,284
Other expense	3,831			1,894			775			—			(1,028		)	5,472
Total operating expenses	9,140			7,611			2,417			—			(1,378		)	17,790
Income (loss) from continuing operations, before income taxes	2,202			1,167			(1,290		)	—			—			2,079
Income tax expense (benefit) - continuing operations	567			448			(446		)	—			—			569
Net income (loss) from continuing operations	1,635			719			(844		)	—			—			1,510
(Loss) from discontinued operations, before income taxes	—			—			—			(167		)	—			(167		)
Income tax (benefit) - discontinued operations	—			—			—			(63		)	—			(63		)
Net (loss) from discontinued operations	—			—			—			(104		)	—			(104		)
Net income (loss)	1,635			719			(844		)	(104		)	—			1,406
Preferred stock dividends	—			—			145			—			—			145
Net income (loss) available to common shareholders	$	1,635		$	719		$	(989	)	$	(104	)	$	—		$	1,261

Capital expenditures for the three-month period ended September 30, 2015	$	266		$	53		$	224		$	—		$	—		$	543
Total assets as of September 30, 2015	1,317,447			110,120			142,673			2,944			(266,655		)	1,306,529
Total assets as of December 31, 2014	1,048,101			101,791			141,645			4,031			(185,109		)	1,110,459
Goodwill as of September 30, 2015	1,598			16,882			—			—			—			18,480
Goodwill as of December 31, 2014	$	897		$	16,882		$	—		$	—		$	—		$	17,779



Nine months ended September 30, 2016 (Dollars in thousands)	Commercial & Retail Banking			Mortgage Banking		Financial Holding Company			Insurance			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	37,583		$	3,278	$	2		$	—		$	(378	)	$	40,485
Mortgage fee income	(190		)	27,862					—			(822		)	26,850
Insurance and investment services income	303								—			—			303
Other income	4,161			1,804		4,310			—			(4,289		)	5,986
Total operating income	41,857			32,944		4,312			—			(5,489		)	73,624
Expenses:
Interest expense	6,312			1,543		1,665			—			(1,201		)	8,319
Provision for loan losses	2,975			—		—			—			—			2,975
Salaries and employee benefits	8,654			20,866		4,907			—			—			34,427
Other expense	13,686			5,979		2,591			—			(4,288		)	17,968
Total operating expenses	31,627			28,388		9,163			—			(5,489		)	63,689
Income (loss) from continuing operations, before income taxes	10,230			4,556		(4,851		)	—			—			9,935
Income tax expense (benefit) - continuing operations	3,177			1,762		(1,674		)	—			—			3,265
Net income (loss) from continuing operations	7,053			2,794		(3,177		)	—			—			6,670
Income (loss) from discontinued operations, before income taxes	—			—		6,926			(580		)	—			6,346
Income tax expense (benefit) - discontinued operations	—			—		2,629			(218		)	—			2,411
Net income (loss) from discontinued operations	—			—		4,297			(362		)	—			3,935
Net income (loss)	7,053			2,794		1,120			(362		)	—			10,605
Preferred stock dividends				—		814			—			—			814
Net income (loss) available to common shareholders	$	7,053		$	2,794	$	306		$	(362	)	$	—		$	9,791

Capital expenditures for the nine-month period ended September 30, 2016	$	1,068		$	164	$	203		$	—		$	—		$	1,435
Total assets as of September 30, 2016	1,462,496			150,091		159,753			—			(303,745		)	1,468,595
Total assets as of December 31, 2015	1,378,988			125,227		151,441			5,017			(276,197		)	1,384,476
Goodwill as of September 30, 2016	1,598			16,882		—			—			—			18,480
Goodwill as of December 31, 2015	$	1,598		$	16,882	$	—		$	—		$	—		$	18,480



Nine months ended September 30, 2015 (Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company			Insurance		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	29,047	$	2,996	$	2		$	—	$	(297	)	$	31,748
Mortgage fee income	36		24,678					—		(833		)	23,881
Insurance and investment services income	276							—		—			276
Other income	2,685		1,056		3,319			—		(3,345		)	3,715
Total operating income	32,044		28,730		3,321			—		(4,475		)	59,620
Expenses:
Interest expense	4,920		1,319		1,648			—		(1,130		)	6,757
Provision for loan losses	1,856		—		—			—		—			1,856
Salaries and employee benefits	8,336		15,967		3,121			—		—			27,424
Other expense	11,773		5,474		1,857			—		(3,345		)	15,759
Total operating expenses	26,885		22,760		6,626			—		(4,475		)	51,796
Income (loss) from continuing operations, before income taxes	5,159		5,970		(3,305		)	—		—			7,824
Income tax expense (benefit) - continuing operations	1,317		2,287		(1,129		)	—		—			2,475
Net income (loss) from continuing operations	3,842		3,683		(2,176		)	—		—			5,349
Income from discontinued operations, before income taxes	—		—		—			108		—			108
Income tax expense - discontinued operations	—		—		—			43		—			43
Net income from discontinued operations	—		—		—			65		—			65
Net income (loss)	3,842		3,683		(2,176		)	65		—			5,414
Preferred stock dividends	—		—		430			—		—			430
Net income (loss) available to common shareholders	$	3,842	$	3,683	$	(2,606	)	$	65	$	—		$	4,984

Capital expenditures for the nine-month period ended September 30, 2015	$	997	$	152	$	490		$	9	$	—		$	1,648
Total assets as of September 30, 2015	1,317,447		110,120		142,673			2,944		(266,655		)	1,306,529
Total assets as of December 31, 2014	1,048,101		101,791		141,645			4,031		(185,109		)	1,110,459
Goodwill as of September 30, 2015	1,598		16,882		—			—		—			18,480
Goodwill as of December 31, 2014	$	897	$	16,882	$	—		$	—	$	—		$	17,779

Commercial & Retail Banking

For the three months ended September 30, 2016, the Commercial & Retail Banking segment earned $2.3 million compared to $1.6 million during the three months ended September 30, 2015. Net interest income increased $1.8 million, mainly the result of average loan balances increasing by $164.9 million. In addition, average interest bearing liabilities increased $154.4 million which led to a $335 thousand increase in interest expense. Noninterest income increased by $804 thousand, largely the result of an increase in gain on sale of securities of $475 thousand and a $528 thousand expense reduction due to the mark to market valuation of the interest rate cap. Noninterest expense increased $980 thousand, largely the result of a $852 thousand increase in other operating expense, a $81 thousand increase in occupancy and equipment, a $29 thousand increase in salaries and employee benefits, and a $350 thousand increase in data processing and communications. $289 thousand of the increase to noninterest expense relates to intercompany services expense related to Regulation W. In addition, income tax expense increased $460 thousand due to the increase in earnings.

For the nine months ended September 30, 2016, the Commercial & Retail Banking segment earned $7.1 million compared to $3.8 million during the nine months ended September 30, 2015. Net interest income increased $7.1 million, mainly the result of average loan balances increasing by $207.9 million. In addition, average interest bearing liabilities increased $200.7 million which led to a $1.4 million increase in interest expense. Noninterest income increased by $1.3 million, largely the result of an increase in gain on sale of securities of $882 thousand and a $644 thousand expense increase due to the mark to market valuation of the interest rate cap. Noninterest expense increased $2.2 million, largely the result of a $1.2 million increase in other operating expense and a $410 thousand increase in occupancy and equipment. $681 thousand of the increase to noninterest expense relates to intercompany services expense related to Regulation W. In addition, income tax expense increased $1.9 million due to the increase in earnings.

Mortgage Banking

For the three months ended September 30, 2016, the Mortgage Banking segment earned $1.1 million compared to $719 thousand during the three months ended September 30, 2015. Net interest income decreased $17 thousand, noninterest income increased by $3.2 million and noninterest expense increased by $2.6 million. The $402 thousand earnings increase is largely due to a $1.5 million increase in gains related to the mark to market valuation of the interest rate lock commitments driven by a 10% increase in the locked mortgage loan pipeline for the three months ended September 30, 2016 compared to a 9% decrease in the locked mortgage pipeline for the three months ended September 30, 2015. In addition, loans held for sale increased from $73.0 million at September 30, 2015 to $123.1 million at September 30, 2016. Mortgage fee income also increased by $1.7 million. Personnel expense increased by $2.4 million and income tax expense increased $256 thousand due to the increase in earnings.

For the nine months ended September 30, 2016, the Mortgage Banking segment earned $2.8 million compared to $3.7 million during the nine months ended September 30, 2015. Net interest income increased $58 thousand, noninterest income increased by $3.9 million and noninterest expense increased by $5.4 million. The $889 thousand earnings decrease is largely due to a $4.9 million increase in personnel expense, which was largely offset by a $3.2 million increase in mortgage fee income and a $721 thousand increase in gains related to the mark to market valuation of the interest rate lock commitments driven by a 71% increase in the locked mortgage loan pipeline for the nine months ended September 30, 2016 compared to a 58% increase in the locked mortgage pipeline for the nine months ended September 30, 2015. Loans held for sale increased from $73.0 million at September 30, 2015 to $123.1 million at September 30, 2016. In addition, income tax expense decreased $525 thousand due to the decrease in earnings.

Financial Holding Company

Excluding discontinued operations, for the three months ended September 30, 2016, the Financial Holding Company segment lost $1.1 million compared to a loss of $844 thousand during the three months ended September 30, 2015. Interest expense increased $5 thousand, noninterest income increased $318 thousand and noninterest expense increased $761 thousand. In addition, the income tax benefit increased $154 thousand. The increase in noninterest income was mainly due to a $318 thousand increase in other operating income, primarily intercompany services income related to Regulation W. The increase in noninterest expense was largely due to a $648 thousand increase in salaries and employee benefits, a $64 thousand increase in occupancy and equipment, and a $39 thousand increase in professional fees.

Excluding discontinued operations, for the nine months ended September 30, 2016, the Financial Holding Company segment lost $3.2 million compared to a loss of $2.2 million during the nine months ended September 30, 2015. Interest expense increased $17 thousand, noninterest income increased $991 thousand and noninterest expense increased $2.5 million. In addition, the income tax benefit increased $545 thousand. The increase in noninterest income was mainly due to a $921 thousand increase in other operating income, primarily intercompany services income related to Regulation W, and a $70 thousand increase in gain on sale of securities. The increase in noninterest expense was largely due to a $1.8 million increase in salaries and employee benefits, including a $500 thousand reorganization expense, a $198 thousand increase in occupancy and equipment, and a $398 thousand increase in professional fees.

Insurance

For the three months ended September 30, 2015, the discontinued insurance segment lost $104 thousand. Income tax benefit for the third quarter 2016 increased by $63 thousand.

For the nine months ended September 30, 2016, the discontinued insurance segment lost $362 thousand compared to a $65 thousand profit during the nine months ended September 30, 2015. Income tax benefit for the nine months ended September 30, 2016 increased by $261 thousand.