SEGMENT REPORTING

The Company has identified three reportable segments: commercial and retail banking; mortgage banking; and financial holding company. Insurance services was previously identified as a reportable segment until entering into an Asset Purchase Agreement, as discussed below and in Note 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. 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 23, "Discontinued Operations" of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. 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 years ended December 31, 2016, 2015, and 2014 are as follows:



	2016
(Dollars in thousands)	Commercial & Retail Banking			Mortgage Banking		Financial Holding Company			Insurance			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	50,413		$	4,285	$	3		$	—		$	(578	)	$	54,123
Mortgage fee income	(252		)	36,960		—			—			(1,035		)	35,673
Insurance and investment services income	420			—		—			—			—			420
Other income	5,485			1,674		5,247			—			(5,294		)	7,112
Total operating income	56,066			42,919		5,250			—			(6,907		)	97,328
Expenses:
Interest expense	8,437			2,082		2,226			—			(1,613		)	11,132
Salaries and employee benefits	11,592			27,696		5,937			—			—			45,225
Provision for loan losses	3,632			—		—			—			—			3,632
Other expense	18,009			8,125		3,144			—			(5,294		)	23,984
Total operating expenses	41,670			37,903		11,307			—			(6,907		)	83,973
Income (loss) from continuing operations, before income taxes	14,396			5,016		(6,057		)	—			—			13,355
Income tax expense (benefit) - continuing operations	4,496			1,954		(2,072		)	—			—			4,378
Net income (loss) from continuing operations	9,900			3,062		(3,985		)	—			—			8,977
Income (loss) from discontinued operations	—			—		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)	$	9,900		$	3,062	$	312		$	(362	)	$	—		$	12,912
Preferred stock dividends	—			—		1,128			—			—			1,128
Net income (loss) available to common shareholders	9,900			3,062		(816		)	(362		)	—			11,784

Capital Expenditures for the year ended December 31, 2016	$	1,145		$	220	$	303		$	—		$	—		$	1,668
Total Assets as of December 31, 2016	1,415,735			122,242		180,340			—			(299,513		)	1,418,804
Goodwill as of December 31, 2016	1,598			16,882		—			—			—			18,480



	2015
(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company			Insurance		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	40,524	$	3,882	$	2		$	—	$	(308	)	$	44,100
Mortgage fee income	7		30,560		—			—		(1,095		)	29,472
Insurance and investment services income	338		—		—			—		—			338
Other income	3,721		1,673		4,331			—		(4,580		)	5,145
Total operating income	44,590		36,115		4,333			—		(5,983		)	79,055
Expenses:
Interest expense	6,776		1,647		2,204			—		(1,402		)	9,225
Salaries and employee benefits	11,049		20,774		4,250			—		—			36,073
Provision for loan losses	2,493		—		—			—		—			2,493
Other expense	16,132		7,471		2,534			—		(4,362		)	21,775
Total operating expenses	36,450		29,892		8,988			—		(5,764		)	69,566
Income (loss) from continuing operations, before income taxes	8,140		6,223		(4,655		)	—		(219		)	9,489
Income tax expense (benefit) - continuing operations	2,176		2,394		(1,597		)	—		(87		)	2,886
Net income (loss) from continuing operations	5,964		3,829		(3,058		)	—		(132		)	6,603
Income (loss) from discontinued operations	—		—		—			134		219			353
Income tax expense (benefit) - discontinued operations	$	—	$	—	$	—		$	53	$	87		$	140
Net income (loss) from discontinued operations	$	—	$	—	$	—		$	81	$	132		$	213
Net income (loss)	$	5,964	$	3,829	$	(3,058	)	$	81	$	—		$	6,816
Preferred stock dividends	—		—		575			—		—			575
Net income (loss) available to common shareholders	5,964		3,829		(3,633		)	81		—			6,241

Capital Expenditures for the year ended December 31, 2015	$	1,174	$	354	$	616		$	9	$	—		$	2,153
Total Assets as of December 31, 2015	1,378,988		125,227		148,509			5,017		(273,265		)	1,384,476
Goodwill as of December 31, 2015	1,598		16,882		—			—		—			18,480



	2014
(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking			Financial Holding Company			Insurance			Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	33,175	$	2,645		$	2		$	—		$	346		$	36,168
Mortgage fee income	64		18,691			—			—			(1,198		)	17,557
Insurance and investment services income	328		—			—			—			—			328
Other income	4,458		(2		)	4,357			—			(4,676		)	4,137
Total operating income	38,025		21,334			4,359			—			(5,528		)	58,190
Expenses:
Interest expense	5,663		1,063			1,703			—			(918		)	7,511
Salaries and employee benefits	9,629		14,487			3,658			—			—			27,774
Provision for loan losses	2,582		—			—			—			—			2,582
Other expense	13,994		5,990			1,970			—			(4,534		)	17,420
Total operating expenses	31,868		21,540			7,331			—			(5,452		)	55,287
Income (loss) from continuing operations, before income taxes	6,157		(206		)	(2,972		)	—			(76		)	2,903
Income tax expense (benefit) - continuing operations	1,326		(57		)	(993		)	—			(28		)	248
Net income (loss) from continuing operations	4,831		(149		)	(1,979		)	—			(48		)	2,655
Income (loss) from discontinued operations	—		—			—			(996		)	76			(920		)
Income tax expense (benefit) - discontinued operations	$	—	$	—		$	—		$	(372	)	$	28		$	(344	)
Net income (loss) from discontinued operations	$	—	$	—		$	—		$	(624	)	$	48		$	(576	)
Net income (loss)	$	4,831	$	(149	)	$	(1,979	)	$	(624	)	$	—		$	2,079
Preferred stock dividends	—		—			332			—			—			332
Net income (loss) available to common shareholders	4,831		(149		)	(2,311		)	(624		)	—			1,747

Capital Expenditures for the year ended December 31, 2014	$	9,072	$	333		$	40		$	353		$	—		$	9,798
Total Assets as of December 31, 2014	1,048,101		101,791			146,137			4,031			(189,601		)	1,110,459
Goodwill as of December 31, 2014	897		16,882			—			—			—			17,779

Commercial & Retail Banking

For the year ended December 31, 2016, the Commercial & Retail Banking segment earned $9.9 million compared to $6.0 million in 2015. Net interest income increased by $8.2 million, primarily the result of average loan balances increasing by $179.0 million. Noninterest income increased by $1.6 million, mainly the result of the following: $818 thousand improvement in performance of the interest rate cap, $882 thousand increase in gain on sale of securities, $133 thousand increase in other operating income, and $199 thousand increase in Visa debit card and interchange income, which was offset by $371 thousand decrease in gain on sale of portfolio loans and $259 thousand decrease in mortgage fee income. Noninterest expense increased by $2.4 million, primarily the result of the following: $543 thousand increase in salaries and employee benefits expense, $494 thousand increase in occupancy and equipment expense, and $832 thousand increase in data processing and communications expense, which was offset by $776 thousand decrease in professional fees. In addition, provision expense increased by $1.1 million.

Mortgage Banking

For the year ended December 31, 2016, the Mortgage Banking segment earned $3.1 million compared to $3.8 million in 2015. Net interest income decreased $32 thousand, noninterest income increased by $6.4 million and noninterest expense increased by $7.6 million. The $6.4 million increase in noninterest income was all related to mortgage fee income and was offset by the $7.6 million increase in noninterest expense. The increase in noninterest expense was primarily the result of the following: $6.9 million increase in salaries and employee benefits expense, which was primarily due to a 26.4% increase in origination volume as well as a $1.8 million increase in the earn out paid to management of the mortgage company related to the 2012 acquisition. Other items that impacted noninterest expense were as follows: $197 thousand increase in mortgage processing expense, $98 thousand increase in data processing and communications expense, $117 thousand in occupancy and equipment expense, $133 thousand increase in travel, entertainment, dues, and subscriptions expense, and $134 thousand in other operating expense, of which an increase of $55 thousand was related to loan expenses, which was offset by a $115 thousand decrease in marketing expense.

Financial Holding Company

Excluding discontinued operations, for the year ended December 31, 2016, the Financial Holding Company segment lost $4.0 million compared to a loss of $3.1 million in 2015. Interest expense increased $22 thousand, noninterest income increased $916 thousand and noninterest expense increased $2.3 million. In addition, the income tax benefit increased $475 thousand. The increase in noninterest expense was primarily due to a $1.7 million increase in salaries and employee benefits expense, a $220 thousand increase in professional fees, a $259 thousand increase in occupancy and equipment expense, and a $66 thousand increase in other operating expense.

Insurance

For the year ended December 31, 2016, the Insurance segment lost $362 thousand compared to a loss of $81 thousand in 2015. In June 2016, primarily all the assets of the Insurance segment were sold and the segment was reorganized as a subsidiary of the Bank.