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 22, “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 22, “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, 2018, 2017, and 2016 are as follows:



	2018
(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking			Financial Holding Company			Intercompany Eliminations			Consolidated
Interest income	$	63,762	$	6,667		$	5		$	(674	)	$	69,760
Interest expense	13,667		4,085			1,756			(1,802		)	17,706
Net interest income	50,095		2,582			(1,751		)	1,128			52,054
Provision for loan losses	2,386		54			—			—			2,440
Net interest income after provision for loan losses	47,709		2,528			(1,751		)	1,128			49,614

Noninterest Income:
Mortgage fee income	585		32,880			—			(1,128		)	32,337
Other income	6,479		(243		)	6,411			(6,344		)	6,303
Total noninterest income	7,064		32,637			6,411			(7,472		)	38,640

Noninterest Expenses:
Salaries and employee benefits	14,924		23,927			7,373			—			46,224
Other expense	20,081		8,608			4,309			(6,344		)	26,654
Total noninterest expenses	35,005		32,535			11,682			(6,344		)	72,878

Income (loss) before income taxes	19,768		2,630			(7,022		)	—			15,376
Income tax expense (benefit)	4,265		677			(1,569		)	—			3,373
Net income (loss)	$	15,503	$	1,953		$	(5,453	)	$	—		$	12,003
Preferred stock dividends	—		—			489			—			489
Net income (loss) available to common shareholders	$	15,503	$	1,953		$	(5,942	)	$	—		$	11,514

Capital Expenditures for the year ended December 31, 2018	$	2,284	$	272		$	137		$	—		$	2,693
Total Assets as of December 31, 2018	1,753,932		165,430			196,537			(364,930		)	1,750,969
Goodwill as of December 31, 2018	1,598		16,882			—			—			18,480



	2017
(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking			Financial Holding Company			Intercompany Eliminations			Consolidated
Interest income	$	52,423	$	4,698		$	4		$	(527	)	$	56,598
Interest expense	9,118		2,317			2,241			(1,375		)	12,301
Net interest income	43,305		2,381			(2,237		)	848			44,297
Provision for loan losses	1,967		206			—			—			2,173
Net interest income after provision for loan losses	41,338		2,175			(2,237		)	848			42,124

Noninterest Income:
Mortgage fee income	736		37,262			—			(849		)	37,149
Other income	5,866		(2,372		)	5,466			(5,403		)	3,557
Total noninterest income	6,602		34,890			5,466			(6,252		)	40,706

Noninterest Expenses:
Salaries and employee benefits	12,266		26,196			5,646			—			44,108
Other expense	19,523		8,188			4,085			(5,404		)	26,392
Total noninterest expenses	31,789		34,384			9,731			(5,404		)	70,500

Income (loss) before income taxes	16,151		2,681			(6,502		)	—			12,330
Income tax expense (benefit)	5,820		1,082			(2,147		)	—			4,755
Net income (loss)	$	10,331	$	1,599		$	(4,355	)	$	—		$	7,575
Preferred stock dividends	—		—			498			—			498
Net income (loss) available to common shareholders	$	10,331	$	1,599		$	(4,853	)	$	—		$	7,077

Capital Expenditures for the year ended December 31, 2017	$	3,226	$	1,187		$	83		$	—		$	4,496
Total Assets as of December 31, 2017	1,533,497		149,323			184,674			(333,192		)	1,534,302
Goodwill as of December 31, 2017	1,598		16,882			—			—			18,480



	2016
(Dollars in thousands)	Commercial & Retail Banking			Mortgage Banking		Financial Holding Company			Insurance			Intercompany Eliminations			Consolidated
Interest income	$	50,413		$	4,285	$	3		$	—		$	(578	)	$	54,123
Interest expense	8,437			2,082		2,226			—			(1,613		)	11,132
Net interest income	41,976			2,203		(2,223		)	—			1,035			42,991
Provision for loan losses	3,632			—		—			—			—			3,632
Net interest income after provision for loan losses	38,344			2,203		(2,223		)	—			1,035			39,359

Noninterest Income:
Mortgage fee income	(252		)	36,960		—			—			(1,035		)	35,673
Other income	5,905			1,674		5,247			—			(5,294		)	7,532
Total noninterest income	5,653			38,634		5,247			—			(6,329		)	43,205

Noninterest Expenses:
Salaries and employee benefits	11,592			27,696		5,937			—			—			45,225
Other expense	18,009			8,125		3,144			—			(5,294		)	23,984
Total noninterest expenses	29,601			35,821		9,081			—			(5,294		)	69,209

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

Commercial & Retail Banking

For the year ended December 31, 2018, the Commercial & Retail Banking segment earned $15.5 million compared to $10.3 million in 2017. Net interest income increased by $6.8 million, primarily the result of a $9.4 million increase in interest and fees on loans which was offset by a $3.3 million increase in interest on deposits. Noninterest income increased by $462 thousand, primarily the result of a $536 thousand increase in income on bank owned life insurance and a $562 thousand increase in the holding gain on equity securities. These increases were partially offset by a $660 thousand decrease in the gain on sale of securities. Noninterest expense increased by $3.2 million, primarily the result of the following: $2.7 million increase in salaries and employee benefits expense, $281 thousand increase in occupancy and equipment expense, and a $584 thousand increase in professional fees. In addition, provision expense increased by $419 thousand. Also, income tax expense decreased $1.6 million as a result of the new tax laws enacted in late 2017.

Mortgage Banking

For the year ended December 31, 2018, the Mortgage Banking segment earned $2.0 million compared to $1.6 million in 2017. Net interest income increased $201 thousand, noninterest income decreased by $2.3 million, and noninterest expense decreased by $1.8 million. The decrease in noninterest income was primarily the result of a $4.4 million decrease in mortgage fee income, which was partially offset by a $2.2 million decrease in the loss on derivative. The decrease in noninterest expense was primarily the result of the following: $2.3 million decrease in salaries and employee benefits expense, which was primarily due to a 13.4% decrease in origination volume and a $752 thousand decrease in the earn out paid to management of the mortgage company related to the 2012 acquisition. Other items that impacted noninterest expense were a $344 thousand increase in mortgage processing expense and a $106 thousand increase in other operating expenses.

Financial Holding Company

For the year ended December 31, 2018, the Financial Holding Company segment lost $5.5 million compared to a loss of $4.4 million in 2017. Interest expense decreased $485 thousand, noninterest income increased $945 thousand and noninterest expense increased $2.0 million. In addition, the income tax benefit decreased $578 thousand. The increase in noninterest expense was primarily due to a $1.7 million increase in salaries and employee benefits expense.

Insurance

In June 2016, primarily all the assets of the Insurance segment were sold and the segment was reorganized as a subsidiary of the Bank. There was no insurance segment in 2017. The discontinued insurance segment lost $362 thousand in 2016.