SEGMENT REPORTING

12 Months Ended

Dec. 31, 2019

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 21, “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 21, “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, 2019, 2018, and 2017 are as follows:


	2019
(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
Interest income	$	75,874	$	8,342	$	13	$	(1,868)	$	82,361
Interest expense	18,698		6,014		769		(2,520)		22,961
Net interest income	57,176		2,328		(756)		652		59,400
Provision for loan losses	1,622		167		—		—		1,789
Net interest income after provision for loan losses	55,554		2,161		(756)		652		57,611

Noninterest Income:
Mortgage fee income	657		41,040		—		(652)		41,045
Other income	23,033		1,289		6,268		(7,031)		23,559
Total noninterest income	23,690		42,329		6,268		(7,683)		64,604

Noninterest Expenses:
Salaries and employee benefits	19,067		28,432		8,676		—		56,175
Other expense	25,070		8,136		4,851		(7,031)		31,026
Total noninterest expenses	44,137		36,568		13,527		(7,031)		87,201

Income (loss) from continuing operations, before income taxes	35,107		7,922		(8,015)		—		35,014
Income tax expense (benefit) - continuing operations	8,175		2,155		(1,880)		—		8,450
Net income (loss) from continuing operations	26,932		5,767		(6,135)		—		26,564
Income from discontinued operations	—		—		575		—		575
Income tax expense - discontinued operations	—		—		148		—		148
Net income from discontinued operations	—		—		427		—		427
Net income (loss)	$	26,932	$	5,767	$	(5,708)	$	—	$	26,991
Preferred stock dividends	—		—		479		—		479
Net income (loss) available to common shareholders	$	26,932	$	5,767	$	(6,187)	$	—	$	26,512

Capital Expenditures for the year ended December 31, 2019	$	1,438	$	112	$	492	$	—	$	2,042
Total Assets as of December 31, 2019	1,953,975		248,382		216,411		(474,654)		1,944,114
Goodwill as of December 31, 2019	2,748		16,882		—		—		19,630


	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

Commercial & Retail Banking

For the year ended December 31, 2019, the Commercial & Retail Banking segment earned $26.9 million compared to $15.5 million in 2018. Net interest income increased by $7.1 million, primarily as the result of a $11.9 million increase in interest and fees on loans which was offset by a $5.8 million increase in interest on deposits. Noninterest income increased by $16.6 million, primarily as the result of a $13.1 million increase in the holding gain on equity securities and a $1.2 million increase in commercial swap fee income. Noninterest expense increased by $9.1 million, primarily as the result of the following: $4.1 million increase in salaries and employee benefits expense, $1.1 million increase in occupancy and equipment expense, a $1.4 million increase in professional fees, a $928 thousand increase in other operating expenses, and a $811 thousand increase in travel, entertainment, dues, and subscriptions. The increase in salaries and employee benefits was largely driven by a $2.0 million increase related to the build-out of other Company administration, a $1.4 million increase related to the build-out of the Fintech team, and $623 thousand related to additional team members acquired as a result of the Chartwell acquisition. The increase in professional fees is related to special projects and Fintech product and technology development. The increase in travel, entertainment, dues, and subscriptions is primarily related to the Fintech team. In addition, provision expense decreased by $764 thousand. Also, income tax expense increased $3.9 million as a result of increased earnings.

Mortgage Banking

For the year ended December 31, 2019, the Mortgage Banking segment earned $5.8 million compared to $2.0 million in 2018. Net interest income decreased $254 thousand, noninterest income increased by $9.7 million, and noninterest expense increased by $4.0 million. The increase in noninterest income was primarily the result of a $8.2 million increase in mortgage fee income and a $1.5 million increase in the gain on derivative. The increase in noninterest expense was primarily the result of the following: $4.5 million increase in salaries and employee benefits expense, which was primarily due to a 30.3% increase in origination volume and a $516 thousand increase in the earn out paid to management of the mortgage company related to a 2012 acquisition. Other items that impacted noninterest expense were a $510 thousand decrease in mortgage processing expense and a $475 thousand increase in travel, entertainment, dues, and subscriptions expense.

Financial Holding CompanyFor the year ended December 31, 2019, the Financial Holding Company segment lost $5.7 million compared to a loss of $5.5 million in 2018. Interest expense decreased $987 thousand, noninterest income decreased $143 thousand, and noninterest expense increased $1.8 million. In addition, the income tax benefit increased $163 thousand. The increase in noninterest expense was primarily due to a $1.3 million increase in salaries and employee benefits expense related to increased incentive and stock-based compensation.