Segment Reporting

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Reporting

Note 11 – Segment Reporting

The Company has identified three reportable segments: commercial and retail banking; mortgage banking; and financial holding company. Revenue from commercial and retail banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. The fintech division, Chartwell, and Paladin reside in the commercial and retail banking segment. 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.

Information about the reportable segments and reconciliation to the consolidated financial statements for the three and six-month periods ended June 30, 2020 and June 30, 2019 are as follows:

Three Months Ended June 30, 2020	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	19,182	$	3,538	$	1	$	(947)	$	21,774
Interest expense	3,027		1,517		23		(1,251)		3,316
Net interest income	16,155		2,021		(22)		304		18,458
Provision for loan losses	6,598		(2)		—		—		6,596
Net interest income after provision for loan losses	9,557		2,023		(22)		304		11,862
Noninterest Income:
Mortgage fee income	40		15,208		—		(304)		14,944
Other income	17,792		13,354		1,679		(2,256)		30,569
Total noninterest income	17,832		28,562		1,679		(2,560)		45,513
Noninterest Expenses:
Salaries and employee benefits	6,170		13,584		2,905		—		22,659
Other expense	9,124		2,315		1,491		(2,256)		10,674
Total noninterest expenses	15,294		15,899		4,396		(2,256)		33,333
Income (loss) before income taxes	12,095		14,686		(2,739)		—		24,042
Income tax expense (benefit)	2,880		3,800		(672)		—		6,008
Net income (loss)	$	9,215	$	10,886	$	(2,067)	$	—	$	18,034
Preferred stock dividends	—		—		115		—		115
Net income (loss) available to common shareholders	$	9,215	$	10,886	$	(2,182)	$	—	$	17,919
Capital Expenditures for the three-month period ended June 30, 2020	$	1,105	$	30	$	—	$	—	$	1,135
Total Assets as of June 30, 2020	2,219,352		342,497		232,026		(578,718)		2,215,157
Total Assets as of December 31, 2019	1,953,975		248,382		216,411		(474,654)		1,944,114
Goodwill as of June 30, 2020	2,350		16,882		—		—		19,232
Goodwill as of December 31, 2019	2,748		16,882		—		—		19,630

Three Months Ended June 30, 2019	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	18,820	$	2,032	$	1	$	(383)	$	20,470
Interest expense	4,743		1,499		287		(588)		5,941
Net interest income	14,077		533		(286)		205		14,529
Provision for loan losses	625		(25)		—		—		600
Net interest income after provision for loan losses	13,452		558		(286)		205		13,929
Noninterest income:
Mortgage fee income	277		9,792		—		(205)		9,864
Other income	15,464		1,135		1,495		(1,571)		16,523
Total noninterest income	15,741		10,927		1,495		(1,776)		26,387
Noninterest Expense:
Salaries and employee benefits	4,220		7,038		2,022		—		13,280
Other expense	5,493		1,842		1,346		(1,571)		7,110
Total noninterest expenses	9,713		8,880		3,368		(1,571)		20,390
Income (loss) before income taxes	19,480		2,605		(2,159)		—		19,926
Income tax expense (benefit)	4,785		703		(493)		—		4,995
Net income (loss) from continuing operations	14,695		1,902		(1,666)		—		14,931
Income from discontinued operations, before income taxes	—		—		600		—		600
Income tax expense - discontinued operations	—		—		154		—		154
Net income from discontinued operations	—		—		446		—		446
Net income (loss)	$	14,695	$	1,902	$	(1,220)	$	—	$	15,377
Preferred stock dividends	—		—		122		—		122
Net income (loss) available to common shareholders	$	14,695	$	1,902	$	(1,342)	$	—	$	15,255
Capital Expenditures for the three-month period ended June 30, 2019	$	414	$	23	$	77	$	—	$	514
Total Assets as of June 30, 2019	1,831,419		225,012		217,217		(440,630)		1,833,018
Total Assets as of December 31, 2018	1,753,932		165,430		196,537		(364,930)		1,750,969
Goodwill as of June 30, 2019	1,598		16,882		—		—		18,480
Goodwill as of December 31, 2018	1,598		16,882		—		—		18,480

Six Months Ended June 30, 2020	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	37,956	$	5,956	$	2	$	(1,441)	$	42,473
Interest expense	6,865		2,904		58		(1,983)		7,844
Net interest income	31,091		3,052		(56)		542		34,629
Provision for loan losses	7,730		4		—		—		7,734
Net interest income after provision for loan losses	23,361		3,048		(56)		542		26,895
Noninterest Income:
Mortgage fee income	150		26,555		—		(542)		26,163
Other income	21,138		9,792		3,183		(3,913)		30,200
Total noninterest income	21,288		36,347		3,183		(4,455)		56,363
Noninterest Expenses:
Salaries and employee benefits	12,036		21,468		5,337		—		38,841
Other expense	15,783		4,712		2,566		(3,913)		19,148
Total noninterest expenses	27,819		26,180		7,903		(3,913)		57,989
Income (loss) before income taxes	16,830		13,215		(4,776)		—		25,269
Income tax expense (benefit)	3,892		3,451		(1,156)		—		6,187
Net income (loss)	$	12,938	$	9,764	$	(3,620)	$	—	$	19,082
Preferred stock dividends	—		—		229		—		229
Net income (loss) available to common shareholders	$	12,938	$	9,764	$	(3,849)	$	—	$	18,853
Capital Expenditures for the six-month period ended June 30, 2020	$	2,400	$	99	$	20	$	—	$	2,519
Total Assets as of June 30, 2020	2,219,352		342,497		232,026		(578,718)		2,215,157
Total Assets as of December 31, 2019	1,953,975		248,382		216,411		(474,654)		1,944,114
Goodwill as of June 30, 2020	2,350		16,882		—		—		19,232
Goodwill as of December 31, 2019	2,748		16,882		—		—		19,630

Six Months Ended June 30, 2019	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	37,147	$	3,570	$	3	$	(627)	$	40,093
Interest expense	9,497		2,492		572		(969)		11,592
Net interest income	27,650		1,078		(569)		342		28,501
Provision for loan losses	872		28		—		—		900
Net interest income after provision for loan losses	26,778		1,050		(569)		342		27,601
Noninterest Income:
Mortgage fee income	386		16,489		—		(341)		16,534
Other income	17,030		1,611		3,274		(3,297)		18,618
Total noninterest income	17,416		18,100		3,274		(3,638)		35,152
Noninterest Expenses:
Salaries and employee benefits	8,615		12,197		4,202		—		25,014
Other expense	10,845		3,867		2,408		(3,296)		13,824
Total noninterest expenses	19,460		16,064		6,610		(3,296)		38,838
Income (loss) before income taxes	24,734		3,086		(3,905)		—		23,915
Income tax expense (benefit)	5,839		849		(896)		—		5,792
Net income (loss) from continuing operations	18,895		2,237		(3,009)		—		18,123
Income from discontinued operations, before income taxes	—		—		600		—		600
Income tax expense - discontinued operations	—		—		154		—		154
Net income from discontinued operations	—		—		446		—		446
Net income (loss)	$	18,895	$	2,237	$	(2,563)	$	—	$	18,569
Preferred stock dividends	—		—		243		—		243
Net income (loss) available to common shareholders	$	18,895	$	2,237	$	(2,806)	$	—	$	18,326
Capital Expenditures for the three-month period ended June 30, 2019	$	503	$	27	$	99	$	—	$	629
Total Assets as of June 30, 2019	1,831,419		225,012		217,217		(440,630)		1,833,018
Total Assets as of December 31, 2018	1,753,932		165,430		196,537		(364,930)		1,750,969
Goodwill as of June 30, 2019	1,598		16,882		—		—		18,480
Goodwill as of December 31, 2018	1,598		16,882		—		—		18,480

Commercial & Retail Banking

For the three months ended June 30, 2020, the Commercial & Retail Banking segment earned $9.2 million compared to $14.7 million in 2019.

Net interest income increased by $2.1 million, primarily the result of an increase of $638 thousand in interest and fees on loans and a decrease of $1.5 million in interest on deposits. The increase in interest and fees on loans was the result of an increase of $283.5 million in the average loan balances and $409 thousand in accretion from the acquired First State loans. The decrease in interest on deposits was the result of a decrease of 84 basis points in the cost of interest-bearing liabilities, even with an increase of $182.2 million in the average balance of deposits.

Noninterest income increased by $2.1 million which was the result of an increase of $9.6 million in the gain on sale of banking centers, an increase of $4.7 million in the bargain purchase gain, an increase of $1.3 million in compliance consulting income, and an increase of $602 thousand in the gain on sale of securities. These increases were partially offset by a decrease of $13.6 million in the holding gain on equity securities.

Noninterest expense increased by $5.6 million, primarily the result of an increase of $2.0 million in salaries and employee benefits expense, an increase of $2.0 million in professional fees, and an increase of $721 thousand in data processing and communications expense. The increase in salaries and employee benefits expense is primarily the result of the build out of the Fintech team and the build-out of other Company personnel. The increases in professional fees and data processing and communications expense were primarily the result of deal costs related to the acquisition of First State, the acquisition of Paladin, LLC, the sale of the Eastern Panhandle banking centers, and the MVB Mortgage transaction.

In addition, provision expense increased $6.0 million due to the recognition of increased risk within the loan portfolio as a result of the COVID-19 pandemic reflected through analysis of the qualitative adjustment factors, changes in the total outstanding balances of the loan portfolios, changes in the level of recognized charge-offs, and resulting changes in the historical loss rates.

For the six months ended June 30, 2020, the Commercial & Retail Banking segment earned $12.9 million compared to $18.9 million in 2019.

Net interest income increased by $3.4 million, primarily the result of an increase of $1.3 million in interest and fees on loans and a decrease of $1.7 million in interest on deposits. The increase in interest and fees on loans was the result of an increase of $215.0 million in the average loan balances and $409 thousand in accretion from the acquired First State loans. The decrease in interest on deposits was the result of a decrease of 61 basis points in the cost of interest-bearing liabilities, even with an increase of $135.7 million in the average balance of deposits.

Noninterest income increased by $3.9 million which was the result of an increase of $9.6 million in the gain on sale of banking centers, an increase of $4.7 million in the bargain purchase gain, an increase of $2.6 million in compliance consulting income, and an increase of $998 thousand in the gain on sale of available-for-sale securities. These increases were partially offset by a decrease of $13.7 million in the holding gain on equity securities.

Noninterest expense increased by $8.4 million, primarily the result of an increase of $3.4 million in salaries and employee benefits expense, an increase of $2.5 million in professional fees, an increase of $910 thousand in data processing and communications expense, an increase of $729 thousand in other operating expenses, and an increase of $552 thousand in travel, entertainment, dues, and subscriptions expense. The increase in salaries and employee benefits expense is primarily the result of the build out of the Fintech team and the build-out of other Company personnel. The increases in professional fees and data processing and communications expense were primarily the result of deal costs related to the acquisition of First State, the acquisition of Paladin, LLC, the sale of the Eastern Panhandle banking centers, and the MVB Mortgage transaction.

In addition, provision expense increased $6.9 million due to the recognition of increased risk within the loan portfolio as a result of the COVID-19 pandemic reflected through analysis of the qualitative adjustment factors, changes in the total outstanding balances of the loan portfolios, changes in the level of recognized charge-offs, and resulting changes in the historical loss rates. In addition, adjustments to the loan portfolio segmentation used within the allowance for loan losses calculation impacted provision expense.

Mortgage Banking

For the three months ended June 30, 2020, the Mortgage Banking segment earned $10.9 million compared to $1.9 million in 2019.

Net interest income increased $1.5 million, which was the result of an increase of $1.5 million in interest and fees on loans. The increase in interest and fees on loans was due to an increase of $153.8 million in average real estate loans.

Noninterest income increased by $17.6 million, primarily the result of an increase of $12.3 million in the gain on derivatives and an increase of $5.4 million in mortgage fee income. The increase in the gain on derivatives was largely the result of an increase of $4.4 million in the valuation of the open trades used to hedge the locked mortgage loan pipeline. The increase in mortgage fee income is driven by an increase of $451.4 million in mortgage loans sold for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Noninterest expense increased by $7.0 million, which was the result of an increase of $6.5 million in salaries and employee benefits expense, due to an increase in mortgage production volume, an increase of $174 thousand in mortgage processing expense, an increase of $146 thousand in other operating expenses, and an increase of $135 thousand in professional fees.

For the six months ended June 30, 2020, the Mortgage Banking segment earned $9.8 million compared to $2.2 million in 2019.

Net interest income increased by $2.0 million, which was the result of an increase of $2.4 million in interest and fees on loans, partially offset by an increase of $412 thousand in interest on FHLB and other borrowings. The increase in interest and fees on loans was primarily the result of an increase of $119.4 million in average real estate loans. The increase in interest on FHLB and other borrowings was due to an increase of $119.8 million in average borrowings.

Noninterest income increased by $18.2 million, primarily the result of an increase of $10.1 million in mortgage fee income and an increase of $8.3 million in the gain on derivatives. The increase in mortgage fee income was driven by an increase of $623.0 million in mortgage loans sold for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. The increase in the gain on derivatives of $8.3 million, was largely the result of a 212.0% increase in the locked mortgage pipeline for the six months ended June 30, 2020 compared to a 104.4% increase in the locked mortgage pipeline for the six months ended June 30, 2019.

Noninterest expense increased by $10.1 million, which was the result of an increase of $9.3 million in salaries and employees benefits expense, due to an increase in mortgage production volume, an increase of $382 thousand in professional fees, and an increase of $216 thousand in mortgage processing expense.

Financial Holding Company

Excluding discontinued operations, for the three months ended June 30, 2020, the Financial Holding Company segment lost $2.1 million compared to a loss of $1.7 million in 2019. Interest expense decreased $264 thousand, noninterest income increased $184 thousand, and noninterest expense increased $1.0 million. In addition, the income tax benefit increased $179 thousand. The decrease in interest expense was due to a $264 thousand decrease in interest on subordinated debt. The increase in noninterest income was primarily the result of an increase of $143 thousand in intercompany services income related to Regulation W and an increase of $39 thousand in the gain on sale of securities. The increase in noninterest expense was primarily the result of an increase of $883 thousand in salaries and employee benefits expense and an increase of $368 thousand in professional fees.

Excluding discontinued operations, for the six months ended June 30, 2020, excluding discontinued operations, the Financial Holding Company segment lost $3.6 million compared to a loss of $3.0 million in 2019. Interest expense decreased $514 thousand, noninterest income decreased $91 thousand, and noninterest expense increased $1.3 million. In addition, the income tax benefit increased $260 thousand. The decrease in interest expense was due to a $514 thousand decrease in interest on subordinated debt. The decrease in noninterest income was primarily the result of a decrease of $98 thousand in the holding gain on equity securities. The increase in noninterest expense was primarily the result of an increase of $1.1 million in salaries and employee benefits expense and an increase of $394 thousand in professional fees.