Note 9 – 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 is reorganizing MVB Insurance as a subsidiary of the Bank.

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


	Commercial &				Financial
Three months ended June 30, 2016	Retail		Mortgage		Holding				Intercompany
(in thousands)	Banking		Banking		Company		Insurance		Eliminations		Consolidated
Revenues:
Interest income	$	12,591	$	1,154	$	1	$	—	$	(166)	$	13,580
Mortgage fee income		(73)		9,750		—		—		(280)		9,397
Insurance and investment services income		122		—		—		—		—		122
Other income		1,404		1,157		1,252		—		(1,332)		2,481
Total operating income		14,044		12,061		1,253		—		(1,778)		25,580
Expenses:
Interest expense		2,159		572		553		—		(446)		2,838
Provision for loan losses		1,275		—		—		—		—		1,275
Salaries and employee benefits		2,899		7,430		1,406		—		—		11,735
Other expense		4,431		1,982		939		—		(1,332)		6,020
Total operating expenses		10,764		9,984		2,898		—		(1,778)		21,868
Income (loss) from continuing operations, before income taxes		3,280		2,077		(1,645)		—		—		3,712
Income tax expense (benefit) - continuing operations		1,012		800		(558)		—		—		1,254
Net income (loss) from continuing operations		2,268		1,277		(1,087)		—		—		2,458
Income (loss) from discontinued operations, before income taxes		—		—		6,926		(410)		—		6,516
Income tax expense (benefit) - discontinued operations		—		—		2,629		(154)		—		2,475
Net income (loss) from discontinued operations		—		—		4,297		(256)		—		4,041
Net income (loss)		2,268		1,277		3,210		(256)		—		6,499
Preferred stock dividends		—		—		314		—		—		314
Net income (loss) available to common shareholders	$	2,268	$	1,277	$	2,896	$	(256)	$	—	$	6,185

Capital expenditures for the three-month period ended June 30, 2016	$	404	$	114	$	106	$	—	$	—	$	624
Total assets as of June 30, 2016		1,477,737		156,334		160,168		—		(309,277)		1,484,962
Total assets as of December 31, 2015		1,378,988		125,227		151,441		5,017		(276,197)		1,384,476
Goodwill as of June 30, 2016		1,598		16,882		—		—		—		18,480
Goodwill as of December 31, 2015	$	1,598	$	16,882	$	—	$	—	$	—	$	18,480


	Commercial &				Financial
Three months ended June 30, 2015	Retail		Mortgage		Holding				Intercompany
(in thousands)	Banking		Banking		Company		Insurance		Eliminations		Consolidated
Revenues:
Interest income	$	9,718	$	1,137	$	—	$	—	$	(161)	$	10,694
Mortgage fee income		76		8,833		—		—		(292)		8,617
Insurance and investment services income		107		—		—		—		—		107
Other income		1,072		(88)		1,035		—		(1,096)		923
Total operating income		10,973		9,882		1,035		—		(1,549)		20,341
Expenses:
Interest expense		1,644		529		549		—		(454)		2,268
Provision for loan losses		561		—		—		—		—		561
Salaries and employee benefits		2,663		5,574		1,055		—		—		9,292
Other expense		3,812		1,888		648		—		(1,095)		5,253
Total operating expenses		8,680		7,991		2,252		—		(1,549)		17,374
Income (loss) from continuing operations, before income taxes		2,293		1,891		(1,217)		—		—		2,967
Income tax expense (benefit) - continuing operations		584		723		(419)		—		—		888
Net income (loss) from continuing operations		1,709		1,168		(798)		—		—		2,079
(Loss) from discontinued operations, before income taxes		—		—		—		(279)		—		(279)
Income tax (benefit) - discontinued operations		—		—		—		(105)		—		(105)
Net (loss) from discontinued operations		—		—		—		(174)		—		(174)
Net Income (loss)		1,709		1,168		(798)		(174)		—		1,905
Preferred stock dividends		—		—		143		—		—		143
Net income (loss) available to common shareholders	$	1,709	$	1,168	$	(941)	$	(174)	$	—	$	1,762

Capital expenditures for the three-month period ended June 30, 2015	$	424	$	71	$	214		2	$	—	$	711
Total assets as of June 30, 2015		1,248,697		139,767		142,260		4,321		(281,979)		1,253,066
Total assets as of December 31, 2014		1,048,101		101,791		141,645		4,031		(185,109)		1,110,459
Goodwill as of June 30, 2015		897		16,882		—		—		—		17,779
Goodwill as of December 31, 2014	$	897	$	16,882	$	—	$	—	$	—	$	17,779


	Commercial &				Financial
Six months ended June 30, 2016	Retail		Mortgage		Holding				Intercompany
(in thousands)	Banking		Banking		Company		Insurance		Eliminations		Consolidated
Revenues:
Interest income	$	25,055	$	2,095	$	1	$	—	$	(189)	$	26,962
Mortgage fee income		(95)		16,859		—		—		(582)		16,182
Insurance and investment services income		175		—		—		—		—		175
Other income		2,474		1,835		2,866		—		(2,921)		4,254
Total operating income		27,609		20,789		2,867		—		(3,692)		47,573
Expenses:
Interest expense		4,199		991		1,105		—		(770)		5,525
Provision for loan losses		1,900		—		—		—		—		1,900
Salaries and employee benefits		5,730		13,142		3,172		—		—		22,044
Other expense		8,904		3,925		1,703		—		(2,922)		11,610
Total operating expenses		20,733		18,058		5,980		—		(3,692)		41,079
Income (loss) from continuing operations, before income taxes		6,876		2,731		(3,113)		—		—		6,494
Income tax expense (benefit) - continuing operations		2,150		1,058		(1,074)		—		—		2,134
Net income (loss) from continuing operations		4,726		1,673		(2,039)		—		—		4,360
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)		4,726		1,673		2,258		(362)		—		8,295
Preferred stock dividends				—		500		—		—		500
Net income (loss) available to common shareholders	$	4,726	$	1,673	$	1,758	$	(362)	$	—	$	7,795

Capital expenditures for the six-month period ended June 30, 2016	$	952	$	155	$	167	$	—	$	—	$	1,274
Total assets as of June 30, 2016		1,477,737		156,334		160,168		—		(309,277)		1,484,962
Total assets as of December 31, 2015		1,378,988		125,227		151,441		5,017		(276,197)		1,384,476
Goodwill as of June 30, 2016		1,598		16,882		—		—		—		18,480
Goodwill as of December 31, 2015	$	1,598	$	16,882	$	—	$	—	$	—	$	18,480


	Commercial &				Financial
Six months ended June 30, 2015	Retail		Mortgage		Holding				Intercompany
(in thousands)	Banking		Banking		Company		Insurance		Eliminations		Consolidated
Revenues:
Interest income	$	18,621	$	1,966	$	1	$	—	$	(256)	$	20,332
Mortgage fee income		63		15,385		—		—		(522)		14,926
Insurance and investment services income		178		—		—		—		—		178
Other income		1,839		2,600		2,193		—		(2,316)		4,316
Total operating income		20,701		19,951		2,194		—		(3,094)		39,752
Expenses:
Interest expense		3,142		903		1,092		—		(778)		4,359
Provision for loan losses		1,220		—		—		—		—		1,220
Salaries and employee benefits		5,441		10,664		2,035		—		—		18,140
Other expense		7,940		3,581		1,083		—		(2,316)		10,288
Total operating expenses		17,743		15,148		4,210		—		(3,094)		34,007
Income (loss) from continuing operations, before income taxes		2,958		4,803		(2,016)		—		—		5,745
Income tax expense (benefit) - continuing operations		751		1,838		(683)		—		—		1,906
Net income (loss) from continuing operations		2,207		2,965		(1,333)		—		—		3,839
Income from discontinued operations, before income taxes		—		—		—		275		—		275
Income tax expense - discontinued operations		—		—		—		106		—		106
Net income from discontinued operations		—		—		—		169		—		169
Net Income (loss)		2,207		2,965		(1,333)		169		—		4,008
Preferred stock dividends		—		—		285		—		—		285
Net income (loss) available to common shareholders	$	2,207	$	2,965	$	(1,618)	$	169	$	—	$	3,723

Capital expenditures for the six-month period ended June 30, 2015	$	773	$	99	$	224	$	9	$	—	$	1,105
Total assets as of June 30, 2015		1,248,697		139,767		142,260		4,321		(281,979)		1,253,066
Total assets as of December 31, 2014		1,048,101		101,791		141,645		4,031		(185,109)		1,110,459
Goodwill as of June 30, 2015		897		16,882		—		—		—		17,779
Goodwill as of December 31, 2014	$	897	$	16,882	$	—	$	—	$	—	$	17,779

Commercial & Retail Banking

For the three months ended June 30, 2016, the Commercial & Retail Banking segment earned $2.3 million compared to $1.7 million during the three months ended June 30, 2015. Net interest income increased $2.4 million, mainly the result of average loan balances increasing by $233.2 million. In addition, average interest bearing liabilities increased $228.4 million which led to a $515 thousand increase in interest expense. Noninterest income increased by $198 thousand, largely the result of an increase in gain on sale of securities of $218 thousand and a $47 thousand expense reduction due to the mark to market valuation of the interest rate cap. Noninterest expense increased $855 thousand, largely the result of a $176 increase in other operating expense, a $166 thousand increase in occupancy and equipment, a $236 thousand increase in salaries and employee benefits, and a $284 thousand increase in data processing and communications. In addition, income tax expense increased $428 thousand due to the increase in earnings.

For the six months ended June 30, 2016, the Commercial & Retail Banking segment earned $4.7 million compared to $2.2 million during the six months ended June 30, 2015. Net interest income increased $5.4 million, mainly the result of average loan balances increasing by $229.9 million. In addition, average interest bearing liabilities increased $224.2 million which led to a $1.1 million increase in interest expense. Noninterest income increased by $474 thousand, largely the result of an increase in gain on sale of securities of $407 thousand and a $115 thousand expense increase due to the mark to market valuation of the interest rate cap. Noninterest expense increased $1.3 million, largely the result of a $367 thousand increase in other operating expense and a $329 thousand increase in occupancy and equipment. In addition, income tax expense increased $1.4 million due to the increase in earnings.

Mortgage Banking

For the three months ended June 30, 2016, the Mortgage Banking segment earned $1.3 million compared to $1.2 million during the three months ended June 30, 2015. Net interest income decreased $26 thousand, noninterest income increased by $2.2 million and noninterest expense increased by $1.9 million. The $109 thousand earnings increase is largely due to a $1.2 million increase in gains related to the mark to market valuation of the interest rate lock commitments driven by a 3% increase in the locked mortgage loan pipeline for the three months ended June 30, 2016 compared to a 10% decrease in the locked mortgage pipeline for the three months ended June 30, 2015. In addition, loans held for sale increased from $116.3 million at June 30, 2015 to $131.7 million at June 30, 2016. Mortgage fee income also increased by $917 thousand. Personnel expense increased by $1.9 million and income tax expense increased $77 thousand due to the increase in earnings.

For the six months ended June 30, 2016, the Mortgage Banking segment earned $1.7 million compared to $3.0 million during the six months ended June 30, 2015. Net interest income increased $41 thousand, noninterest income increased by $709 thousand and noninterest expense increased by $2.8 million. The $1.3 million earnings decrease is largely due to a $789 thousand decrease in gains related to the mark to market valuation of the interest rate lock commitments driven by a 55% increase in the locked mortgage loan pipeline for the six months ended June 30, 2016 compared to a 73% increase in the locked mortgage pipeline for the six months ended June 30, 2015. In addition, loans held for sale increased from $116.3 million at June 30, 2015 to $131.7 million at June 30, 2016. Mortgage fee income also increased by $1.5 million. Personnel expense increased by $2.5 million and mortgage processing expense increased by $118 thousand. In addition, income tax expense decreased $780 thousand due to the decrease in earnings.

Financial Holding Company

Excluding discontinued operations, for the three months ended June 30, 2016, the Financial Holding Company segment lost $1.1 million compared to a loss of $798 thousand during the three months ended June 30, 2015. Interest expense increased $4 thousand, noninterest income increased $217 thousand and noninterest expense increased $642 thousand. In addition, the income tax (benefit) increased $139 thousand. The increase in noninterest income was mainly due to a $217 thousand increase in other operating income. The increase in noninterest expense was largely due to a $351 thousand increase in salaries and employee benefits and a $189 thousand increase in professional fees.

Excluding discontinued operations, for the six months ended June 30, 2016, the Financial Holding Company segment lost $2.0 million compared to a loss of $1.3 million during the six months ended June 30, 2015. Interest expense increased $13 thousand, noninterest income increased $673 thousand and noninterest expense increased $1.8 million. In addition, the income tax (benefit) increased $391 thousand. The increase in noninterest income was mainly due to a $602 thousand increase in other operating income and a $70 thousand increase in gain on sale of securities. The increase in noninterest expense was largely due to a $1.1 million increase in salaries and employee benefits, including a $500 thousand reorganization expense, and a $359 thousand increase in professional fees.

Insurance

For the three months ended June 30, 2016, the discontinued insurance segment lost $256 thousand compared to a $174 thousand loss during the three months ended June 30, 2015. Income tax benefit for the second quarter 2016 increased by $49 thousand.

For the six months ended June 30, 2016, the discontinued insurance segment lost $362 thousand compared to a $169 thousand profit during the six months ended June 30, 2015. Income tax benefit for the six months ended June 30, 2016 increased by $324 thousand.