~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

☐ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission File Number: 000-50567

MVB Financial Corp.

(Exact name of registrant as specified in its charter)

West Virginia

20-0034461

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

301 Virginia Avenue, Fairmont, WV

26554

(Address of principal executive offices)

(Zip Code)

(304) 363-4800

(Registrant’s telephone number, including area ~~code~~code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $1.00 par value

MVBF

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:

As of ~~October~~April 27, ~~2019,~~2020, the Registrant had ~~11,824,449~~11,949,767 shares of common stock outstanding with a par value of $1.00 per share.

~~Table of Contents~~

TABLE OF CONTENTS

~~Table of Contents~~

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(Unaudited) (Dollars in thousands except per share data)


		September 30, 2019		December 31, 2018			March 31, 2020		December 31, 2019
		(Unaudited)		(Note 1)			(Unaudited)		(Note 1)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Cash and due from banks	Cash and due from banks	$	22,853	$	14,747	Cash and due from banks	$	25,670	$	18,430
Interest bearing balances with banks	Interest bearing balances with banks	13,715		7,474		Interest bearing balances with banks	63,204		9,572
Total cash and cash equivalents	Total cash and cash equivalents	36,568		22,221		Total cash and cash equivalents	88,874		28,002
Certificates of deposit with other banks	Certificates of deposit with other banks	13,541		14,778		Certificates of deposit with other banks	12,549		12,549
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	226,064		221,614		Investment securities available-for-sale, at fair value	223,101		235,821
Equity securities	Equity securities	18,414		9,599		Equity securities	19,026		18,514
Loans held for sale	Loans held for sale	159,961		75,807		Loans held for sale	186,128		109,788
Loans:	Loans:	1,382,375		1,304,366		Loans:	1,396,578		1,374,541
Less: Allowance for loan losses	Less: Allowance for loan losses	(11,874)		(10,939)		Less: Allowance for loan losses	(11,161)		(11,775)
Net Loans	Net Loans	1,370,501		1,293,427		Net Loans	1,385,417		1,362,766
Premises and equipment, net	Premises and equipment, net	25,446		26,545		Premises and equipment, net	22,329		21,974
Bank owned life insurance	Bank owned life insurance	34,576		34,291		Bank owned life insurance	35,597		35,374
Accrued interest receivable and other assets	Accrued interest receivable and other assets	57,251		34,207		Accrued interest receivable and other assets	67,892		53,142
Assets of branches held for sale (See Footnote 1)						Assets of branches held for sale (See Footnote 1)	39,137		46,554
Goodwill	Goodwill	19,630		18,480		Goodwill	19,630		19,630
TOTAL ASSETS	TOTAL ASSETS	$	1,961,952	$	1,750,969	TOTAL ASSETS	$	2,099,680	$	1,944,114

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest bearing	Noninterest bearing	$	274,970	$	213,597	Noninterest bearing	$	387,536	$	278,547
Interest bearing	Interest bearing	1,181,434		1,095,557		Interest bearing	1,210,703		986,495
Total deposits	Total deposits	1,456,404		1,309,154		Total deposits	1,598,239		1,265,042

Deposits of branches held for sale (See Footnote 1)						Deposits of branches held for sale (See Footnote 1)	187,807		188,270
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	44,083		17,706		Accrued interest payable and other liabilities	58,196		41,685
Repurchase agreements	Repurchase agreements	9,460		14,925		Repurchase agreements	9,346		10,172
FHLB and other borrowings	FHLB and other borrowings	241,641		214,887		FHLB and other borrowings	30,815		222,885
Subordinated debt	Subordinated debt	4,124		17,524		Subordinated debt	4,124		4,124
Total liabilities	Total liabilities	1,755,712		1,574,196		Total liabilities	1,888,527		1,732,178

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
Preferred stock, par value $1,000; 20,000 authorized; 733 issued in 2019 and 783 issued in 2018, respectively (See Footnote 7)		7,334		7,834
Common stock, par value $1; 20,000,000 shares authorized; 11,865,426 shares issued and 11,814,349 shares outstanding in 2019 and 11,658,370 shares issued and 11,607,293 shares outstanding in 2018		11,865		11,658
Preferred stock, par value $1,000; 20,000 authorized; 733 issued in 2020 and 2019, respectively (See Footnote 7)						Preferred stock, par value $1,000; 20,000 authorized; 733 issued in 2020 and 2019, respectively (See Footnote 7)	7,334		7,334
Common stock, par value $1; 20,000,000 shares authorized; 11,997,866 shares issued and 11,930,489 shares outstanding in 2019 and 11,995,366 shares issued and 11,944,289 shares outstanding in 2019						Common stock, par value $1; 20,000,000 shares authorized; 11,997,866 shares issued and 11,930,489 shares outstanding in 2019 and 11,995,366 shares issued and 11,944,289 shares outstanding in 2019	11,998		11,995
Additional paid-in capital	Additional paid-in capital	120,918		116,897		Additional paid-in capital	123,049		122,516
Retained earnings	Retained earnings	69,349		48,274		Retained earnings	72,354		72,496
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,142)		(6,806)		Accumulated other comprehensive loss	(2,238)		(1,321)
Treasury stock, 51,077 shares, at cost		(1,084)		(1,084)
Treasury stock, 67,377 shares in 2020 and 51,077 shares in 2019, at cost						Treasury stock, 67,377 shares in 2020 and 51,077 shares in 2019, at cost	(1,344)		(1,084)
Total stockholders’ equity	Total stockholders’ equity	206,240		176,773		Total stockholders’ equity	211,153		211,936
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,961,952	$	1,750,969	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,099,680	$	1,944,114

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

(Unaudited) (Dollars in thousands except per share data)

Nine Months Ended September 30 Three Months Ended September 30
2019 2018 2019 2018
INTEREST INCOME
     Interest and fees on loans $ 55,469 $ 44,777 $ 19,238 $ 16,364
     Interest on deposits with other banks 379 284 132 103
     Interest on investment securities - taxable 2,336 2,655 689 869
     Interest on tax exempt loans and securities 2,947 2,458 979 840
     Total interest income 61,131 50,174 21,038 18,176
INTEREST EXPENSE
     Interest on deposits 13,124 7,938 4,453 3,110
     Interest on repurchase agreements 37 49 12 10
     Interest on FHLB and other borrowings 3,707 3,110 1,383 1,199
     Interest on subordinated debt 728 1,433 156 333
     Total interest expense 17,596 12,530 6,004 4,652
NET INTEREST INCOME 43,535 37,644 15,034 13,524
     Provision for loan losses 1,557 2,148 657 1,069
     Net interest income after provision for loan losses 41,978 35,496 14,377 12,455
NONINTEREST INCOME
     Service charges on deposit accounts 985 741 337 275
     Income on bank owned life insurance 973 958 224 520
     Interchange and debit card transaction fees 472 459 150 167
     Mortgage fee income 28,030 24,634 11,496 9,008
     Gain on sale of portfolio loans 228 217 50 5
     Insurance and investment services income 502 540 179 199
     (Loss) gain on sale of available-for-sale securities, net (179) 327 (11) 1
     (Loss) on sale of equity securities, net (7) — — —
     Gain (loss) on derivatives, net 2,689 509 1,108 (728)
     Commercial swap fee income 1,146 419 628 6
     Holding gain on equity securities 13,767 583 — 623
     Other operating income 1,242 958 535 435
     Total noninterest income 49,848 30,345 14,696 10,511
NONINTEREST EXPENSES
     Salary and employee benefits 40,452 34,487 15,438 11,520
     Occupancy expense 3,454 3,178 1,103 1,049
     Equipment depreciation and maintenance 2,689 2,439 931 834
     Data processing and communications 3,025 2,735 1,068 938
     Mortgage processing 2,253 2,751 728 867
     Marketing, contributions, and sponsorships 945 966 437 271
     Professional fees 3,025 2,548 1,316 1,015
     Printing, postage, and supplies 481 597 174 198
     Insurance, tax, and assessment expense 1,410 1,333 418 487
     Travel, entertainment, dues, and subscriptions 2,719 1,991 1,125 712
     Other operating expenses 1,765 1,380 642 526
     Total noninterest expense 62,218 54,405 23,380 18,417
Income from continuing operations, before income taxes 29,608 11,436 5,693 4,549
Income tax expense - continuing operations 7,139 2,432 1,347 970
Net income from continuing operations $ 22,469 $ 9,004 $ 4,346 $ 3,579
Income (loss) from discontinued operations, before income taxes 575 — (25) —
Income tax expense (benefit) - discontinued operations 148 — (6) —
Net income (loss) from discontinued operations $ 427 $ — $ (19) $ —
Net income $ 22,896 $ 9,004 $ 4,327 $ 3,579
Preferred dividends 364 366 121 123
Net income available to common shareholders 22,532 8,638 4,206 3,456

Earnings per share from continuing operations - basic $ 1.89 $ 0.80 $ 0.36 $ 0.30
Earnings per share from discontinued operations - basic $ 0.04 $ — $ — $ —
Earnings per share - basic $ 1.93 $ 0.80 $ 0.36 $ 0.30
Earnings per share from continuing operations - diluted $ 1.84 $ 0.77 $ 0.35 $ 0.29
Earnings per share from discontinued operations - diluted $ 0.04 $ — $ — $ —
Earnings per share - diluted $ 1.88 $ 0.77 $ 0.35 $ 0.29
Cash dividends declared - common shares $ 0.125 $ 0.080 $ 0.050 $ 0.030
Weighted average shares outstanding - basic 11,661,581 10,845,166 11,731,774 11,416,202
Weighted average shares outstanding - diluted 11,957,385 11,690,314 12,098,335 13,113,259


	Three Months Ended March 31
	2020		2019
INTEREST INCOME
Interest and fees on loans	$	18,939	$	17,662
Interest on deposits with other banks	111		122
Interest on investment securities - taxable	666		879
Interest on tax exempt loans and securities	983		960
Total interest income	20,699		19,623

INTEREST EXPENSE
Interest on deposits	3,910		4,123
Interest on repurchase agreements	10		14
Interest on FHLB and other borrowings	573		1,229
Interest on subordinated debt	35		285
Total interest expense	4,528		5,651

NET INTEREST INCOME	16,171		13,972
Provision for loan losses	1,138		300
Net interest income after provision for loan losses	15,033		13,672

NONINTEREST INCOME
Service charges on deposit accounts	450		315
Income on bank owned life insurance	223		525
Interchange and debit card transaction fees	100		141
Mortgage fee income	11,219		6,670
Gain on sale of portfolio loans	130		55
Insurance and investment services income	207		156
Gain (loss) on sale of available-for-sale securities, net	276		(118)

(Loss) gain on derivatives, net	(3,562)		450
Commercial swap fee income	320		80
Holding gain on equity securities	14		180
Compliance consulting income	1,009		—
Other operating income	464		311
Total noninterest income	10,850		8,765

NONINTEREST EXPENSES
Salary and employee benefits	16,182		11,734
Occupancy expense	1,220		1,185
Equipment depreciation and maintenance	877		854
Data processing and communications	1,163		988
Mortgage processing	851		809
Marketing, contributions, and sponsorships	336		214
Professional fees	1,331		828
Printing, postage, and supplies	177		135
Insurance, tax, and assessment expense	464		505
Travel, entertainment, dues, and subscriptions	1,218		690
Other operating expenses	837		506
Total noninterest expense	24,656		18,448
Income before income taxes	1,227		3,989
Income tax expense	179		797
Net income	1,048		3,192
Preferred dividends	114		121
Net income available to common shareholders	$	934	$	3,071

Earnings per share - basic	$	0.08	$	0.26
Earnings per share - diluted	$	0.08	$	0.26
Weighted average shares outstanding - basic	11,942,767		11,607,543
Weighted average shares outstanding - diluted	12,298,092		13,177,281

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) (Dollars in thousands)


		Nine Months Ended September 30						Three Months Ended September 30							Three Months Ended March 31
		2019		2018		2019		2018			2020		2019
Net Income	Net Income	$	22,896	$	9,004	$	4,327	$	3,579	Net Income	$	1,048	$	3,192

Other comprehensive income (loss):
Other comprehensive (loss) income:										Other comprehensive (loss) income:

Unrealized holding gains (losses) on securities available-for-sale		7,913		(7,455)		1,362		(2,119)
Unrealized holding gains on securities available-for-sale										Unrealized holding gains on securities available-for-sale	1,414		1,859

Income tax effect	Income tax effect	(2,137)		2,012		(368)		571		Income tax effect	(382)		(502)

Reclassification adjustment for loss (gain) recognized in income		179		(327)		11		(1)
Reclassification adjustment for (gain) loss recognized in income										Reclassification adjustment for (gain) loss recognized in income	(276)		118

Income tax effect	Income tax effect	(48)		88		(2)		—		Income tax effect	75		(32)

Change in defined benefit pension plan	Change in defined benefit pension plan	(1,541)		972		(829)		200		Change in defined benefit pension plan	(706)		(332)

Income tax effect	Income tax effect	416		(262)		224		(54)		Income tax effect	190		90

Carrying value adjustment - investment hedge		(162)		—		(36)		—
Reclassification adjustment for amortization of net actuarial loss recognized in income										Reclassification adjustment for amortization of net actuarial loss recognized in income	105		68

Income tax effect	Income tax effect	44		—		10		—		Income tax effect	(28)		(18)

Total other comprehensive income (loss)		4,664		(4,972)		372		(1,403)
Reclassification adjustment for carrying value adjustment - investment hedge recognized in income										Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	(1,793)		(458)

Income tax effect										Income tax effect	484		124

Total other comprehensive (loss) income										Total other comprehensive (loss) income	(917)		917

Comprehensive income	Comprehensive income	$	27,560	$	4,032	$	4,699	$	2,176	Comprehensive income	$	131	$	4,109

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited) (Dollars in thousands except per share data)

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Stock Total Stockholders' Equity
Balance at January 1, 2019 7,834 11,658 116,897 48,274 (6,806) (1,084) 176,773
Net Income — — — 22,896 — — 22,896
Other comprehensive income — — — — 4,664 — 4,664
Cash dividends paid ($0.125 per common share) — — — (1,457) — — (1,457)
Dividends on preferred stock — — — (364) — — (364)
Stock based compensation — — 1,319 — — — 1,319
Common stock options exercised — 80 796 — — — 876
Restricted stock units vested — 10 (10) — — — —
Common stock issued from subordinated debt conversion, net of costs — 62 938 — — — 1,000
Common stock issued related to Chartwell acquisition (See Note 16) — 55 978 — — — 1,033
Preferred stock redemption (500) — — — — — (500)
Balance at September 30, 2019 $ 7,334 $ 11,865 $ 120,918 $ 69,349 $ (2,142) $ (1,084) $ 206,240
Balance at June 30, 2019 $ 7,834 $ 11,764 $ 118,948 $ 65,728 $ (2,514) $ (1,084) $ 200,676
Net Income — — — 4,327 — — 4,327
Other comprehensive income — — — 372 — 372
Cash dividends paid ($0.05 per common share) — — — (585) — — (585)
Dividends on preferred stock — — — (121) — — (121)
Stock based compensation — — 493 — — — 493
Common stock options exercised — 46 499 — — — 545
Restricted stock units vested — — — — — — —
Common stock issued from subordinated debt conversion, net of costs — — — — — — —
Common stock issued related to Chartwell acquisition (See Note 16) — 55 978 — — — 1,033
Preferred stock redemption (500) — — — — — (500)
Balance at September 30, 2019 $ 7,334 $ 11,865 $ 120,918 $ 69,349 $ (2,142) $ (1,084) $ 206,240
Balance at January 1, 2018 $ 7,834 $ 10,496 $ 98,698 $ 37,236 $ (2,988) $ (1,084) $ 150,192
Net Income — — — 9,004 — — 9,004
Other comprehensive loss — — — — (4,972) — (4,972)
Cash dividends paid ($0.08 per common share) — — — (873) — — (873)
Dividends on preferred stock — — — (366) — — (366)
Stock based compensation — — 920 — — — 920
Common stock options exercised — 153 1,853 — — — 2,006
Stranded AOCI (See Note 2) — — — 646 (646) — —
Mark to Market on equity positions held at December 31, 2017 (See Note 2) — — — 98 (98) — —
Restricted stock units vested — 1 (1) — — — 0
Common stock issued from subordinated debt conversion, net of costs — 938 14,027 — — — 14,965
Balance at September 30, 2018 $ 7,834 $ 11,588 $ 115,497 $ 45,745 $ (8,704) $ (1,084) $ 170,876
Balance at June 30, 2018 $ 7,834 $ 11,389 $ 112,321 $ 42,636 $ (7,301) $ (1,084) $ 165,795
Net Income — — — 3,579 — — 3,579
Other comprehensive loss — — — — (1,403) — (1,403)
Cash dividends paid ($0.03 per common share) — — — (347) — — (347)
Dividends on preferred stock — — — (123) — — (123)
Stock based compensation — — 394 — — — 394
Common stock options exercised — 56 653 — — — 709
Restricted stock units vested 1 (1) — —
Common stock issued from subordinated debt conversion, net of costs — 142 2,130 — — — 2,272
Balance at September 30, 2018 $ 7,834 $ 11,588 $ 115,497 $ 45,745 $ (8,704) $ (1,084) $ 170,876


	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance at December 31, 2018	7,834		11,658		116,897		48,274		(6,806)		(1,084)		176,773

Net Income	—		—		—		3,192		—		—		3,192
Other comprehensive income	—		—		—		—		917		—		917
Cash dividends paid ($0.035 per common share)	—		—		—		(408)		—		—		(408)
Dividends on preferred stock	—		—		—		(121)		—		—		(121)
Stock based compensation	—		—		425		—		—		—		425
Common stock options exercised	—		8		86		—		—		—		94

Balance at March 31, 2019	$	7,834	$	11,666	$	117,408	$	50,937	$	(5,889)	$	(1,084)	$	180,872

Balance at December 31, 2019	$	7,334	$	11,995	$	122,516	$	72,496	$	(1,321)	$	(1,084)	$	211,936

Net Income	—		—		—		1,048		—		—		1,048
Other comprehensive loss	—		—		—		—		(917)		—		(917)
Cash dividends paid ($0.09 per common share)	—		—		—		(1,076)		—		—		(1,076)
Dividends on preferred stock	—		—		—		(114)		—		—		(114)
Stock based compensation	—		—		498		—		—		—		498
Common stock options exercised	—		3		35		—		—		—		38

Common stock repurchased	—		—		—		—		—		(260)		(260)

Balance at March 31, 2020	$	7,334	$	11,998	$	123,049	$	72,354	$	(2,238)	$	(1,344)	$	211,153

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


		Nine Months Ended September 30,							Three Months Ended March 31,
		2019		2018			2020		2019
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net Income	Net Income	$	22,896	$	9,004	Net Income	$	1,048	$	3,192
Adjustments to reconcile net income to net cash (used in) provided by operating activities:	Adjustments to reconcile net income to net cash (used in) provided by operating activities:					Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net amortization and accretion of investments	Net amortization and accretion of investments	917		994		Net amortization and accretion of investments	302		280
Net amortization of deferred loan costs	Net amortization of deferred loan costs	190		105		Net amortization of deferred loan costs	114		72
Provision for loan losses	Provision for loan losses	1,557		2,148		Provision for loan losses	1,138		300
Depreciation and amortization	Depreciation and amortization	2,346		2,210		Depreciation and amortization	908		759
Stock based compensation	Stock based compensation	1,319		920		Stock based compensation	498		425
Loans originated for sale	Loans originated for sale	(1,151,918)		(933,134)		Loans originated for sale	(484,989)		(239,160)
Proceeds of loans sold	Proceeds of loans sold	1,095,794		960,856		Proceeds of loans sold	419,868		255,682
Mortgage fee income	Mortgage fee income	(28,030)		(24,634)		Mortgage fee income	(11,219)		(6,670)
Gain on sale of available-for-sale securities	Gain on sale of available-for-sale securities	(80)		(352)		Gain on sale of available-for-sale securities	(276)		(33)
Loss on sale of available-for-sale securities	Loss on sale of available-for-sale securities	259		25		Loss on sale of available-for-sale securities	—		151

Loss on sale of equity securities		7		—

Gain on sale of portfolio loans	Gain on sale of portfolio loans	(228)		(217)		Gain on sale of portfolio loans	(130)		(55)
Income on bank owned life insurance	Income on bank owned life insurance	(973)		(958)		Income on bank owned life insurance	(223)		(525)
Deferred taxes	Deferred taxes	(4,214)		263		Deferred taxes	(929)		21
Amortization of operating lease right-of-use asset	Amortization of operating lease right-of-use asset	56		—		Amortization of operating lease right-of-use asset	8		20
Holding (gain) on equity securities		(13,767)		(583)
Other, net		8,088		(3,473)
Holding gain on equity securities						Holding gain on equity securities	(14)		(180)
Changes in other assets						Changes in other assets	(18,839)		(16,801)
Changes in other liabilities						Changes in other liabilities	14,116		15,447
Net cash (used in) provided by operating activities	Net cash (used in) provided by operating activities	(65,781)		13,174		Net cash (used in) provided by operating activities	(78,619)		12,925
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of investment securities available-for-sale	Purchases of investment securities available-for-sale	(52,892)		(19,742)		Purchases of investment securities available-for-sale	(16,325)		(20,400)
Maturities/paydowns of investment securities available-for-sale	Maturities/paydowns of investment securities available-for-sale	29,287		16,283		Maturities/paydowns of investment securities available-for-sale	18,990		5,236
Sales of investment securities available-for-sale	Sales of investment securities available-for-sale	26,996		2,794		Sales of investment securities available-for-sale	10,318		13,694
Purchases of premises and equipment		(1,134)		(2,164)
Net increase in loans		(78,593)		(190,994)
Purchases of premises & equipment, including premises & equipment included in assets of branches held for sale						Purchases of premises & equipment, including premises & equipment included in assets of branches held for sale	(1,384)		(115)
Net increase in loans and loans included in assets of branches held for sale						Net increase in loans and loans included in assets of branches held for sale	(16,063)		(36,866)
Purchases of restricted bank stock	Purchases of restricted bank stock	(34,507)		(17,750)		Purchases of restricted bank stock	(7,439)		(6,119)
Redemptions of restricted bank stock	Redemptions of restricted bank stock	31,604		17,550		Redemptions of restricted bank stock	13,414		8,352
Proceeds from sale of certificates of deposit with banks		1,237		—

Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	731		362		Proceeds from sale of other real estate owned	52		97
Proceeds from death benefit of bank owned life insurance policies	Proceeds from death benefit of bank owned life insurance policies	688		706		Proceeds from death benefit of bank owned life insurance policies	—		688
Purchase of equity securities	Purchase of equity securities	(1,300)		(2,000)		Purchase of equity securities	(498)		(450)
Sales of equity securities		5,968		—
Net cash used in business combination		(2,651)		—
Net cash used in investing activities		(74,566)		(194,955)

Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	1,065		(35,883)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Net increase in deposits		147,250		219,606
Net increase in deposits and deposits in branches held for sale						Net increase in deposits and deposits in branches held for sale	332,734		121,505
Net decrease in repurchase agreements	Net decrease in repurchase agreements	(5,465)		(6,648)		Net decrease in repurchase agreements	(826)		(2,372)
Net change in short-term FHLB & other borrowings		28,416		(67,909)
Principal payments on FHLB & other borrowings		(1,662)		(12,260)
Proceeds from new FHLB & other borrowings		—		50,000
Subordinated debt redemption		(12,400)		—
Subordinated debt conversion		—		(35)
Net change in FHLB & other borrowings						Net change in FHLB & other borrowings	(192,070)		(100,003)

Preferred stock redemption		(500)		—

Common stock options exercised	Common stock options exercised	876		2,006		Common stock options exercised	38		94
Common stock repurchased						Common stock repurchased	(260)		—
Cash dividends paid on common stock	Cash dividends paid on common stock	(1,457)		(873)		Cash dividends paid on common stock	(1,076)		(408)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(364)		(366)		Cash dividends paid on preferred stock	(114)		(121)
Net cash provided by financing activities	Net cash provided by financing activities	154,694		183,521		Net cash provided by financing activities	138,426		18,695
Increase in cash and cash equivalents		14,347		1,740
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	60,872		(4,263)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	22,221		20,305		Cash and cash equivalents at beginning of period	28,002		22,221
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	36,568	$	22,045	Cash and cash equivalents at end of period	$	88,874	$	17,958
Business comindation non-cash disclosures:
Assets acquired in business combination (net of cash received)		$	3,389	$	—
Liabilities assumed in business combination		855		—

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Loans transferred to other real estate owned	Loans transferred to other real estate owned	$	79	$	720	Loans transferred to other real estate owned	$	23	$	63
Initial recognition of operating lease right-of-use assets	Initial recognition of operating lease right-of-use assets	12,935		—		Initial recognition of operating lease right-of-use assets	—		12,935
Initial recognition of operating lease liabilities	Initial recognition of operating lease liabilities	15,659		—		Initial recognition of operating lease liabilities	—		15,659
Cashless stock options exercised	Cashless stock options exercised	—		153		Cashless stock options exercised	35		—
Restricted stock units vested		10		1
Common stock converted from subordinated debt		1,000		15,000

Cash payments for:	Cash payments for:					Cash payments for:
Interest on deposits, repurchase agreements and borrowings	Interest on deposits, repurchase agreements and borrowings	$	19,387	$	13,607	Interest on deposits, repurchase agreements and borrowings	$	5,511	$	6,136
Income taxes		2,536		107

See accompanying notes to unaudited consolidated financial statements.

Notes to the Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies

Nature of Operations

MVB Financial Corp. (“the Company”) is a financial holding company and was organized in 2003. MVB operates principally through its ~~wholly-owned~~wholly owned subsidiary, MVB Bank, Inc. (“MVB Bank” or the “Bank”). MVB Bank’s operating subsidiaries include Potomac Mortgage Group (“PMG” which began doing business under the registered trade name “MVB Mortgage”), MVB Insurance, LLC (“MVB Insurance”), MVB Community Development Corporation (“MVB CDC”), and ProCo Global, Inc. (“ProCo” which began doing business under the registered trade name Chartwell Compliance “Chartwell”).

Principles of Consolidation and Basis of Presentation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for annual year-end financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. The consolidated balance sheet as of December 31, ~~2018~~2019 has been derived from audited financial statements included in the Company’s ~~2018~~2019 filing on Form 10-K. Operating results for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States and practices in the banking industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates, such as the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and circumstances change. Actual results could differ from those estimates. All significant inter-company accounts and transactions have been eliminated in consolidation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s December 31, ~~2018,~~2019, Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation.

Information is presented in these notes with dollars expressed in thousands, unless otherwise noted or specified.

~~Accounting Changes~~Assets and Liabilities of Branches Held for Sale

On ~~January 1,~~November 21, 2019, the Company ~~adopted ASU 2016-02,~~ ~~Leases (Topic 842). This pronouncement requires that lessees~~entered into a Purchase and ~~lessors recognize lease~~Assumption Agreement with Summit Community Bank, Inc., a subsidiary of Summit Financial Group, Inc. pursuant to which Summit will purchase certain assets and ~~lease~~assume certain liabilities onof 3 branch locations in Berkeley County, WV and 1 branch location in Jefferson County, WV. Pursuant to the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or asterms of the ~~beginning of the period of adoption~~Purchase Agreement, Summit has agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, real property, personal property, and other fixed assets associated with the ~~option to elect certain practical expedients.~~branch locations. The Company adopted ASU 2016-02 as of the beginning of the period (January 1, 2019) and has not restated comparative periods. Of the optional practical expedients available under ASU 2016-02, all have been adopted. Upon adoption, the Company recognized right-of-use assets and related lease liabilities totaling $12.9 million and $15.7 million, respectively.closed this transaction on April 24, 2020.

Certain of the Company's leases contain options to renew the lease; however, some of these renewal options are not included in the calculation of the lease liabilities as they are not reasonably expectedAssets to be ~~exercised. The Company's leases do not contain residual value guarantees or material variable lease payments,~~acquired and ~~the Company does not have any material restrictions or covenants imposed by leases that would impact the Company's ability~~liabilities to ~~pay dividends or cause the Company to incur additional financial obligations.~~be assumed are summarized as follows:


(Dollars in thousands)	As of March 31, 2020,		As of December 31, 2019,
Loans	$	35,206	$	42,916
Premises and equipment, net	3,931		3,638
Assets of branches held for sale	$	39,137	$	46,554

Noninterest-bearing deposits	$	21,991	$	19,251
Interest-bearing deposits	165,816		169,019
Deposits of branches held for sale	$	187,807	$	188,270

~~The~~

Mortgage Business Combination

On March 2, 2020, the Bank and PMG (dba MVB Mortgage), entered into an Agreement by and among the Bank, PMG, Intercoastal Mortgage Company, ~~has made an accounting policy election~~a Virginia corporation (“Intercoastal”), and each of H. Edward Dean, III, Tom Pyne and Peter Cameron, providing for the combination of the mortgage origination services businesses of PMG and Intercoastal.

Pursuant to ~~not apply~~ the ~~recognition requirements in Topic 842~~terms of the Agreement, on the closing date, Intercoastal will convert into a Virginia limited liability company and PMG will contribute substantially all of its assets and liabilities associated with its mortgage operations to ~~short-term leases. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to include both lease and non-lease components~~Intercoastal as a ~~single component~~capital contribution, in exchange for common units of Intercoastal, representing 47% of the common interest of Intercoastal, as well as $7.5 million in preferred units (the “Transaction”). The completion of the Transaction is subject to certain regulatory approvals, conditions precedent and ~~account for~~normal customary closing conditions. Subject to the satisfaction of such conditions, the Transaction is expected to close in mid-2020. In the Agreement, the Bank, MVB Mortgage, and Intercoastal have made customary representations, warranties, and covenants, including covenants to enter into ancillary agreements related to the Transaction and the operation of the business following the completion of the Transaction. MVB will recognize its ownership as a ~~lease.~~fair value equity investment and will no longer consolidate MVB Mortgage’s financial results.

Coronavirus Disease (“COVID-19”) Pandemic

The ~~Company's leases are not complex; therefore, there were no significant assumptions~~consolidated financial statements contained in this Quarterly Report as well as the description of our business contained herein, unless otherwise indicated, principally reflect the status of our business and the results of our operations as of March 31, 2020. During 2020, economies throughout the world have been severely disrupted by the effects of the quarantines, business closures, and the reluctance of individuals to leave their homes as a result of the outbreak of COVID-19. The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or ~~judgments made~~protective actions that the Company or its customers may take in ~~applying the requirements~~respect of ~~Topic 842,~~this virus may result in a period of disruption, including the ~~determination of whether~~Company’s financial reporting capabilities, its operations generally and could potentially impact the ~~contracts contained a lease,~~Company’s customers, providers, and third parties. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the ~~allocation of consideration in the contracts between lease and non-lease components,~~business and the ~~determination~~Company’s financial condition and results of operations. The extent to which the ~~discount rates~~COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. Banking and financial services have been designated essential businesses; therefore, the Company’s operations are continuing. The Company is currently evaluating and quantifying the impact on its consolidated financial statements.

In response to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the ~~leases.~~employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company is currently evaluating the impact on its consolidated financial statements and has not yet quantified what material impacts to the financial statements (if any) may result from the CARES Act. The CARES Act also established the Paycheck Protection Program (“PPP”), to be administered by the U.S. Small Business Administration (“SBA”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. The PPP loan may be forgiven if the funds are used for payroll and other qualified expenses. The Company is actively participating with the PPP, evaluating other programs available to assist our clients, and providing consumer deferrals consistent with government-sponsored enterprise (“GSE”) guidelines.

Note 2 – Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirement for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The updates in this ASU are part of the disclosure framework project ASU 2018-14 and modify the disclosure requirements under ASC ~~715-201~~715-20 for employers that sponsor defined benefit pension or other postretirement plans. Those modifications include the removal, addition, and of disclosure requirements as well as clarifying specific disclosure requirements. The ASU removed the following disclosures: a)1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year; b)2) the amount and timing of plan assets expected to be returned to the employer; c)3) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law; d)4) related party disclosures about the amount of future annual benefits covered

by insurance and annuity contracts and significant transactions between the employer or related parties and the plan; e)5) for nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy; however, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets and f)6) for public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (i) aggregate of the service and interest cost components of net periodic benefit costs and (ii) benefit obligation for postretirement health care benefits. The ASU added the following disclosures: x)1) the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and y)2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU then clarified the following disclosures: 1) the projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs more than plan assets; and 2) the accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs more than plan assets. ASU 2018-14 will be effective for public business entities for fiscal years ending after December 15, 2020. The Company is currently evaluating the impact of the pending adoption on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The updates in this ASU are part of the disclosure framework project and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The modifications include ~~removal,~~additions, modification, and removal of disclosure requirements. The ASU removed the following disclosure requirements: a)1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, b)2) the policy for timing of transfers between levels, c)3) the valuation process for Level 3 fair value measurements, and d)4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The ASU added the following disclosure requirements: a)1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and b)2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The ASU also modified the following disclosure requirements: a)1) in lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; b)2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and c)3) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 ~~will be~~is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2019. The Company ~~is currently evaluating the impact of the pending adoption on its consolidated financial statements.~~

~~In February 2018, the FASB issued ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update requires a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the newly~~

enacted federal corporate income tax rate in the Tax Reform Act, which was enacted on December 22, 2017. The Tax Reform Act included a reduction to the corporate income tax rate from 34 percent to 21 percent effective January 1, 2018. The amendments in the ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company elected to early adopt ASU 2018-02 during the first quarter of 2018 and elected to reclassify the income tax effects of the Tax Reform Act from AOCI to retained earnings. The amount of the reclassification is the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate, which amounted to $646 thousand.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Targeted Improvements to Accounting for Hedging Activities~~, which amends the existing hedge accounting model and expands an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest-rate risk. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The ASU also changes certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This ASU is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this ~~ASU in accordance with paragraph ASC 815-20-65-3 subpart C. The adoption of this ASU did not have a significant impact on the Company’s financial condition, results of operations~~standard and consolidated financial statements. The Company can now employ additional hedging strategies as described above, including the ability to apply fair value hedge accounting to a specified pool of assets by excluding the portion of the hedged items related to prepayments, defaults and other events. This allows the Company to better align its accounting and the financial reporting of its hedging activities with their economic objectives thereby reducing the earnings volatility resulting from these hedging activities.

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~. This ASU amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, the amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). For public companies, this update is effective for fiscal years beginning after December 15, 2018, including all interim periods within those fiscal years. The adoption of this guidancethere was ~~not~~no material ~~to the consolidated financial statements, as was always our current policy to amortize premiums of investment securities to the earliest call date.~~

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. Topic 350, Intangibles~~ – Goodwill and Other (Topic 350), currently requires an entity that has not elected the private company alternative for goodwill to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit to address concerns over the cost and complexity of the two-step goodwill impairment test. The amendments in this Update remove the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. For public companies, this update will be effective for fiscal years beginning after December 15, 2019, including all interim periods within those fiscal years. The adoption of this guidance will not have a material impact on the consolidated financial statements.impact.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance in November 2018, ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, in April 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ~~and~~ in May 2019, ASU 2019-05, Financial Instruments – Credit Losses, Topic 326,and in November 2019, ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, and ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, all of which clarifies codification and corrects unintended application of the guidance. The new guidance replaces the incurred loss impairment methodology in current GAAP with an expected credit loss methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. The guidance iswas initially effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company has formed an implementation team led by the CFO, that also includes other lines of business and functions within the

Company. The Company has also engaged a third party to assist with a data gap analysis and will utilize the data to determine the impact of the pronouncement. Additionally, the Company has researched and acquired software to assist in the development of models that can meet the requirements of the new guidance. While this standard may potentially have a material impact on the Company’s consolidated financial statements, we are still in the process of completing our evaluation. ~~In July~~On November 15, 2019, the FASB ~~proposed changes to~~issued ASU 2019-10, Financial Investments – Credit Issues (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which finalizes a delay in the effective date of the

standard for smaller reporting companies as defined by the SEC, and other non-SEC reporting entities. The proposal would delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods.until January 2023. As the Company is a smaller reporting company for fiscal year ~~2020,~~2019, the proposed delay would be applicable. On October 16, 2019, the FASB approved its proposal to delay the effective date for for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities and plans to release a final ASU in mid-November.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~and subsequent amendments to the initial guidance in September 2017, ASU 2017-13,~~ Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (SEC Update)~~, in January 2018, ASU 2018-10, Codification Improvements to Topic 842, Leases, also in July 2018, ASU 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements, in December 2018, and in March 2019, ASU 2019-01,~~ ~~Leases (Topic 842): Codification Improvements~~. Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, ~~Leases (Topic 842) - Targeted Improvements~~, which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, ~~Leases (Topic 842) - Narrow Scope Improvements~~, for Lessors which provides certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon the adoption of ASU 2016-02, ASU 2018-11, and ASU 2018-20 on January 1, 2019, the Company recognized right-of-use assets and related lease liabilities totaling $12.9 million and $15.7 million, respectively. The initial balance sheet gross up upon adoption was primarily related to operating leases of certain real estate properties and financing leases of certain office equipment. The Company has no material subleases or leasing arrangements for which it is the lessor of property or equipment. The Company applied certain practical expedients provided under ASU 2016-02 whereby the Company did reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. The Company did not apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). The Company accounted for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because this election resulted in a lower impact on our balance sheet. The Company utilized the modified-retrospective transition approach prescribed by ASU 2018-11. See Note 5, “Premises and Equipment” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Accounting for Financial Instruments - Overall: Classification and Measurement (Subtopic 825-10)~~. Amendments within ASU 2016-01 that relate to non-public entities have been excluded from this presentation. The amendments in this ASU 2016-01 address the following: 1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; 2) simplify the impairment assessment of equity investments without readily-determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; 3) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; 4) require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5) require separate presentation in other comprehensive income for the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; 6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial

statements; and 7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted this guidance in the first quarter of 2018. The adoption of ASU 2016-01 on January 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with 4) above, the Company discloses the fair value of its loan portfolio on a quarterly basis using an exit price notion. See Note 8, “Fair Value of Financial Instruments” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~. The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are: (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations and (5) recognize revenue when each performance obligation is satisfied. The Company evaluated the impact of this standard on individual customer contracts, while management evaluated the impact of this standard on the broad categories of its customer contracts and revenue streams. The Company determined that this standard did not have a material impact on its consolidated financial statements because revenue related to financial instruments, including loans and investment securities are not in scope of these updates. Loan interest income, investment interest income, insurance services revenue and BOLI are accounted for under other U.S. GAAP standards and out of scope of ASC 606 revenue standard. The Company also completed an evaluation of certain costs related to customer contracts and revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross versus net). Based on the evaluation, the Company determined that the classification of certain debit and credit card related costs should change (i.e., costs previously recorded as expense are now recorded as contra-revenue). This classification change resulted in immaterial changes to both revenue and expense. The Company adopted the revenue recognition standard and its related amendments as of January 1, 2018 utilizing the modified retrospective approach. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts for the debit and credit card related cost reclassifications noted above.

Note 3 – Investment Securities

There were 0 held-to-maturity securities at ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

Amortized cost and fair values of investment securities available-for-sale at ~~September 30, 2019~~March 31, 2020 are summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
U. S. Agency securities	U. S. Agency securities	$	53,205	$	283	$	(218)	$	53,270	U. S. Agency securities	$	37,101	$	483	$	(218)	$	37,366
U.S. Sponsored Mortgage-backed securities	U.S. Sponsored Mortgage-backed securities	50,378		142		(538)		49,982		U.S. Sponsored Mortgage-backed securities	56,229		1,159		(34)		57,354
Municipal securities	Municipal securities	108,361		3,693		(30)		112,024		Municipal securities	112,940		3,818		(139)		116,619
Total debt securities	Total debt securities	211,944		4,118		(786)		215,276		Total debt securities	206,270		5,460		(391)		211,339
Other securities	Other securities	10,663		128		(3)		10,788		Other securities	11,662		141		(41)		11,762
Total investment securities available-for-sale	Total investment securities available-for-sale	$	222,607	4,246		$	(789)	$	226,064	Total investment securities available-for-sale	$	217,932	5,601		$	(432)	$	223,101

Amortized cost and fair values of investment securities available-for-sale at December 31, ~~2018~~2019 are summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value		(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
U. S. Agency securities	U. S. Agency securities	$	79,041	$	14	$	(1,625)	$	77,430	U. S. Agency securities	$	52,046	$	199	$	(249)	$	51,996
U.S. Sponsored Mortgage-backed securities	U.S. Sponsored Mortgage-backed securities	52,154		—		(2,039)		50,115		U.S. Sponsored Mortgage-backed securities	58,748		188		(624)		58,312
Municipal securities	Municipal securities	84,747		206		(1,192)		83,761		Municipal securities	108,750		4,399		(57)		113,092
Total debt securities	Total debt securities	215,942		220		(4,856)		211,306		Total debt securities	219,544		4,786		(930)		223,400
Other securities	Other securities	10,308		68		(68)		10,308		Other securities	12,247		181		(7)		12,421
Total investment securities available-for-sale	Total investment securities available-for-sale	$	226,250	$	288	$	(4,924)	$	221,614	Total investment securities available-for-sale	$	231,791	$	4,967	$	(937)	$	235,821

The following table summarizes amortized cost and fair values of debt securities by contractual maturity:


		September 30, 2019							March 31, 2020
		Available for sale							Available for sale
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value		(Dollars in thousands)	Amortized Cost		Fair Value
Within one year	Within one year	$	90	$	(375)	Within one year	$	90	$	91
After one year, but within five	After one year, but within five	18,959		19,079		After one year, but within five	7,985		8,274
After five years, but within ten	After five years, but within ten	29,137		29,316		After five years, but within ten	29,781		30,646
After ten years	After ten years	163,758		167,256		After ten years	168,414		172,328
Total	Total	$	211,944	$	215,276	Total	$	206,270	$	211,339

Investment securities with a carrying value of ~~$60.2~~$74.4 million at ~~September 30, 2019,~~March 31, 2020, were pledged to secure public funds, repurchase agreements, and potential borrowings at the Federal Reserve discount window.

The Company’s investment portfolio includes securities that are in an unrealized loss position as of ~~September 30, 2019,~~March 31, 2020, the details of which are included in the following table. Although these securities, if sold at ~~September 30, 2019~~March 31, 2020 would result in a pretax loss of ~~$789~~$432 thousand, the Company has no intent to sell the applicable securities at such fair values, and maintains the Company has the ability to hold these securities until all principal has been recovered. Management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis. Declines in the fair values of these securities can be traced to general market conditions which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency, and whether or not the financial condition of the security issuer has severely deteriorated. As of ~~September 30, 2019,~~March 31, 2020, the Company considers all securities

with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in fair value.

The following table discloses investments in an unrealized loss position at ~~September 30, 2019:~~March 31, 2020:


(Dollars in thousands)	(Dollars in thousands)	Less than 12 months						12 months or more						(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Agency securities (26)		$	8,244	$	(18)	$	23,455	$	(200)
U.S. Sponsored Mortgage-backed securities (33)		4,175		(6)		32,237		(532)
Municipal securities (6)		2,173		(14)		831		(16)
U.S. Agency securities (22)										U.S. Agency securities (22)	$	4,693	$	(51)	$	14,041	$	(167)
U.S. Sponsored Mortgage-backed securities (10)										U.S. Sponsored Mortgage-backed securities (10)	1,655		(5)		7,544		(29)
Municipal securities (12)										Municipal securities (12)	6,668		(127)		830		(12)
Other securities ~~(1)~~(5)	Other securities ~~(1)~~(5)	—		—		510		(3)		Other securities ~~(1)~~(5)	4,059		(41)		—		—
		$	14,592	$	(38)	$	57,033	$	(751)		$	17,075	$	(224)	$	22,415	$	(208)

The following table discloses investments in an unrealized loss position at December 31, ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	Less than 12 months						12 months or more						(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Agency securities (54)		$	9,762	$	(123)	$	63,740	$	(1,502)
U.S. Sponsored Mortgage-backed securities (42)		2,360		(32)		47,755		(2,007)
Municipal securities (78)		5,936		(46)		35,955		(1,146)
U.S. Agency securities (26)										U.S. Agency securities (26)	$	8,160	$	(59)	$	15,399	$	(190)
U.S. Sponsored Mortgage-backed securities (40)										U.S. Sponsored Mortgage-backed securities (40)	16,660		(170)		27,498		(454)
Municipal securities (13)										Municipal securities (13)	6,018		(40)		828		(17)
Other securities (2)	Other securities (2)	2,452		(48)		1,018		(20)		Other securities (2)	1,093		(7)		—		—
		$	20,510	$	(249)	$	148,468	$	(4,675)		$	31,931	$	(276)	$	43,725	$	(661)

For the three-month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company sold investments available-for-sale of ~~$380 thousand~~$10.3 million and ~~$2.1~~$13.7 million, respectively. These sales resulted in gross gains of $0$276 thousand and ~~$27~~$33 thousand and gross losses of ~~$11 thousand~~$0 and ~~$26~~$151 thousand, respectively.

For the three-month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company ~~sold~~did not sell any equity ~~investments of $0 and $0, respectively.~~

For the nine-month periods ended September 30, 2019 and 2018, the Company sold investments available-for-sale of $27.0 million and $2.8 million, respectively. These sales resulted in gross gains of $80 thousand and $352 thousand and gross losses of $259 thousand and $25 thousand, respectively.investments.

For the ~~nine-month~~three-month periods ended ~~September 30, 2019~~March 31, 2020 and ~~2018, the Company sold equity investments of $6.0 million and $0, respectively. These sales resulted in gross gains of $0 and $0 and gross losses of $7 thousand and $0, respectively.~~

~~For the three and nine months ended September 30,~~ 2019, the Company recognized unrealized holding gains ~~of $0 and $13.8 million, respectively,~~ on equity securities ~~held as~~ of ~~September 30, 2019, which was~~$14 thousand and $180 thousand, respectively. These were recorded in noninterest income in the consolidated statements of income.

For the three and nine months ended September 30, 2018, the Company recognized unrealized holding losses of $623 thousand and $583 thousand, respectively, on equity securities held as of September 30, 2018, which was recorded in noninterest income in the consolidated statements of income.

Note 4 – Loans and Allowance for Loan Losses

The components of loans in the Consolidated Balance Sheets at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, were as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019		December 31, 2018		(Dollars in thousands)	March 31, 2020		December 31, 2019
Commercial and Non-Residential Real Estate	Commercial and Non-Residential Real Estate	$	1,023,866	$	941,033	Commercial and Non-Residential Real Estate	$	1,094,494	$	1,063,828
Residential Real Estate	Residential Real Estate	290,978		294,929		Residential Real Estate	261,493		271,604
Home Equity	Home Equity	59,474		59,015		Home Equity	36,856		35,106
Consumer	Consumer	7,972		9,605		Consumer	3,763		3,697
Total Loans	Total Loans	$	1,382,290	$	1,304,582	Total Loans	$	1,396,606	$	1,374,235
Deferred loan origination fees and costs, net	Deferred loan origination fees and costs, net	85		(216)		Deferred loan origination fees and costs, net	(28)		306
Loans receivable	Loans receivable	$	1,382,375	$	1,304,366	Loans receivable	$	1,396,578	$	1,374,541

For loans with maturities over one year, loan origination fees and direct loan origination costs are deferred and recognized over the life of the loan. For loans with aan original maturity of less than one year, loan origination fees and direct loan origination costs are recognized when incurred.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the 2 components represents the Bank’s ALL. The Bank’s methodology allows for the analysis of certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit, and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans. Total collectively evaluated impaired loans were ~~$2.5~~$2.4 million and ~~$1.7~~$2.0 million, while the related reserves were ~~$181~~$77 thousand and ~~$218~~$139 thousand as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. Such collectively evaluated impaired loans are included in total loans individually evaluated for impairment and in total impaired loans.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by qualified factors.

The segments described below in the impaired loans by class table, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and bank management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Company and Bank management have identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, conclusion of loan reviews, audits, and exams, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment, and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates.

To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit, and revolving lines of credit, and based its calculation on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole.

Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in the similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which ~~Management~~management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the liability for unfunded commitments related to loans held for investment was ~~$284~~$332 thousand.

Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The ALL is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the

application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of ~~September 30, 2019:~~March 31, 2020:

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
January 1, 2019 $ 8,605 $ 1,405 $ 684 $ 245 $ 10,939
     Charge-offs (666) — — (10) (676)
     Recoveries 1 1 2 50 54
     Provision (recovery) 1,721 (98) 60 (126) 1,557
ALL balance at September 30, 2019 $ 9,661 $ 1,308 $ 746 $ 159 $ 11,874
Individually evaluated for impairment $ 1,515 $ — $ — $ — $ 1,515
Collectively evaluated for impairment $ 8,146 $ 1,308 $ 746 $ 159 $ 10,359


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at July 1, 2019		$	8,971	$	1,229	$	712	$	256	$	11,168
December 31, 2019												December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	(1,756)		—		—		—		(1,756)
Recoveries	Recoveries	—		—		—		49		49		Recoveries	—		—		2		2		4
Provision (recovery)	Provision (recovery)	690		79		34		(146)		657		Provision (recovery)	1,255		—		(93)		(24)		1,138
ALL balance at September 30, 2019		$	9,661	$	1,308	$	746	$	159	$	11,874
ALL balance at March 31, 2020												ALL balance at March 31, 2020	$	9,597	$	1,272	$	236	$	56	$	11,161
Individually evaluated for impairment												Individually evaluated for impairment	$	532	$	—	$	—	$	—	$	532
Collectively evaluated for impairment												Collectively evaluated for impairment	$	9,065	$	1,272	$	236	$	56	$	10,629

The following table summarizes the primary segments of the Company loan portfolio as of ~~September 30, 2019:~~March 31, 2020:


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
Individually evaluated for impairment	Individually evaluated for impairment	$	7,694	$	2,351	$	150	$	36	$	10,231	Individually evaluated for impairment	$	7,737	$	2,385	$	104	$	—	$	10,226
Collectively evaluated for impairment	Collectively evaluated for impairment	1,016,172		288,627		59,324		7,936		1,372,059		Collectively evaluated for impairment	1,086,757		259,108		36,752		3,763		1,386,380
Total Loans	Total Loans	1,023,866		290,978		59,474		7,972		1,382,290		Total Loans	1,094,494		261,493		36,856		3,763		1,396,606

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
January 1, 2018 $ 7,804 $ 1,119 $ 705 $ 250 $ 9,878
     Charge-offs (616) (11) — (52) (679)
     Recoveries 10 19 58 5 92
     Provision 1,827 242 (139) 218 2,148
ALL balance at September 30, 2018 $ 9,025 $ 1,369 $ 624 $ 421 $ 11,439
Individually evaluated for impairment $ 1,262 $ 88 $ — $ 226 $ 1,576
Collectively evaluated for impairment $ 7,763 $ 1,281 $ 624 $ 195 $ 9,863


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at July 1, 2018		$	8,664	$	1,172	$	602	$	213	$	10,651
December 31, 2018												December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939
Charge-offs	Charge-offs	(292)		—		—		(2)		(294)		Charge-offs	—		—		—		—		—
Recoveries	Recoveries	—		10		2		1		13		Recoveries	—		1		1		1		3
Provision (recovery)		653		187		20		209		1,069
ALL balance at September 30, 2018		$	9,025	$	1,369	$	624	$	421	$	11,439
Provision												Provision	259		11		19		11		300
ALL balance at March 31, 2019												ALL balance at March 31, 2019	$	8,864	$	1,417	$	704	$	257	$	11,242
Individually evaluated for impairment												Individually evaluated for impairment	$	1,123	$	—	$	—	$	—	$	1,123
Collectively evaluated for impairment												Collectively evaluated for impairment	$	7,741	$	1,417	$	704	$	257	$	10,119

The following table summarizes the primary segments of the Company loan portfolio as of ~~September 30, 2018:~~March 31, 2019:


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
Individually evaluated for impairment	Individually evaluated for impairment	$	11,704	$	3,287	$	111	$	334	$	15,436	Individually evaluated for impairment	$	9,914	$	2,890	$	121	$	36	$	12,961
Collectively evaluated for impairment	Collectively evaluated for impairment	917,580		295,462		57,518		10,129		1,280,689		Collectively evaluated for impairment	952,150		307,823		58,554		9,433		1,327,960
Total Loans	Total Loans	$	929,284	$	298,749	$	57,629	$	10,463	$	1,296,125	Total Loans	$	962,064	$	310,713	$	58,675	$	9,469	$	1,340,921

Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company evaluates residential mortgage loans, home equity lines of credit, and consumer loans in homogeneous pools, rather than on an individual basis, when each of those loans are below specific thresholds based on outstanding principal balance. Such loans that individually exceed these thresholds are evaluated individually for impairment. The Chief Credit Officer identifies these loans individually by monitoring the delinquency

status of the Bank’s portfolio. Once identified, the Bank’s ongoing communications with the borrower allow ~~Management~~management to evaluate the significance of the payment delays and the circumstances surrounding the loan and the borrower.

Once the determination has been made that a loan is impaired, the amount of the impairment is measured using one of 3 valuation methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.

The Company currently manages its loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows:

Commercial business loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as to finance owner occupied real estate, and to finance future cash flows of Federal Government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both company originated and purchased participation loans. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both company originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Credit risk arises from the borrower’s, and where applicable the builder's, continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


		Impaired Loans with Specific Allowance						Impaired Loans with No Specific Allowance		Total Impaired Loans							Impaired Loans with Specific Allowance						Impaired Loans with No Specific Allowance	Total Impaired Loans
(Dollars in thousands)	(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance		(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
September 30, 2019
March 31, 2020												March 31, 2020
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	2,931	$	1,141	$	531	$	3,462	$	4,158	Commercial Business	$	2,598	$	240	$	698	$	3,296	$	4,407
Commercial Real Estate	Commercial Real Estate	812		366		1,298		2,110		2,188		Commercial Real Estate	1,774		284		625		2,399		2,497
Acquisition & Development	Acquisition & Development	1,723		8		399		2,122		3,513		Acquisition & Development	1,658		8		384		2,042		3,442
Total Commercial	Total Commercial	5,466		1,515		2,228		7,694		9,859		Total Commercial	6,030		532		1,707		7,737		10,346
Residential	Residential	—		—		2,351		2,351		2,426		Residential	—		—		2,385		2,385		2,495
Home Equity	Home Equity	—		—		150		150		155		Home Equity	—		—		104		104		113
Consumer	Consumer	—		—		36		36		36		Consumer	—		—		—		—		—
Total Impaired Loans	Total Impaired Loans	$	5,466	$	1,515	$	4,765	$	10,231	$	12,476	Total Impaired Loans	$	6,030	$	532	$	4,196	$	10,226	$	12,954

December 31, 2018
December 31, 2019												December 31, 2019
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	4,885	$	668	$	387	$	5,272	$	5,292	Commercial Business	$	2,606	$	249	$	644	$	3,250	$	4,308
Commercial Real Estate	Commercial Real Estate	1,842		375		396		2,238		2,300		Commercial Real Estate	1,786		325		295		2,081		2,171
Acquisition & Development	Acquisition & Development	—		—		2,224		2,224		3,601		Acquisition & Development	—		—		2,070		2,070		3,467
Total Commercial	Total Commercial	6,727		1,043		3,007		9,734		11,193		Total Commercial	4,392		574		3,009		7,401		9,946
Residential	Residential	—		—		2,831		2,831		2,882		Residential	—		—		1,953		1,953		2,045
Home Equity	Home Equity	—		—		123		123		123		Home Equity	—		—		95		95		100
Consumer	Consumer	—		—		90		90		316		Consumer	—		—		34		34		35
Total Impaired Loans	Total Impaired Loans	$	6,727	$	1,043	$	6,051	$	12,778	$	14,514	Total Impaired Loans	$	4,392	$	574	$	5,091	$	9,483	$	12,126

Impaired loans have ~~decreased~~increased by ~~$2.5 million,~~$743 thousand, or ~~19.9%~~7.8%, during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. This change is the net effect of multiple factors, including the identification of ~~$924~~$980 thousand of impaired loans, ~~payoffs~~curtailments of ~~$1.5 million, partial charge offs of $676~~$64 thousand, the foreclosure of ~~2 unrelated commercial loans~~1 consumer loan which required the reclassification of ~~$79~~$23 thousand to other real estate owned, the reclassification of ~~$1.4 million~~$6 thousand to performing loans based on improved repayment performance, and normal loan ~~amortization.~~amortization of $145 thousand.

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated:


		Nine Months Ended September 30, 2019										Three Months Ended September 30, 2019									Three Months Ended March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial	Commercial													Commercial
Commercial Business	Commercial Business	$	3,345	$	—	$	—	$	3,003	$	—	$	—	Commercial Business	$	3,261	$	—	$	—
Commercial Real Estate	Commercial Real Estate	3,404		121		108		2,596		25		25		Commercial Real Estate	2,898		26		23
Acquisition & Development	Acquisition & Development	2,174		92		91		2,132		31		31		Acquisition & Development	2,048		29		19
Total Commercial	Total Commercial	8,923		213		199		7,731		56		56		Total Commercial	8,207		55		42
Residential	Residential	2,955		11		11		2,883		4		4		Residential	2,382		5		5
Home Equity	Home Equity	172		2		2		183		1		1		Home Equity	101		—		—
Consumer	Consumer	46		—		—		36		—		—		Consumer	19		—		—
Total	Total	$	12,096	$	226	$	212	$	10,833	$	61	$	61	Total	$	10,709	$	60	$	47

Nine Months Ended September 30, 2018 Three Months Ended September 30, 2018
(Dollars in thousands) Average Investment in Impaired Loans Interest Income Recognized on Accrual Basis Interest Income Recognized on Cash Basis Average Investment in Impaired Loans Interest Income Recognized on Accrual Basis Interest Income Recognized on Cash Basis
Commercial
  Commercial Business $ 4,192 $ 119 $ 106 $ 3,917 $ 38 $ 2
  Commercial Real Estate 7,060 71 63 6,836 24 21
  Acquisition & Development 1,399 — — 1,158 — —
    Total Commercial 12,651 190 169 11,911 62 23
Residential 2,404 15 11 3,265 5 3
Home Equity 90 1 1 113 — —
Consumer 139 — — 233 — —
Total $ 15,284 $ 206 $ 181 $ 15,522 $ 67 $ 26


	Three Months Ended March 31, 2019
(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial
Commercial Business	$	3,608	$	—	$	—
Commercial Real Estate	4,038		40		39
Acquisition & Development	2,215		31		29
Total Commercial	9,861		71		68
Residential	2,858		3		3
Home Equity	122		1		1
Consumer	79		—		—
Total	$	12,920	$	75	$	72

As of ~~September 30,~~March 31, 2020, the Bank’s other real estate owned balance totaled $1.2 million. The Bank held 4 foreclosed residential real estate properties representing $380 thousand, or 32%, of the total balance of other real estate owned. These properties are held primarily as a result of the foreclosures of 1 commercial loan relationship, which included 2 properties for a total of $294 thousand. The 2 remaining residential real estate properties, totaling $86 thousand, were the result of the foreclosure of 2 unrelated borrowers. The remaining $826 thousand, or 68%, of other real estate owned is the result of the foreclosure of 2 unrelated commercial development loans. There are 4 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was $214 thousand as of March 31, 2020. These loans are included in the table above and have 0 specific allowance allocated to them.

As of March 31, 2019, the Bank’s other real estate owned balance totaled ~~$1.4~~$2.1 million. The Bank held 1112 foreclosed residential real estate properties representing ~~$535~~$877 thousand, or ~~39%~~42%, of the total balance of other real estate owned. These properties are held as a result of the foreclosures of primarily 2 commercial loan relationships, one of which included 2 properties for a total of $294 thousand, while the other included 7 properties for a total of ~~$163~~$174 thousand. The 23 remaining residential real estate properties, totaling ~~$79~~$409 thousand, were the result of the foreclosure of 23 unrelated borrowers. The remaining ~~$825 thousand,~~$1.2 million, or ~~61%~~58%, of other real estate owned is the result of the foreclosure of 23 unrelated commercial development loans. There are 83 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was ~~$768~~$270 thousand as of ~~September 30,~~March 31, 2019. These loans are included in the table above and have 0 ~~specific allowance allocated to them.~~

As of September 30, 2018, the Bank's other real estate owned balance totaled $1.7 million. The Bank held 8 foreclosed residential real estate properties representing $732 thousand, or 42%, of the total balance of other real estate owned. These properties are held as a result of the foreclosures of primarily 2 commercial loan relationships, one of which included 3 properties for a total of $395 thousand, while the other also included 3 properties for a total of $174 thousand. The 2 remaining residential real estate properties, totaling $163 thousand, were result of the foreclosure of 2 unrelated borrowers. The remaining $1.0 million, or 58%, of other real estate owned is the result of the foreclosure of 3 unrelated commercial development loans. There are 2 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was $1.7 million as of September 30, 2018. These loans are included in the table above and have $88 thousand in specific allowance allocated to them.

Bank management uses a 9-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first 6 categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the

debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as past due status, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department ensures that a review of all commercial relationships of 1000000 dollars or greater is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan review process, and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Bank’s Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table represents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2019
March 31, 2020												March 31, 2020
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	476,569	$	13,961	$	13,836	$	—	$	504,366	Commercial Business	$	516,247	$	17,697	$	12,762	$	—	$	546,706
Commercial Real Estate	Commercial Real Estate	428,044		4,907		1,517		—		434,468		Commercial Real Estate	427,108		3,177		1,856		—		432,141
Acquisition & Development	Acquisition & Development	80,054		2,033		2,945		—		85,032		Acquisition & Development	110,996		1,811		2,840		—		115,647
Total Commercial	Total Commercial	984,667		20,901		18,298		—		1,023,866		Total Commercial	1,054,351		22,685		17,458		—		1,094,494
Residential	Residential	286,250		2,767		1,846		115		290,978		Residential	256,934		1,172		3,275		112		261,493
Home Equity	Home Equity	58,803		521		150		—		59,474		Home Equity	36,336		416		104		—		36,856
Consumer	Consumer	7,805		138		29		—		7,972		Consumer	3,724		39		—		—		3,763
Total Loans	Total Loans	$	1,337,525	$	24,327	$	20,323	$	115	$	1,382,290	Total Loans	$	1,351,345	$	24,312	$	20,837	$	112	$	1,396,606

December 31, 2018
December 31, 2019												December 31, 2019
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	432,589	$	5,290	$	5,652	$	—	$	443,531	Commercial Business	$	511,590	$	17,398	$	11,894	$	—	$	540,882
Commercial Real Estate	Commercial Real Estate	371,309		2,071		2,181		—		375,561		Commercial Real Estate	406,712		3,564		1,494		—		411,770
Acquisition & Development	Acquisition & Development	118,754		179		2,879		129		121,941		Acquisition & Development	106,428		1,869		2,879		—		111,176
Total Commercial	Total Commercial	922,652		7,540		10,712		129		941,033		Total Commercial	1,024,730		22,831		16,267		—		1,063,828
Residential	Residential	290,602		2,608		1,600		119		294,929		Residential	267,367		1,946		2,177		114		271,604
Home Equity	Home Equity	58,100		876		39		—		59,015		Home Equity	34,641		383		82		—		35,106
Consumer	Consumer	9,359		164		19		63		9,605		Consumer	3,613		56		28		—		3,697
Total Loans	Total Loans	$	1,280,713	$	11,188	$	12,370	$	311	$	1,304,582	Total Loans	$	1,330,351	$	25,216	$	18,554	$	114	$	1,374,235

Loans classified as Special Mention totaled $24.3 million and ~~$11.2~~$25.2 million as of ~~September~~March 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The ~~increase~~decrease of ~~$13.1 million,~~$904 thousand, or ~~117%~~3.6%, was concentrated in the ~~commercial~~residential mortgage loan portfolio. This ~~increase~~decrease is primarily the result of the risk grade downgrade of 410 loans to unrelated borrowers, totaling ~~$16.5 million, the payoff of an existing loan in the amount of $2.4 million,~~$751 thousand, and normal loan amortization of the loans in this classification. While the ~~classification. Of the 4 loans recently classified as~~total of Special Mention commercial loans decreased by only $146 thousand, two unrelated loans were the ~~largest balance~~cause of ~~$8.3~~offsetting changes to this loan classification. More specifically, a $2.2 million ~~or 63.4%~~owner occupied commercial real estate loan was downgraded to Special Mention as a result of continued financial difficulties caused by less-than-expected enrollment in the school that occupies the property. Meanwhile, Special Mention commercial loans decreased by $1.8 million due to the charge off of a government lease finance loan stemming from the non-renewal of the increase, is a note secured by subordinate bonds related to a sales-tax increment financing district, which have not been refinanced as timely as anticipated due to delays in the reissuance of senior position bonds. Ongoing development of the district is expected to allow for the refinance of the subordinate bonds in 2020. A second loan, in the amount of $3.4 million, is secured by a senior care facility which has

continued to supplement operating results with its liquid assets. Recent changes to its revenue strategy are expected to result in improved performance. A third loan, in the amount of $2.9 million, is secured by a multifamily rental property that has not performed as intended due to a lack of demand from a nearby university. The property is being remarketed to area professionals and is expected to report improved performance. The last of the 4 loans is a $2.0 million note secured by residential lots adjacent to a hotel resort property. The loan is amortizing and has paid as agreed, however, the risk grade was adjusted due to potential legal issues associated with the primary guarantor.underlying lease agreement. These matters are being monitored and any significant developments will result in reevaluation of the risk ~~grades.~~grades, where appropriate, and the potential recognition of future recoveries.

Loans classified as Substandard totaled ~~$20.3~~$20.8 million and ~~$12.4~~$18.6 million as of ~~September~~March 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The increase of ~~$7.9~~$2.2 million, or ~~64%~~12%, was concentrated in the ~~commercial~~residential mortgage loan portfolio. The increase is primarily the result of the risk grade downgrade of 412 loans to 2 unrelated borrowers, totaling ~~$9.6 million, the risk grade upgrade of a $1.0 million loan, and the payoff of 2 existing loans totaling $1.4~~$1.2 million. Of the 412 loans recently classified as Substandard, 310 loans totaling ~~$6.9~~$751 thousand were downgraded as a result of long-term erratic payment performance that has required non-accrual status of these loans. Meanwhile, the total of Substandard commercial loans increased by $1.2 million ~~were each provided to~~as a ~~single borrower to finance~~result of the ~~acquisition~~risk grade downgrade of ~~equipment to be used~~9 unrelated loans totaling $834 thousand, and the $543 thousand increase in the ~~coal industry. Repayment performance has been unsatisfactory and there are no significant expectations~~outstanding balance of ~~improvement within the industry. The fourth~~a performing Substandard loan, ~~in the amount of $2.7 million,~~which is ~~secured by a senior care facility that has struggled~~classified due to ~~collect its receivables and government reimbursements in a timely manner, which has placed considerable strain on operating performance, which are not expected to be corrected in the short term.~~identified operational risks. These matters are being monitored and any significant developments will result in reevaluation of the risk grades.

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough review is presented to the Chief Credit Officer and/or the Management Loan Committee (“MLC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans

should be placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make scheduled principal or interest payments, when full repayment of principal and interest is not expected, or when the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless ~~Management~~management believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to principal. To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of future satisfactory payment performance. Usually, this requires a six-month recent history of ~~payments due.~~on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or MLC.

The following table presents the classes of the loan portfolio summarized by aging categories of performing loans and non-accrual loans as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing		(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing
September 30, 2019
March 31, 2020																		March 31, 2020
Commercial	Commercial																	Commercial
Commercial Business	Commercial Business	$	501,063	$	255	$	308	$	2,740	$	3,303	$	504,366	$	3,059	$	—	Commercial Business	$	542,438	$	4,150	$	—	$	118	$	4,268	$	546,706	$	2,896	$	—
Commercial Real Estate	Commercial Real Estate	434,309		159		—		—		159		434,468		303		—		Commercial Real Estate	431,478		485		—		178		663		432,141		625		—
Acquisition & Development	Acquisition & Development	84,749		—		—		283		283		85,032		399		—		Acquisition & Development	115,371		—		—		276		276		115,647		384		—
Total Commercial	Total Commercial	1,020,121		414		308		3,023		3,745		1,023,866		3,761		—		Total Commercial	1,089,287		4,635		—		572		5,207		1,094,494		3,905		—
Residential	Residential	289,432		—		615		931		1,546		290,978		1,724		—		Residential	257,556		3,100		—		837		3,937		261,493		1,900		—
Home Equity	Home Equity	59,196		153		13		112		278		59,474		112		—		Home Equity	36,496		232		34		94		360		36,856		104		—
Consumer	Consumer	7,851		78		20		23		121		7,972		30		—		Consumer	3,640		123		—		—		123		3,763		—		—
Total Loans	Total Loans	$	1,376,600	$	645	$	956	$	4,089	$	5,690	$	1,382,290	$	5,627	$	—	Total Loans	$	1,386,979	$	8,090	$	34	$	1,503	$	9,627	$	1,396,606	$	5,909	$	—

December 31, 2018
December 31, 2019																		December 31, 2019
Commercial	Commercial																	Commercial
Commercial Business	Commercial Business	$	432,097	$	6,380	$	1,746	$	3,308	$	11,434	$	443,531	$	3,684	$	—	Commercial Business	$	537,602	$	3,189	$	47	$	44	$	3,280	$	540,882	$	2,848	$	—
Commercial Real Estate	Commercial Real Estate	374,880		681		—		—		681		375,561		385		—		Commercial Real Estate	411,070		522		178		—		700		411,770		295		—
Acquisition & Development	Acquisition & Development	121,644		—		—		297		297		121,941		426		—		Acquisition & Development	110,717		180		—		279		459		111,176		390		—
Total Commercial	Total Commercial	928,621		7,061		1,746		3,605		12,412		941,033		4,495		—		Total Commercial	1,059,389		3,891		225		323		4,439		1,063,828		3,533		—
Residential	Residential	291,665		1,000		760		1,504		3,264		294,929		2,442		—		Residential	267,515		3,003		549		537		4,089		271,604		1,461		—
Home Equity	Home Equity	58,575		400		40		—		440		59,015		84		—		Home Equity	34,382		545		84		95		724		35,106		95		—
Consumer	Consumer	9,485		28		10		82		120		9,605		82		—		Consumer	3,610		1		58		28		87		3,697		34		—
Total Loans	Total Loans	$	1,288,346	$	8,489	$	2,556	$	5,191	$	16,236	$	1,304,582	$	7,103	$	—	Total Loans	$	1,364,896	$	7,440	$	916	$	983	$	9,339	$	1,374,235	$	5,123	$	—

Troubled Debt Restructurings

The restructuring of a loan is considered a troubled debt restructuring (“TDR”) if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Bank had specific reserve allocations for TDR’s of ~~$1.5 million~~$436 thousand and ~~$439~~$527 thousand, respectively.

Loans considered to be troubled debt restructured loans totaled ~~$7.8~~$7.9 million and ~~$8.0~~$7.7 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Of these totals, ~~$4.6~~$4.3 million and ~~$4.2~~$4.4 million, respectively, represent accruing troubled debt restructured loans and represent ~~45%~~42% and ~~33%~~46%, respectively of total impaired loans. Meanwhile, as of ~~September 30, 2019, $3.1~~March 31, 2020, $3.0 million ~~represents 3~~represent 4 loans to 2 borrowers that have defaulted under the restructured terms. ~~NaN~~The largest of these loans, at $2.3 million, is a commercial loan to a company dependent of the 3coal industry. The other three of these loans, totaling ~~$400~~$669 thousand, are commercial acquisition and development loans that were considered TDR’s due to extended interest only periods and/or unsatisfactory repayment structures once transitioned to principal and interest payments. The third loan, to an unrelated borrower, is a $2.7 million commercial term loan which was previously considered a TDR due to multiple interest only periods being provided. This loan defaulted during the three months ended September 30, 2018. The default is due to delayed payments stemming from ongoing negotiations with respect to a third-party operator that is expected to provide a new source of reliable cash flow to service the required payments of this loan. These negotiations continue as of September 30, 2019. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

NaN ~~unrelated~~ commercial loans to 3 unrelated borrowers totaling ~~$272 thousand, and 2 unrelated consumer loans totaling $49~~$313 thousand were classified as TDR’s in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2020. Upon the identification of financial difficulties on the part of the borrowers, ~~one of these~~the 2 related loans ~~was~~were modified

to extend the maturity date and allow for ~~extended interest-only payments,~~additional monitoring, while the other ~~was~~2 unrelated loans were modified to lower loan principal and interest payments. These loans have paid as agreed under their modified terms. ~~NaN unrelated commercial loans totaling $336 thousand, and 2 unrelated residential real estate loans totaling $227 thousand,~~

During the quarter ended March 31, 2020, no restructured loan defaulted under their modified terms that were not already classified as ~~TDR’s during the six months ended September 30, 2019. Upon the identification of financial difficulties on the part of the borrowers,~~

~~these loans were modified to lower loan payments by lengthening the amortization period beyond what is typical~~non-performing for ~~a commercial loan of this type. These loans have paid as agreed since they were renewed~~having previously defaulted under their modified terms.


		New TDR's ¹																	New TDR's ¹
		Nine Months Ended September 30, 2019								Three Months Ended September 30, 2019								Three Months Ended March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	2	$	336	$	333	—	$	—	$	—	Commercial Business	2	$	154	$	149
Commercial Real Estate	Commercial Real Estate	—	—		—		—	—		—		Commercial Real Estate	2	159		159
Acquisition & Development	Acquisition & Development	—	—		—		—	—		—		Acquisition & Development	—	—		—
Total Commercial	Total Commercial	2	336		333		—	—		—		Total Commercial	4	313		308
Residential	Residential	2	227		255		2	227		255		Residential	—	—		��
Home Equity	Home Equity	—	—		—		—	—		—		Home Equity	—	—		—
Consumer	Consumer	—	—		—		—	—		—		Consumer	—	—		—
Total	Total	4	$	563	$	588	2	$	227	$	255	Total	4	$	313	$	308

Nine Months Ended September 30, 2018 Three Months Ended September 30, 2018
(Dollars in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial
     Commercial Business 2 $ 272 $ 272 — $ — $ —
     Commercial Real Estate — — — — — —
     Acquisition & Development — — — — — —
          Total Commercial 2 272 272 — — —
Residential — — — — — —
Home Equity 1 39 39 — — —
Consumer 1 10 10 — — —
          Total 4 $ 321 $ 321 — $ — $ —


	Three Months Ended March 31, 2019
(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial
Commercial Business	1	$	268	$	267
Commercial Real Estate	—	—		—
Acquisition & Development	—	—		—
Total Commercial	1	268		267
Residential	—	—		—
Home Equity	—	—		—
Consumer	—	—		—
Total	1	$	268	$	267

¹ The pre-modification and post-modification balances represent the balances outstanding immediately before and after modification of the loan.

Note 5 – Premises and Equipment

Premises and equipment were as follows:


(Dollars in thousands)	March 31, 2020		December 31, 2019
Land	$	3,510	$	3,257
Buildings and improvements	14,452		14,574
Furniture, fixtures and equipment	17,164		16,869
Construction in progress	1,662		1,019
Leasehold improvements	2,216		2,207
	39,004		37,926
Accumulated depreciation	(16,675)		(15,952)
Net premises and equipment	$	22,329	$	21,974

The Company leases certain premises and equipment under operating and finance leases. At ~~September 30, 2019,~~March 31, 2020, the Company had lease liabilities totaling ~~$15.3~~$17.4 million and right-of-use assets totaling ~~$12.9~~$16.0 million related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the weighted average remaining lease term for finance leases was ~~2.9~~2.4 years and the weighted average discount rate used in the measurement of finance lease liabilities was ~~2.81%~~2.80%. For the three months ended September 30, 2019, the weighted average remaining lease term for finance leases was 2.9 years and the weighted average discount rate used in the measurement of finance lease liabilities was 2.81%. For the nine months ended September 30, 2019,March 31, 2020, the weighted average remaining lease term for operating leases was ~~11.9~~12.6 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.53%. For the three months ended September 30, 2019, the weighted average remaining lease term for operating leases was 11.9 years and the weighted average discount rate used in the measurement of operating lease liabilities was 3.53%3.63%.

Lease costs were as follows:

(Dollars in thousands) Nine Months Ended September 30, 2019 Three Months Ended September 30, 2019
Amortization of right-of-use assets, finance leases $ 58 $ 18
Interest on lease liabilities, finance leases 6 2
Operating lease cost 1,489 482
Short-term lease cost 57 16
Variable lease cost 30 10
Total lease cost $ 1,640 $ 528

~~Rent expense for the three and nine months ended September 30, 2018, prior to the adoption of ASU 2016-02, was $503 thousand and $1.5 million, respectively.~~


(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Amortization of right-of-use assets, finance leases	$	18	$	20
Interest on lease liabilities, finance leases	1		2
Operating lease cost	544		530
Short-term lease cost	14		25
Variable lease cost	10		10
Total lease cost	$	587	$	587

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the ~~nine~~three months ended September 30, 2019. At September 30, 2019, the Company had leases that had not commenced that will create approximately $2.4 million and $4.1 million of additional lease liabilities and right-of-use assets, respectively, for the Company.March 31, 2020.

Future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more are as follows:


		September 30, 2019							March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Finance Leases		Operating Leases		(Dollars in thousands)	Finance Leases		Operating Leases
2019		$	84	$	1,917
2020	2020	84		1,794		2020	$	77	$	2,021
2021	2021	77		1,790		2021	77		2,017
2022	2022	1		1,529		2022	32		1,872
2023	2023	—		1,381		2023	—		1,629
2024 and thereafter		—		10,416
2024						2024	—		1,585
2025 and thereafter						2025 and thereafter	—		12,746
Total future minimum lease payments	Total future minimum lease payments	$	246	$	18,827	Total future minimum lease payments	$	186	$	21,870
Less: Amounts representing interest	Less: Amounts representing interest	(10)		(3,785)		Less: Amounts representing interest	(6)		(4,692)
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	236	$	15,042	Present value of net future minimum lease payments	$	180	$	17,178

Note 6 – Deposits

Deposits were as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019		December 31, 2018		(Dollars in thousands)	March 31, 2020		December 31, 2019
Noninterest-bearing demand	Noninterest-bearing demand	$	274,970	$	213,597	Noninterest-bearing demand	$	387,536	$	278,547
Interest-bearing demand	Interest-bearing demand	426,783		376,398		Interest-bearing demand	375,024		351,435
Savings and money markets	Savings and money markets	374,511		317,697		Savings and money markets	378,838		363,026
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	380,140		401,462		Time deposits, including CDs and IRAs	456,841		272,034
Total deposits	Total deposits	$	1,456,404	$	1,309,154	Total deposits	$	1,598,239	$	1,265,042

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	12,458	$	15,280	Time deposits that meet or exceed the FDIC insurance limit	$	8,382	$	8,955

Maturities of time deposits were as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019		(Dollars in thousands)	March 31, 2020
2019		$	182,232
2020	2020	135,953		2020	$	336,219
2021	2021	16,943		2021	67,491
2022	2022	23,655		2022	32,344
2023	2023	21,357		2023	13,558
2024				2024	7,229
Total	Total	$	380,140	Total	$	456,841

Note 7 – Borrowed Funds

Short-term borrowings

Along with traditional deposits, the Bank has access to short-term borrowings from the FHLB, Federal Reserve discount window borrowings, and Fed Funds purchased from correspondent banks to fund its operations and investments. Short-term borrowings totaled ~~$240.8 million~~$0 at ~~September 30, 2019,~~March 31, 2020, compared to ~~$212.4~~$192.1 million at December 31, ~~2018.~~2019.

Information related to short-term borrowings is summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019			December 31, 2018			(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	240,811		$	212,395		Balance at end of period	$	—		$	192,063
Average balance during the period	Average balance during the period	215,921			171,117			Average balance during the period	160,429			187,226
Maximum month-end balance	Maximum month-end balance	240,811			264,297			Maximum month-end balance	124,631			240,811
Weighted-average rate during the year		2.40		%	2.27		%
Weighted-average rate during the period								Weighted-average rate during the period	0.92		%	2.24		%
Weighted-average rate at end of period	Weighted-average rate at end of period	2.08		%	2.62		%	Weighted-average rate at end of period	0.36		%	1.81		%

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase ~~“repurchase~~(“repurchase agreements”) with customers representing funds deposited by customers, on an overnight basis, that are collateralized by investment securities owned by the Company. Repurchase agreements with customers are included in borrowings section on the consolidated balance sheets. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between the Company and the client and are accounted for as secured borrowings. The Company’s repurchase agreements reflected in liabilities consist of customer accounts and securities which are pledged on an individual security basis.

The Company monitors the fair value of the underlying securities on a monthly basis. Repurchase agreements are reflected at the amount of cash received in connection with the transaction and included in ~~Securities sold under~~repurchase agreements ~~to repurchase~~ on the consolidated balance sheets. The primary risk with the Company’s repurchase agreements is market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

All of the Company’s repurchase agreements were overnight agreements at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. These borrowings were collateralized with investment securities with a carrying value of ~~$9.8~~$9.7 million and ~~$15.4~~$10.5 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, and were comprised of U.S. Government Agencies and Mortgage backed securities. Declines in the value of the collateral would require the Company to increase the amounts of securities pledged.

Repurchase agreements totaled ~~$9.5~~$9.3 million at ~~September 30, 2019,~~March 31, 2020, compared to ~~$14.9~~$10.2 million at December 31, ~~2018.~~2019.

Information related to repurchase agreements is summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019			December 31, 2018			(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	9,460		$	14,925		Balance at end of period	$	9,346		$	10,172
Average balance during the period	Average balance during the period	9,493			18,536			Average balance during the period	9,520			11,252
Maximum month-end balance	Maximum month-end balance	14,655			20,903			Maximum month-end balance	9,788			14,655
Weighted-average rate during the year		0.47		%	0.30		%
Weighted-average rate during the period								Weighted-average rate during the period	0.44		%	0.43		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.48		%	0.16		%	Weighted-average rate at end of period	0.13		%	0.44		%

Long-term notes from the FHLB were as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019		December 31, 2018		(Dollars in thousands)	March 31, 2020		December 31, 2019
Fixed interest rate notes, originating between October 2006 and April 2007, due between October 2021 and April 2022, interest of between 5.18% and 5.20% payable monthly	Fixed interest rate notes, originating between October 2006 and April 2007, due between October 2021 and April 2022, interest of between 5.18% and 5.20% payable monthly	$	830	$	1,741	Fixed interest rate notes, originating between October 2006 and April 2007, due between October 2021 and April 2022, interest of between 5.18% and 5.20% payable monthly	$	815	$	822
Amortizing fixed interest rate note, originating February 2007, due February 2022, payable in monthly installments of $5 thousand, including interest of 5.22%		—		751
Fixed interest rate notes, originating in November 2019, due between November 2022 and November 2024, with interest of between 1.74% and 1.81% payable monthly						Fixed interest rate notes, originating in November 2019, due between November 2022 and November 2024, with interest of between 1.74% and 1.81% payable monthly	30,000		30,000
		$	830	$	2,492		$	30,815	$	30,822

Subordinated Debt

Information related to subordinated debt is summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2019			December 31, 2018			(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	4,124		$	17,524		Balance at end of period	$	4,124		$	4,124
Average balance during the period	Average balance during the period	9,535			25,774			Average balance during the period	4,124			12,125
Maximum month-end balance	Maximum month-end balance	17,524			33,524			Maximum month-end balance	4,124			17,524
Weighted-average rate during the year		6.55		%	6.81		%
Weighted-average rate during the period								Weighted-average rate during the period	3.35		%	6.35		%
Weighted-average rate at end of period	Weighted-average rate at end of period	3.74		%	6.57		%	Weighted-average rate at end of period	2.36		%	3.51		%

In March 2007, the Company completed the private placement of $4 million Floating Rate, Trust Preferred Securities through its MVB Financial Statutory Trust I subsidiary (the “Trust”). The Company established the Trust for the sole purpose of issuing the Trust Preferred Securities pursuant to an Amended and Restated Declaration of Trust. The proceeds from the sale of the Trust Preferred Securities will be loaned to the Company under subordinated Debentures (the “Debentures”) issued to the Trust pursuant to an Indenture. The Debentures are the only asset of the Trust. The Trust Preferred Securities have been issued to a pooling vehicle that will use the distributions on the Trust Preferred Securities to securitize note obligations. The securities issued by the Trust are includable for regulatory purposes as a component of the Company’s Tier 1 capital.

The Trust Preferred Securities and the Debentures mature in 2037 and have been redeemable by the Company since 2012. Interest payments are due in March, June, September, and December and are adjusted at the interest due dates at a rate of 1.62% over the three-month LIBOR Rate. The obligations of the Company with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of the Trust’s obligations with respect to the trust preferred securities to the extent set forth in the related guarantees.

On June 30, 2014, the Company issued its Convertible Subordinated Promissory Notes Due 2024 (the “Notes”) to various investors in the aggregate principal amount of $29,400,000. The Notes were issued in $100,000 increments per Note subject to a minimum investment of $1,000,000. The Notes expire 10 years after the initial issuance date of the Notes (the “Maturity Date”).

Interest on the Notes accrues on the unpaid principal amount of each Note (paid quarterly in arrears on January 1, April 1, July 1, and October 1 of each year) which rate shall be dependent upon the principal invested in the Notes and the holder’s ownership of common stock in the Company. For investments of less than $3,000,000 in Notes, an ownership of Company common stock representing at least 30% of the principal of the Notes acquired, the interest rate on the Notes is 7% per annum. For investments of $3,000,000 or greater in Notes and ownership of the Company’s common stock representing at least 30% of the principal of the Notes acquired, the interest rate on the Notes is 7.5% per annum. For investments of $10,000,000 or greater, the interest rate on the Notes is 7% per annum, regardless of whether the holder owns or acquires MVB common stock. The principal on the Notes shall be paid in full at the Maturity Date. On the fifth anniversary of the issuance of the Notes, a holder may elect to continue to

receive the stated fixed rate on the Notes or a floating rate determined by LIBOR plus 5% up to a maximum rate of 9%, adjusted quarterly.

The Notes are unsecured and subject to the terms and conditions of any senior debt and after consultation with the Board of Governors of the Federal Reserve System, the Company may, after the Notes have been outstanding for 5 years, and without premium or penalty, prepay all or a portion of the unpaid principal amount of any Note together with the unpaid interest accrued on such portion of the principal amount of such Note. All such prepayments shall be made pro rata among the holders of all outstanding Notes.

At the election of a holder, any or all of the Notes may be converted into shares of common stock during the 5-day period after the first, second, third, fourth, and fifth anniversaries of the issuance of the Notes or upon a notice to prepay by the Company. On December 28, 2017, the Company distributed notices to the holders of the Notes that provide that the Company has elected to waive the timing requirements associated with when a conversion may occur and, instead, the Company will accept notices of conversion at any time prior to July 1, 2019, which is the final conversion date for the Notes. The Notes will convert into common stock based on $16 per share of the Company’s common stock. The conversion price will be subject to anti-dilution adjustments for certain events such as stock splits, reclassifications, non-cash distributions, extraordinary cash dividends, pro rata repurchases of common stock, and business combination transactions. The Company must give 20 days’ notice to the holders of the Company’s intent to prepay the Notes, so that holders may execute the conversion right set forth above if a holder so desires.

Repayment of the Notes is subordinated to the Company’s outstanding senior debt including (if any) without limitation, senior secured loans. No payment will be made by the Company, directly or indirectly, on the Notes, unless and until all of the senior debt then due has been paid in full. Notwithstanding the foregoing, so long as there exists no event of default under any senior debt, the Company would make, and a holder would receive and retain for the holder’s account, regularly scheduled payments of accrued interest and principal pursuant to the terms of the Notes.

The Company must obtain a consent of the holders of the Notes prior to issuing any new senior debt in excess of $15,000,000 after the date of issuance of the Notes and prior to the Maturity Date.

An event of default will occur upon the Company’s bankruptcy or any failure to pay interest, principal, or other amounts owing on the Notes when due. Upon the occurrence and during the continuance of an event of default (but subject to the subordination provisions of the Notes) the holders of a majority of the outstanding principal amount of the Notes may declare all or any portion of the outstanding principal amount of the Notes due and payable and demand immediate payment of such amount.

The Notes are redeemable, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed on any interest payment date after a date five years from the original issue date. As of ~~September 30, 2019,~~March 31, 2020, all subordinated debt notes have been converted or redeemed.

The Company reflects subordinated debt in the amount of $4.1 million as of ~~September 30, 2019~~March 31, 2020 and ~~$17.5~~$4.1 million as of December 31, ~~2018~~2019 and interest expense of ~~$728~~$35 thousand and ~~$1.4 million~~$285 thousand for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

In 2018, $16.0 million of subordinated debt was converted into common stock, which resulted in the issuance of 1,000,000 new shares and provided an annual interest expense savings of $1.1 million.

~~During the nine months ended September 30,~~In 2019, $1.0 million of subordinated debt was converted into common stock, which resulted in the issuance of 62,500 new shares, and $12.4 million of subordinated debt was redeemed. These transactions provided an annual interest expense savings of $970 thousand.

2724

A summary of maturities of borrowings and subordinated debt over the next five years is as follows (dollars in thousands):


Year	Year	Amount		Year	Amount
2019		$	240,818
2020	2020	30		2020	$	22
2021	2021	32		2021	32
2022	2022	761		2022	10,761
2023	2023	—		2023	10,000
2024				2024	10,000
Thereafter	Thereafter	4,124		Thereafter	4,124
		$	245,765		$	34,939

Note 8 – Fair Value of Financial Instruments

Accounting standards require that the Company adopt fair value measurement for financial assets and financial liabilities. This enhanced guidance for using fair value to measure assets and liabilities applies whenever other standards require or permit assets or liabilities to be measured at fair value. This guidance does not expand the use of fair value in any new circumstances.

Accounting standards establish a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by these standards are as follows:


Level I:			Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:			Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III:			Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The methods of determining the fair value of assets and liabilities presented in this footnote are consistent with our methodologies disclosed in Note 17, “Fair Value of Financial Instruments” and Note 18, “Fair Value Measurement” of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the Company’s ~~2018~~2019 Annual Report on Form 10-K, except for the valuation of loans held for investment which was impacted by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment is estimated using a discounted cash flow analysis. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level III classification.10-K.

Assets Measured on a Recurring Basis

As required by accounting standards, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ~~The Company classified investments in government securities as Level II instruments and valued them using the market approach.~~ The following measurements are made on a recurring basis.

•Available-for-sale investment securities – Available-for-sale investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level I securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level II securities include mortgage-backed securities issued by government sponsored entities and private label entities, municipal bonds, and corporate debt securities. There have been no changes in valuation techniques for the three ~~or nine~~ months ended ~~September 30, 2019.~~March 31, 2020. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to tax increment financing (“TIF”) are independently valued and classified as Level III instruments. The Company classified investments in government securities as Level II instruments and valued them using the market approach.

•Equity securities–Certain equity securities are recorded at fair value on both a recurring and nonrecurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions, and other factors such as credit loss assumptions.

The valuation methodologies utilized may include significant unobservable inputs. There have been no changes in valuation techniques for the three months ended March 31, 2020. Valuation techniques are consistent with techniques used in prior periods.

•Loans held for sale – The fair value of mortgage loans held for sale is determined, when possible, using quoted secondary-market prices or investor commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants.

•Interest rate lock ~~commitment~~commitments – The Company estimates the fair value of interest rate lock commitments based on the value of the underlying mortgage loan, quoted mortgage-backed security prices, and estimates of the fair value of the mortgage servicing rights and the probability that the mortgage loan will fund within the terms of the interest rate lock commitments.

•Mortgage-backed security hedges – MBS hedges are considered derivatives and are recorded at fair value based on observable market data of the individual mortgage-backed security.

•~~Interest rate cap~~–The fair value of the interest rate cap is determined at the end of each quarter by using Bloomberg Finance which values the interest rate cap using observable inputs from forward and futures yield curves as well as standard market volatility.

•Interest rate swap – Interest rate swaps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

•Fair value hedge – Treated like an interest rate swap, fair value hedges are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data.

The following tables present the assets reported on the consolidated statements of financial condition at their fair value on a recurring basis as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2019
(Dollars in thousands) Level I Level II Level III Total
Assets:
     U.S. Government Agency securities $ — $ 53,270 $ — $ 53,270
     U.S. Sponsored Mortgage backed securities — 49,982 — 49,982
     Municipal securities — 76,575 35,449 112,024
     Other securities — 10,788 — 10,788
     Loans held for sale — 159,961 — 159,961
     Interest rate lock commitment — — 2,315 2,315
     Interest rate swap — 6,695 — 6,695
     Fair value hedge — 846 — 846
Liabilities:
     Interest rate swap — 6,695 — 6,695
     Fair value hedge — 1,988 — 1,988
     Mortgage-backed security hedges — 231 — 231

December 31, 2018
(Dollars in thousands) Level I Level II Level III Total
Assets:
     U.S. Government Agency securities $ — $ 77,430 $ — $ 77,430
     U.S. Sponsored Mortgage backed securities — 50,115 — 50,115
     Municipal securities — 50,639 33,122 83,761
     Other securities — 10,308 — 10,308
     Equity securities 6,027 3,272 300 9,599
     Loans held for sale — 75,807 — 75,807
     Interest rate lock commitment — — 1,750 1,750
     Interest rate swap — 1,375 — 1,375
     Interest rate cap — 8 — 8
Liabilities:
     Interest rate swap — 1,375 — 1,375
     Fair value hedge — 343 — 343
     Mortgage-backed security hedges — 853 — 853


	March 31, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency securities	$	—	$	37,366	$	—	$	37,366
U.S. Sponsored Mortgage backed securities	—		57,354		—		57,354
Municipal securities	—		79,993		36,626		116,619
Other securities	—		11,762		—		11,762
Equity securities	512		—		—		512
Loans held for sale	—		186,128		—		186,128
Interest rate lock commitment	—		—		5,791		5,791
Interest rate swap	—		15,733		—		15,733
Fair value hedge	—		1,447		—		1,447
Bank-owned life insurance	—		35,597		—		35,597
Liabilities:
Interest rate swap	—		15,733		—		15,733
Fair value hedge	—		2,922		—		2,922
Mortgage-backed security hedges	—		5,317		—		5,317

3026


	December 31, 2019
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. Government Agency securities	$	—	$	51,996	$	—	$	51,996
U.S. Sponsored Mortgage backed securities	—		58,312		—		58,312
Municipal securities	—		75,833		37,259		113,092
Other securities	—		12,421		—		12,421
Loans held for sale	—		109,788		—		109,788
Interest rate lock commitment	—		—		1,660		1,660
Interest rate swap	—		5,722		—		5,722
Fair value hedge	—		1,770		—		1,770
Bank-owned life insurance	—		35,374		—		35,374
Liabilities:
Interest rate swap	—		5,722		—		5,722
Fair value hedge	—		1,418		—		1,418
Mortgage-backed security hedges	—		186		—		186

The following table represents recurring level III assets:


(Dollars in thousands)	(Dollars in thousands)	Interest Rate Lock Commitments		Municipal Securities		Equity Securities		Total		(Dollars in thousands)	Interest Rate Lock Commitments		Municipal Securities		Equity Securities		Total
Balance at January 1, 2019		$	1,750	$	33,122	$	300	$	35,172
Balance at December 31, 2019										Balance at December 31, 2019	$	1,660	$	37,259	$	—	$	38,919
Realized and unrealized gains included in earnings										Realized and unrealized gains included in earnings	4,131		—		—		4,131
Purchase of securities										Purchase of securities	—		522		—		522

Unrealized loss included in other comprehensive income (loss)										Unrealized loss included in other comprehensive income (loss)	—		(1,155)		—		(1,155)
Balance at March 31, 2020										Balance at March 31, 2020	$	5,791	$	36,626	$	—	$	42,417

Balance at December 31, 2018										Balance at December 31, 2018	$	1,750	$	33,122	$	300	$	35,172
Realized and unrealized gains included in earnings	Realized and unrealized gains included in earnings	565		—		—		565		Realized and unrealized gains included in earnings	506		—		—		506
Purchase of securities	Purchase of securities	—		682		1,300		1,982		Purchase of securities	—		—		450		450
Unrealized gain included in other comprehensive income (loss)	Unrealized gain included in other comprehensive income (loss)	—		10,707		16,814		27,521		Unrealized gain included in other comprehensive income (loss)	—		5,012		—		5,012
Unrealized loss included in other comprehensive income (loss)	Unrealized loss included in other comprehensive income (loss)	—		(9,062)		—		(9,062)		Unrealized loss included in other comprehensive income (loss)	—		(1,333)		—		(1,333)
Balance at September 30, 2019		$	2,315	$	35,449	$	18,414	$	56,178
Balance at March 31, 2019										Balance at March 31, 2019	$	2,256	$	36,801	$	750	$	39,807

Balance at July 1, 2019		$	2,541	$	30,537	$	1,550	$	34,628
Realized and unrealized gains included in earnings		(226)		—		—		(226)
Purchase of securities		—		573		50		623
Unrealized gain included in other comprehensive income (loss)		—		4,339		16,814		21,153
Unrealized loss included in other comprehensive income (loss)		—		—		—		—
Balance at September 30, 2019		$	2,315	$	35,449	$	18,414	$	56,178

Balance at January 1, 2018		$	1,426	$	22,909	$	900	$	25,235
Realized and unrealized gains included in earnings		246		—		672		918
Purchase of securities		—		6,232		2,000		8,232
Unrealized gain included in other comprehensive income (loss)		—		1,541		—		1,541
Unrealized loss included in other comprehensive income (loss)		—		(1,358)		—		(1,358)
Balance at September 30, 2018		$	1,672	$	29,324	$	3,572	$	34,568

Balance at July 1, 2018		$	2,375	$	28,173	$	900	$	31,448
Realized and unrealized losses included in earnings		(703)		—		672		(31)
Purchase of securities		—		—		2,000		2,000
Unrealized gain included in other comprehensive income (loss)		—		1,787		—		1,787
Unrealized loss included in other comprehensive income (loss)		—		(636)		—		(636)
Balance at September 30, 2018		$	1,672	$	29,324	$	3,572	$	34,568

Assets Measured on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets, and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a nonrecurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a nonrecurring basis during ~~2019~~2020 and ~~2018~~2019 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other noninterest expense.

•Impaired loans – Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually

impaired, management measures impairment using one of several methods, including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. For a majority of impaired real estate related loans, the Company obtains a current external appraisal. Other valuation techniques are used as well, including internal valuations, comparable property analysis and contractual sales information.

•Other real estate owned – Other real estate owned, which is obtained through the Bank’s foreclosure process is valued utilizing the appraised collateral value. Collateral values are estimated using Level II inputs based on observable market data or Level III inputs based on customized discounting criteria. At the time, the foreclosure is completed, the Company obtains a current external appraisal.

•Equity securities – ~~Equity~~Certain equity securities are recorded at fair value on a nonrecurring basis. ~~Fair~~Equity securities without a readily determinable fair value ~~measurement is based upon quoted prices, if available. If quoted prices are not available, fair values~~ are measured ~~using independent pricing models~~at cost minus impairment, if any, plus or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. The valuation methodologies utilized may include significant unobservable inputs. There have been nominus any changes resulting from observable price changes in ~~valuation techniques~~orderly transactions, as defined, for identical or similar investments of the ~~three or nine months ended September 30, 2019. Valuation techniques are consistent with techniques used in prior periods.~~same issuer.

Assets measured at fair value on a nonrecurring basis as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are included in the table below:


		September 30, 2019															March 31, 2020
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	Impaired loans	$	—	$	—	$	8,716	$	8,716	Impaired loans	$	—	$	—	$	9,694	$	9,694
Other real estate owned	Other real estate owned	—		—		1,361		1,361		Other real estate owned	—		—		1,206		1,206
Equity securities	Equity securities	—		—		18,414		18,414		Equity securities	—		—		18,514		18,514


		December 31, 2018															December 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	Impaired loans	$	—	$	—	$	11,735	$	11,735	Impaired loans	$	—	$	—	$	8,909	$	8,909
Other real estate owned	Other real estate owned	—		—		2,145		2,145		Other real estate owned	—		—		1,397		1,397
Equity securities										Equity securities	—		—		18,514		18,514

3228

The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

September 30, 2019

March 31, 2020

Nonrecurring measurements:

Impaired loans

8,716

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Impaired loans

9,694

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Liquidation expense ²

5% - 10%

Liquidation expense ²

5% - 10%

Other real estate owned

1,361

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Other real estate owned

1,206

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Liquidation expense ²

5% - 10%

Liquidation expense ²

5% - 10%

Equity securities

18,514

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

35,449

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Municipal securities (Local TIF bonds)

36,626

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Equity securities

18,414

Net asset value

Cost minus impairment

Interest rate lock commitments

2,315

Pricing model

Pull through rates

77% - 82%

Interest rate lock commitments

5,791

Pricing model

Pull through rates

78% - 84%

Quantitative Information about Level III Fair Value Measurements

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Range

December 31, 2018

December 31, 2019

Nonrecurring measurements:

Impaired loans

11,735

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Impaired loans

8,909

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Liquidation expense ²

5% - 10%

Liquidation expense ²

5% - 10%

Other real estate owned

2,145

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Other real estate owned

1,397

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Liquidation expense ²

5% - 10%

Liquidation expense ²

5% - 10%

Equity securities

18,514

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

33,122

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Municipal securities (Local TIF bonds)

37,259

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Equity securities

300

Net asset value

Cost minus impairment

Interest rate lock commitments

1,750

Pricing model

Pull through rates

80% - 88%

Interest rate lock commitments

1,660

Pricing model

Pull through rates

77% - 82%

¹ Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

² Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

³ Fair value determined through independent analysis of liquidity, rating, yield and duration.

⁴ Appraisals may be adjusted for qualitative factors such as local economic conditions.

Estimated fair value of financial instruments have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments.

3329

The carrying values and estimated fair values of the Company’s financial instruments are summarized as follows:

Fair Value Measurements at:


(Dollars in thousands)	(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)		(Dollars in thousands)	Carrying Value		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level I)		Significant Other Observable Inputs (Level II)		Significant Unobservable Inputs (Level III)
September 30, 2019
March 31, 2020												March 31, 2020
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	36,568	$	36,568	$	36,568	$	—	$	—	Cash and cash equivalents	$	88,874	$	88,874	$	88,874	$	—	$	—
Certificates of deposits with other banks	Certificates of deposits with other banks	13,541		13,540		—		13,540		—		Certificates of deposits with other banks	12,549		12,584		—		12,584		—
Securities available-for-sale	Securities available-for-sale	225,218		225,218		—		189,769		35,449		Securities available-for-sale	223,101		223,101		—		186,475		36,626
Equity securities	Equity securities	18,414		18,414		—		—		18,414		Equity securities	19,026		19,026		512		—		18,514
Loans held for sale	Loans held for sale	159,961		159,961		—		159,961		—		Loans held for sale	186,128		186,128		—		186,128		—
Loans, net	Loans, net	1,370,501		1,371,646		—		—		1,371,646		Loans, net	1,385,417		1,386,857		—		—		1,386,857
Mortgage servicing rights	Mortgage servicing rights	315		315		—		—		315		Mortgage servicing rights	344		344		—		—		344
Interest rate lock commitment	Interest rate lock commitment	2,315		2,315		—		—		2,315		Interest rate lock commitment	5,791		5,791		—		—		5,791

Interest rate swap	Interest rate swap	6,695		6,695		—		6,695		—		Interest rate swap	15,733		15,733		—		15,733		—

Accrued interest receivable	Accrued interest receivable	7,585		7,585		—		1,800		5,785		Accrued interest receivable	8,445		8,445		—		1,702		6,743
Bank-owned life insurance												Bank-owned life insurance	35,597		35,597		—		35,597		—

Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	1,456,404	$	1,421,521	$	—	$	1,421,521	$	—	Deposits	$	1,598,239	$	1,594,168	$	—	$	1,594,168	$	—
Repurchase agreements	Repurchase agreements	9,460		9,460		—		9,460		—		Repurchase agreements	9,346		9,346		—		9,346		—
FHLB and other borrowings	FHLB and other borrowings	241,641		241,641		—		241,641		—		FHLB and other borrowings	30,815		30,818		—		30,818		—
Mortgage-backed security hedges	Mortgage-backed security hedges	231		231		—		231		—		Mortgage-backed security hedges	5,317		5,317		—		5,317		—
Interest rate swap	Interest rate swap	6,695		6,695		—		6,695		—		Interest rate swap	15,733		15,733		—		15,733		—
Fair value hedge	Fair value hedge	1,988		1,988		—		1,988		—		Fair value hedge	2,922		2,922		—		2,922		—
Accrued interest payable	Accrued interest payable	1,018		1,018		—		1,018		—		Accrued interest payable	808		808		—		808		—
Subordinated debt	Subordinated debt	4,124		4,124		—		4,124		—		Subordinated debt	4,124		4,124		—		4,124		—

December 31, 2018
December 31, 2019												December 31, 2019
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	22,221	$	22,221	$	22,221	$	—	$	—	Cash and cash equivalents	$	28,002	$	28,002	$	28,002	$	—	$	—
Certificates of deposits with other banks	Certificates of deposits with other banks	14,778		14,300		—		14,300		—		Certificates of deposits with other banks	12,549		12,586		—		12,586		—
Securities available-for-sale	Securities available-for-sale	221,614		221,614		—		188,492		33,122		Securities available-for-sale	235,821		235,821		—		198,562		37,259
Equity securities	Equity securities	9,599		9,599		6,027		3,272		300		Equity securities	18,514		18,514		—		—		18,514
Loans held for sale	Loans held for sale	75,807		75,807		—		75,807		—		Loans held for sale	109,788		109,788		—		109,788		—
Loans, net	Loans, net	1,293,427		1,276,065		—		—		1,276,065		Loans, net	1,362,766		1,364,706		—		—		1,364,706
Mortgage servicing rights	Mortgage servicing rights	173		173		—		—		173		Mortgage servicing rights	348		348		—		—		348
Interest rate lock commitment	Interest rate lock commitment	1,750		1,750		—		—		1,750		Interest rate lock commitment	1,660		1,660		—		—		1,660
Interest rate swap	Interest rate swap	1,375		1,375		—		1,375		—		Interest rate swap	5,722		5,722		—		5,722		—
Interest rate cap		8		8		—		8		—
Fair value hedge												Fair value hedge	1,770		1,770		—		1,770
Accrued interest receivable	Accrued interest receivable	7,710		7,710		—		1,368		6,342		Accrued interest receivable	7,909		7,909		—		1,591		6,317
Bank-owned life insurance												Bank-owned life insurance	35,374		35,374		—		35,374		—

Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	1,309,154	$	1,249,164	$	—	$	1,249,164	$	—	Deposits	$	1,265,042	$	1,249,135	$	—	$	1,249,135	$	—
Repurchase agreements	Repurchase agreements	14,925		14,925		—		14,925		—		Repurchase agreements	10,172		10,172		—		10,172		—
FHLB and other borrowings	FHLB and other borrowings	214,887		214,969		—		214,969		—		FHLB and other borrowings	222,885		222,891		—		222,891		—
Mortgage-backed security hedges	Mortgage-backed security hedges	853		853		—		853		—		Mortgage-backed security hedges	186		186		—		186		—
Interest rate swap	Interest rate swap	1,375		1,375		—		1,375		—		Interest rate swap	5,722		5,722		—		5,722		—
Fair value hedge	Fair value hedge	343		343		—		343		—		Fair value hedge	1,418		1,418		—		1,418		—
Accrued interest payable	Accrued interest payable	1,064		1,064		—		1,064		—		Accrued interest payable	1,060		1,060		—		1,060		—
Subordinated debt	Subordinated debt	17,524		18,250		—		18,250		—		Subordinated debt	4,124		4,124		—		4,124		—

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial

instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Note 9 – Stock Offerings

On ~~March 13, 2017,~~August 12, 2019, the Board of Directors of the Company ~~entered into an Investment Agreement (the “Investment Agreement”) with~~announced the approval of a stock repurchase program. Under the program, the Company is authorized to repurchase up to $5.0 million of its ~~Chief Executive Officer, Larry F. Mazza (“Mazza”). Pursuant~~outstanding shares of common stock over the next 12 months or until the purchase is fully absorbed, whichever date comes first on the open market or in privately negotiated transactions. The stock repurchase program does not require the Company to ~~the Investment Agreement, Mazza committed to subscribe for and purchase, at the Subscription Price, upon expiration of the Rights Offering, the~~repurchase any specified number of shares of ~~the Company’s~~its common stock, ifand it may be discontinued, suspended, or restarted at any ~~equal to~~time at the amount by which 100,000 exceeds the number of shares purchased by Mazza in the Rights Offering. Pursuant to the Investment Agreement, Mazza agreed not to sell or otherwise transfer any shares acquired in connection with the Investment Agreement for a period of six months following the closing of the Rights Offering.Company's discretion.

~~Larry F. Mazza purchased 100,000~~In March 2020, the Company repurchased 16,300 shares of ~~the Company’s common stock: 90,999 under the rights offering and 9,001 shares under the Investment Agreement.~~

On March 13, 2017, the Company filed with the SEC a prospectus supplement and accompanying base prospectus (collectively, the “Prospectus”) relating to the commencement of the Company’s rights offering (the “Rights Offering”), pursuant to which the Company distributed, at no charge, non-transferable subscription rights to the holders of its outstanding common stock, as of 5:00 p.m., Eastern time, on March 10, 2017. The subscription rights were exercisable for up to a total of 434,783 shares of the Company’s common stock, subject to such terms and conditions as further described in the Prospectus.

On April 20, 2017, the Company announced the completion of the rights offering, which expired at 5:00 p.m. Eastern time on April 14, 2017. All 434,783 shares offered in the rights offering were subscribed for, resulting in new capital of approximately $5.0 million. Computershare, who served as subscription agent, completed its review and tabulation of subscriptions on April 19, 2017. Computershare issued the shares acquired in the rights offering by book entry in the Company’s stock ownership records, which are maintained by Computershare, as transfer agent, on or about April 20, 2017.

On June 30, 2014, the Company filed Certificates of Designations for its Convertible Noncumulative Perpetual Preferred Stock, Series B (“Class B Preferred”) and its Convertible Noncumulative Perpetual Preferred Stock, Series C (“Class C Preferred”). The Class B Preferred Certificate designated 400 shares of preferred stock as Class B Preferred shares. The Class B Preferred shares carrywith an annual dividend rate of 6% and are convertible into shares of Company common stock within 30 days after the first, second, third, fourth and fifth anniversaries of the original issue date, based on a common stockaverage share price of $16 per share, as adjusted for future corporate activities. On December 28, 2017, the Company distributed a notice to each of the holders of the Class B Preferred Stock regarding the Company’s agreement to waive the timing requirements associated with when a conversion may occur and, instead, the Company will accept notices of conversion at any time prior to July 30, 2019, which is the final conversion date for the Preferred Stock. The Class B Preferred shares are redeemable by the Company on or after the fifth anniversary of the original issue date for Liquidation Amount, as defined therein, plus declared and unpaid dividends. Redemption is subject to any necessary regulatory approvals. In the event of liquidation of the Company, shares of Class B Preferred stock shall be junior to creditors of the Company and to the shares of Senior Noncumulative Perpetual Preferred Stock, Series A. Holders of Class B Preferred shares shall have no voting rights, except for authorization of senior shares of stock, amendment to the Class B Preferred shares, share exchanges, reclassifications or changes of control, or as required by law.

The Class C Preferred Certificate designated 383.4 shares of preferred stock as Class C Preferred shares. The Class C Preferred shares carry an annual dividend rate of 6.5% and are convertible into shares of Company common stock within 30 days after the first, second, third, fourth and fifth anniversaries of the original issue date, based on a common stock price of $16 per share, as adjusted for future corporate activities. On December 28, 2017, the Company distributed a notice to each of the holders of the Class C Preferred Stock regarding the Company’s agreement to waive the timing requirements associated with when a conversion may occur and, instead, the Company will accept notices of conversion at any time prior to July 30, 2019, which is the final conversion date for the Preferred Stock. The Class C Preferred shares are redeemable by the Company on or after the fifth anniversary of the original issue date for Liquidation Amount, as defined therein, plus declared and unpaid dividends. Redemption is subject to any necessary regulatory approvals. In the event of liquidation of the Company, shares of Class C Preferred stock shall be junior to creditors of the Company and to the shares of Senior Noncumulative Perpetual Preferred Stock, Series A, and the Class B Preferred shares. Holders of Class C Preferred shares shall have no voting rights, except for authorization of senior shares of stock, amendment to the Class C Preferred shares, share exchanges, reclassifications, or changes of control, or as

~~required by law. The proceeds of these preferred stock offerings will be used to support continued growth of the Company and its subsidiaries.~~

~~On August 27, 2019, the Company redeemed preferred stock in the amount of $500 thousand~~.$16.00.

Note 10 – Net Income Per Common Share

The Company determines basic earnings per share by dividing net income less preferred stock dividends by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by dividing net income less dividends on convertible preferred stock plus interest on convertible subordinated debt by the weighted average number of shares outstanding increased by both the number of shares that would be issued assuming the exercise of stock options or restricted stock unit awards under the Company’s 2003 and 2013 Stock Incentive Plans and the conversion of preferred stock and subordinated debt if dilutive.


		Nine Months Ended September 30						Three Months Ended September 30							Three Months Ended March 31
(Dollars in thousands except shares and per share data)	(Dollars in thousands except shares and per share data)	2019		2018		2019		2018		(Dollars in thousands except shares and per share data)	2020		2019
Numerator for basic earnings per share:	Numerator for basic earnings per share:									Numerator for basic earnings per share:
Net income from continuing operations		$	22,469	$	9,004	$	4,346	$	3,579
Net income										Net income	$	1,048	$	3,192
Less: Dividends on preferred stock	Less: Dividends on preferred stock	364		366		121		123		Less: Dividends on preferred stock	114		121
Net income from continuing operations available to common shareholders - basic		22,105		8,638		4,225		3,456
Net income from discontinued operations available to common shareholders - basic and diluted		427		—		(19)		—
Net income available to common shareholders		$	22,532	$	8,638	$	4,206	$	3,456
Net income available to common shareholders - basic										Net income available to common shareholders - basic	$	934	$	3,071

Numerator for diluted earnings per share:	Numerator for diluted earnings per share:									Numerator for diluted earnings per share:
Net income from continuing operations available to common shareholders - basic		$	22,105	$	8,638	$	4,225	$	3,456
Net income available to common shareholders - basic										Net income available to common shareholders - basic	$	934	$	3,071
Add: Dividends on convertible preferred stock	Add: Dividends on convertible preferred stock	—		366		—		123		Add: Dividends on convertible preferred stock	—		121
Add: Interest on subordinated debt (tax effected)	Add: Interest on subordinated debt (tax effected)	—		—		—		228		Add: Interest on subordinated debt (tax effected)	—		184
Net income from continuing operations available to common shareholders - diluted		$	22,105	$	9,004	$	4,225	$	3,807
Net income available to common shareholders - diluted										Net income available to common shareholders - diluted	$	934	$	3,376

Denominator:	Denominator:									Denominator:
Total average shares outstanding	Total average shares outstanding	11,661,581		10,845,166		11,731,774		11,416,202		Total average shares outstanding	11,942,767		11,607,543
Effect of dilutive convertible preferred stock	Effect of dilutive convertible preferred stock	—		489,625		—		489,625		Effect of dilutive convertible preferred stock	—		489,625
Effect of dilutive convertible subordinated debt	Effect of dilutive convertible subordinated debt	—		—		—		900,000		Effect of dilutive convertible subordinated debt	—		837,500
Effect of dilutive stock options and restricted stock units	Effect of dilutive stock options and restricted stock units	295,804		355,523		366,561		307,432		Effect of dilutive stock options and restricted stock units	355,325		242,613
Total diluted average shares outstanding	Total diluted average shares outstanding	11,957,385		11,690,314		12,098,335		13,113,259		Total diluted average shares outstanding	12,298,092		13,177,281

Earnings per share from continuing operations - basic		$	1.89	$	0.80	$	0.36	$	0.30
Earnings per share from discontinued operations - basic		$	0.04	$	—	$	—	$	—
Earnings per share - basic	Earnings per share - basic	$	1.93	$	0.80	$	0.36	$	0.30	Earnings per share - basic	$	0.08	$	0.26
Earnings per share from continuing operations - diluted		$	1.84	$	0.77	$	0.35	$	0.29
Earnings per share from discontinued operations - diluted		$	0.04	$	—	$	—	$	—
Earnings per share - diluted	Earnings per share - diluted	$	1.88	$	0.77	$	0.35	$	0.29	Earnings per share - diluted	$	0.08	$	0.26

For the three months ended ~~September 30,~~March 31, 2020 and 2019, approximately 366 thousand and ~~2018, approximately 389 and 377~~385 thousand, respectively, options to purchase shares of common stock were not included in the computation of diluted earnings per share because the effect would be antidilutive.

For the nine months ended September 30, 2019 and 2018, approximately 396 thousand and 1.2 million, respectively, options to purchase shares of common stock were not included in the computation of diluted earnings per share because the effect would be antidilutive.

~~For the~~ three months ended ~~September 30,~~March 31, 2020 and 2019, approximately 77 thousand and ~~2018, approximately 116 and 54~~43 thousand shares, respectively, of restricted stock units were not included in the computation of diluted earnings per share because the effect would be antidilutive.

For the nine months ended September 30, 2019 and 2018, approximately 137 and 44 thousand shares, respectively, of restricted stock units were not included in the computation of diluted earnings per share because the effect would be antidilutive.

Note 11 – Segment Reporting

The Company has identified 3 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 and Chartwell 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.

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 15, “Discontinued Operations” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. 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.

Based on a measurement period that ended June 30, 2019, the Company has earned and is reasonably assured to receive an earn-out payment related to the Asset Purchase Agreement with USI. As of June 30, 2019, the Company estimated the earn-out payment to be $600 thousand. This estimate recorded as contingent consideration from discontinued operations. On August 27, 2019, the Company adjusted the estimate recorded in the second quarter of 2019 to match the earn-out payment received of $575 thousand.

Information about the reportable segments and reconciliation to the consolidated financial statements for the ~~three month~~three-month periods ended ~~September 30,~~March 31, 2020 and March 31, 2019 ~~and September 30, 2018~~ are as follows:


Three Months Ended September 30, 2019		Commercial & Retail Banking			Mortgage Banking			Financial Holding Company			Intercompany Eliminations					Consolidated
Three Months Ended March 31, 2020										Three Months Ended March 31, 2020				Commercial & Retail Banking						Mortgage Banking				Financial Holding Company				Intercompany Eliminations					Consolidated
(Dollars in thousands)	(Dollars in thousands)			Commercial & Retail Banking				Mortgage Banking					Financial Holding Company					Intercompany Eliminations									Consolidated												(Dollars in thousands)	Commercial & Retail Banking		Mortgage Banking	Financial Holding Company	Intercompany Eliminations	Consolidated
Interest income	Interest income									Interest income					$	18,774				$	2,418			$	1			$	(494)		$	20,699
Interest expense	Interest expense	4,806					1,811			156				(769)					6,004			Interest expense			3,838				1,387					35			(732)				4,528
Net interest income	Net interest income	14,493			477			(147)			211					15,034		Net interest income				14,936				1,031				(34)					238			16,171
Provision for loan losses	Provision for loan losses	625			32			—			—					657		Provision for loan losses				1,132				6				—					—			1,138
Net interest income after provision for loan losses	Net interest income after provision for loan losses	13,868			445			(147)			211					14,377		Net interest income after provision for loan losses				13,804				1,025				(34)					238			15,033

Noninterest Income:	Noninterest Income:																	Noninterest Income:
Mortgage fee income	Mortgage fee income	121			11,587			—			(212)					11,496		Mortgage fee income				110				11,347				—					(238)			11,219
Other income	Other income	2,138			1,112			1,516			(1,566)					3,200		Other income				3,346				(3,562)				1,504					(1,657)			(369)
Total noninterest income	Total noninterest income	2,259			12,699			1,516			(1,778)					14,696		Total noninterest income				3,456				7,785				1,504					(1,895)			10,850

Noninterest Expenses:	Noninterest Expenses:																	Noninterest Expenses:
Salaries and employee benefits	Salaries and employee benefits	4,820			8,318			2,300			—					15,438		Salaries and employee benefits				5,866				7,884				2,432					—			16,182
Other expense	Other expense	6,113			2,142			1,254			(1,567)					7,942		Other expense				6,659				2,397				1,075					(1,657)			8,474
Total noninterest expenses	Total noninterest expenses	10,933			10,460			3,554			(1,567)					23,380		Total noninterest expenses				12,525				10,281				3,507					(1,657)			24,656

Income (loss) from continuing operations, before income taxes		5,194			2,684			(2,185)			—					5,693
Income tax expense (benefit) - continuing operations		1,130			725			(508)			—					1,347
Net income (loss) from continuing operations		4,064			1,959			(1,677)			—					4,346
Income (loss) from discontinued operations, before income taxes		—			—			(25)			—					(25)
Income tax expense (benefit) - discontinued operations		—			—			(6)			—					(6)
Net income (loss) from discontinued operations		—			—			(19)			—					(19)
Income (loss) before income taxes																		Income (loss) before income taxes				4,735				(1,471)				(2,037)					—			1,227
Income tax expense (benefit)																		Income tax expense (benefit)				1,012				(349)				(484)					—			179

Net income (loss)	Net income (loss)	$	4,064		$	1,959		$	(1,696)		$	—				$	4,327	Net income (loss)				$	3,723			$	(1,122)			$	(1,553)				$	—		$	1,048
Preferred stock dividends	Preferred stock dividends	—			—			121			—					121		Preferred stock dividends				—				—				114					—			114
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	4,064		$	1,959		$	(1,817)		$	—				$	4,206	Net income (loss) available to common shareholders				$	3,723			$	(1,122)			$	(1,667)				$	—		$	934

Capital Expenditures for the three month period ended September 30, 2019		$	412		$	56		$	37		$	—				$	505
Total Assets as of September 30, 2019		1,959,817			272,007			210,715			(480,587)					1,961,952
Total Assets as of December 31, 2018		1,753,932			165,430			196,537			(364,930)					1,750,969
Goodwill as of September 30, 2019		2,748			16,882			—			—					19,630
Goodwill as of December 31, 2018		1,598			16,882			—			—					18,480
Capital Expenditures for the three-month period ended March 31, 2020																		Capital Expenditures for the three-month period ended March 31, 2020				$	1,295			$	69			$	20				$	—		$	1,384
Total Assets as of March 31, 2020																		Total Assets as of March 31, 2020				2,112,842				337,445				216,989					(567,596)			2,099,680
Total Assets as of December 31, 2019																		Total Assets as of December 31, 2019				1,953,975				248,382				216,411					(474,654)			1,944,114
Goodwill as of March 31, 2020																		Goodwill as of March 31, 2020				2,748				16,882				—					—			19,630
Goodwill as of December 31, 2019																		Goodwill as of December 31, 2019				2,748				16,882				—					—			19,630

3832

Three Months Ended September 30, 2018 Commercial & Retail Banking Mortgage Banking Financial Holding Company Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 16,506 $ 1,763 $ 1 $ (94) $ 18,176
Interest expense 3,664 1,138 333 (483) 4,652
Net interest income 12,842 625 (332) 389 13,524
Provision for loan losses 1,025 44 — — 1,069
Net interest income after provision for loan losses 11,817 581 (332) 389 12,455
Noninterest income:
Mortgage fee income 152 9,246 — (390) 9,008
Other income 2,203 (738) 1,706 (1,668) 1,503
Total noninterest income 2,355 8,508 1,706 (2,058) 10,511
Noninterest Expense:
Salaries and employee benefits 3,493 6,047 1,980 — 11,520
Other expense 5,274 2,147 1,145 (1,669) 6,897
Total noninterest expenses 8,767 8,194 3,125 (1,669) 18,417
Income (loss) from continuing operations, before income taxes 5,405 895 (1,751) — 4,549
Income tax expense (benefit) - continuing operations 1,121 229 (380) — 970
Net income (loss) from continuing operations 4,284 666 (1,371) — 3,579
Income from discontinued operations, before income taxes — — — — —
Income tax expense - discontinued operations — — — — —
Net income from discontinued operations — — — — —
Net income (loss) $ 4,284 $ 666 $ (1,371) $ — $ 3,579
Preferred stock dividends — — 123 — 123
Net income (loss) available to common shareholders $ 4,284 $ 666 $ (1,494) $ — $ 3,456
Capital Expenditures for the three month period ended September 30, 2018 $ 808 $ 128 $ 65 $ — $ 1,001
Total Assets as of September 30, 2018 1,722,542 170,931 191,033 (361,402) 1,723,104
Total Assets as of December 31, 2017 1,531,496 149,323 184,599 (331,116) 1,534,302
Goodwill as of September 30, 2018 1,598 16,882 — — 18,480
Goodwill as of December 31, 2017 1,598 16,882 — — 18,480

Nine Months Ended September 30, 2019 Commercial & Retail Banking Mortgage Banking Financial Holding Company Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 56,446 $ 5,858 $ 12 $ (1,185) $ 61,131
Interest expense 14,303 4,303 728 (1,738) 17,596
Net interest income 42,143 1,555 (716) 553 43,535
Provision for loan losses 1,497 60 — — 1,557
Net interest income after provision for loan losses 40,646 1,495 (716) 553 41,978
Noninterest Income:
Mortgage fee income 507 28,076 — (553) 28,030
Other income 19,168 2,723 4,790 (4,863) 21,818
Total noninterest income 19,675 30,799 4,790 (5,416) 49,848
Noninterest Expenses:
Salaries and employee benefits 13,435 20,515 6,502 — 40,452
Other expense 16,958 6,009 3,662 (4,863) 21,766
Total noninterest expenses 30,393 26,524 10,164 (4,863) 62,218
Income (loss) from continuing operations, before income taxes 29,928 5,770 (6,090) — 29,608
Income tax expense (benefit) - continuing operations 6,969 1,574 (1,404) — 7,139
Net income (loss) from continuing operations 22,959 4,196 (4,686) — 22,469
Income (loss) from discontinued operations, before income taxes — — 575 — 575
Income tax expense (benefit) - discontinued operations — — 148 — 148
Net income (loss) from discontinued operations — — 427 — 427
Net income (loss) $ 22,959 $ 4,196 $ (4,259) $ — $ 22,896
Preferred stock dividends — — 364 — 364
Net income (loss) available to common shareholders $ 22,959 $ 4,196 $ (4,623) $ — $ 22,532
Capital Expenditures for the nine month period ended September 30, 2019 $ 915 $ 83 $ 136 $ — $ 1,134
Total Assets as of September 30, 2019 1,959,817 272,007 210,715 (480,587) 1,961,952
Total Assets as of December 31, 2018 1,753,932 165,430 196,537 (364,930) 1,750,969
Goodwill as of September 30, 2019 2,748 16,882 — — 19,630
Goodwill as of December 31, 2018 1,598 16,882 — — 18,480

Nine Months Ended September 30, 2018 Commercial & Retail Banking Mortgage Banking Financial Holding Company Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 45,772 $ 4,870 $ 3 $ (471) $ 50,174
Interest expense 9,503 2,945 1,433 (1,351) 12,530
Net interest income 36,269 1,925 (1,430) 880 37,644
Provision for loan losses 2,067 81 — — 2,148
Net interest income after provision for loan losses 34,202 1,844 (1,430) 880 35,496
Noninterest Income:
Mortgage fee income 444 25,071 — (881) 24,634
Other income 5,052 485 4,748 (4,574) 5,711
Total noninterest income 5,496 25,556 4,748 (5,455) 30,345
Noninterest Expenses:
Salaries and employee benefits 10,946 18,289 5,252 — 34,487
Other expense 14,803 6,566 3,124 (4,575) 19,918
Total noninterest expenses 25,749 24,855 8,376 (4,575) 54,405
Income (loss) from continuing operations, before income taxes 13,949 2,545 (5,058) — 11,436
Income tax expense (benefit) - continuing operations 2,932 654 (1,154) — 2,432
Net income (loss) from continuing operations 11,017 1,891 (3,904) — 9,004
Income from discontinued operations, before income taxes — — — — —
Income tax expense - discontinued operations — — — — —
Net income from discontinued operations — — — — —
Net income (loss) $ 11,017 $ 1,891 $ (3,904) $ — $ 9,004
Preferred stock dividends — — 366 — 366
Net income (loss) available to common shareholders $ 11,017 $ 1,891 $ (4,270) $ — $ 8,638
Capital Expenditures for the three month period ended September 30, 2018 $ 1,820 $ 235 $ 109 $ — $ 2,164
Total Assets as of September 30, 2018 1,722,542 170,931 191,033 (361,402) 1,723,104
Total Assets as of December 31, 2017 1,531,496 149,323 184,599 (331,116) 1,534,302
Goodwill as of September 30, 2018 1,598 16,882 — — 18,480
Goodwill as of December 31, 2017 1,598 16,882 — — 18,480


Three Months Ended March 31, 2019	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	18,327	$	1,538	$	1	$	(243)	$	19,623
Interest expense	4,754		993		285		(381)		5,651
Net interest income	13,573		545		(284)		138		13,972
Provision for loan losses	247		53		—		—		300
Net interest income after provision for loan losses	13,326		492		(284)		138		13,672

Noninterest income:
Mortgage fee income	109		6,697		—		(136)		6,670
Other income	1,566		476		1,779		(1,726)		2,095
Total noninterest income	1,675		7,173		1,779		(1,862)		8,765

Noninterest Expense:
Salaries and employee benefits	4,395		5,159		2,180		—		11,734
Other expense	5,352		2,025		1,061		(1,724)		6,714
Total noninterest expenses	9,747		7,184		3,241		(1,724)		18,448

Income (loss) before income taxes	5,254		481		(1,746)		—		3,989
Income tax expense (benefit)	1,054		146		(403)		—		797




Net income (loss)	$	4,200	$	335	$	(1,343)	$	—	$	3,192
Preferred stock dividends	—		—		121		—		121
Net income (loss) available to common shareholders	$	4,200	$	335	$	(1,464)	$	—	$	3,071

Capital Expenditures for the three-month period ended March 31, 2019	$	89	$	4	$	22	$	—	$	115
Total Assets as of March 31, 2019	1,790,725		175,218		197,191		(373,226)		1,789,908
Total Assets as of December 31, 2018	1,753,932		165,430		196,537		(364,930)		1,750,969
Goodwill as of March 31, 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 ~~September 30, 2019,~~March 31, 2020, the Commercial & Retail Banking segment earned ~~$4.1~~$3.7 million compared to ~~$4.3~~$4.2 million in ~~2018.~~ 2019.

Net interest income increased by ~~$1.7~~$1.4 million, primarily the result of an increase of ~~$2.8 million~~$646 thousand in interest and fees on loans, ~~which was partially offset by an increase~~a decrease of ~~$1.3 million~~$699 thousand in interest on FHLB and other borrowings, and a decrease of $213 thousand in interest on deposits. The increase in interest and fees on loans was the result of an increase of ~~$167.9~~$146.8 million in the average balance of loans. The ~~increase~~decrease in interest on deposits was the result of a decrease of 31-basis points in the cost of interest-bearing liabilities, even with an increase of ~~$71.3~~$86.6 million in the average balance of deposits.

Noninterest income ~~decreased~~increased by ~~$296 thousand~~$1.8 million which was the result of an increase of $1.0 million in consulting income, an increase of $396 thousand in the gain on sale of securities, and an increase of $240 thousand in commercial swap fee income These increases were partially offset by a decrease of ~~$624 thousand in the holding gain on equity securities and a decrease of $297~~$302 thousand in the income on bank-owned life insurance. ~~These decreases were partially offset by an increase of $623 thousand in commercial swap fee income.~~

Noninterest expense increased by ~~$2.2~~$2.8 million, primarily the result of an increase of ~~$1.3~~$1.5 million in salaries and employee benefits expense, an increase of ~~$338~~$430 thousand in professional fees, ~~an increase of $244 thousand in occupancy and equipment expense, an increase of $158 thousand in marketing, contributions, and sponsorships,~~ and an increase of ~~$111~~$479 thousand in travel, entertainment, dues, and subscriptions. The increase in salaries and employee benefits expense is primarily the result of the build out of the Fintech ~~team.~~ team, the build-out of other Company personnel, and the additional team members acquired as a result of the Chartwell acquisition during the third quarter of 2019.

In addition, provision expense ~~decreased $400~~increased $885 thousand due to the ~~result of the~~ net impact of

~~changes in outstanding loan portfolios,~~ adjustments to the portfolio segmentation and changes in the level of recognized charge offs ~~changes in~~and historical loss ~~rates, and changes in the level of specific loan loss allocations.~~rates.

Mortgage Banking

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the ~~Commercial & Retail~~Mortgage Banking segment ~~earned $23.0~~lost $1.1 million compared to ~~$11.0~~earning $335 thousand in 2019.

With the decrease in U.S. Treasury and mortgage rates, MVB Mortgage saw a significant increase in originations during the first quarter 2020. Mortgage originations increased above normal averages in the fourth quarter 2019 and remained strong with a significant rise in March 2020. However, the Federal Reserve's stimulus, which included the purchase of $525 billion of Agency MBS, the primary vehicle used to hedge the locked pipeline, caused a decrease in the valuation of the MBS market. This volatility in valuation caused a decrease in the derivative asset of $3.6 million, which resulted in ~~2018.~~ a net loss of $1.1 million at MVB Mortgage for the three months ended March 31, 2020. In addition, stress to the servicing market, caused by concerns around the length and commitment of deferral periods for residential mortgages, caused numerous servicing companies to pull back from the market which drove a reduction in premiums related to mortgage servicing rights. These reduced premiums also impacted the valuation of the derivative.

Net interest income increased ~~by $5.9 million, primarily~~$486 thousand, which was the result of an increase of ~~$10.4 million~~$880 thousand in interest and fees on loans, which was partially offset by an increase of ~~$5.2 million~~$394 thousand in interest on ~~deposits.~~borrowings. The increase in interest and fees on loans was ~~the result of~~due to an increase of ~~$188.7~~$85.2 million in ~~the~~ average balance of loans. The increase in interest on deposits was the result of an increase of $109.5 million in the average balance of deposits. Noninterest income increased by $13.6 million which was the result of an increase of $13.1 million in the holding gain on equity securities and an increase of $727 thousand in commercial swap fee income. Noninterest expense increased by $4.6 million, primarily the result of an increase of $2.5 million in salaries and employee benefits expense, an increase of $678 thousand in occupancy and equipment expense, an increase of $480 thousand in other operating expenses, an increase of $471 thousand in professional fees, an increase of $259 thousand in travel, entertainment, dues, and subscriptions, an increase of $214 thousand in data processing and communications expense, and an increase of $107 thousand in insurance tax, and assessment expense. In addition, provision expense decreased $570 thousand due to the result of the net impact of changes in outstanding loan portfolios, changes in the level of recognized charge offs, changes in historical loss rates, and changes in the level of specific loan loss allocations.

~~Mortgage Banking~~

For the three months ended September 30, 2019, the Mortgage Banking segment earned $2.0 million compared to $666 thousand in 2018. Net interest income decreased $148 thousand, which was the result of an increase of $673 thousand in interest on FHLB and other borrowings, which was partially offset by an increase of $525 thousand in interest and fees onreal estate loans. The increase in interest on FHLB and other borrowings was due to an increase of ~~$53.0~~$81.0 million in average ~~borrowings and an increase in short-term borrowing rates.~~ borrowings.

Noninterest income increased by ~~$4.2 million,~~$612 thousand, primarily the result of an increase of ~~$2.3~~$4.7 million in mortgage fee income and ~~an increase~~a decrease of ~~$1.9~~$4.0 million in the gain on ~~derivative.~~derivatives. The increase in mortgage fee income ~~was~~of $4.7 million is driven by ~~the~~an increase of $171.7 million in mortgage ~~closed production volume, which increased by $192.4 million, or 51.7%~~loans sold for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~increase~~decrease in the gain on derivatives of $4.0 million was largely the result of ~~a $49.3 million increase~~the volatility of rates due to the COVID-19 pandemic. Loan originations spiked during early March when Treasury yields were at an all-time low. Mortgage rates were "locked-in" near lows offering lower yields. As discussed above, the mark to market loss is attributable to instability in the ~~derivative asset, as the locked pipeline of residential~~market for MBS and mortgage ~~loans related to the derivative asset decreased 1.1% in the third quarter of 2019 compared to a decrease of 19.6% in the third quarter of 2018.~~ servicing rights.

Noninterest expense increased by ~~$2.3~~$3.1 million, which was the result of an increase of ~~$2.3~~$2.7 million in salaries and employee benefits expense, due to an increase in mortgage ~~production.~~

For the nine months ended September 30, 2019, the Mortgage Banking segment earned $4.2 million compared to $1.9 million in 2018. Net interest income decreased by $370 thousand, primarily the result of an increase of $1.4 million in the interest on FHLB and other borrowings, which was partially offset by an increase of $988 thousand in interest and fees on loans. The increase in interest on FHLB and other borrowings was due to an increase of $26.5 million in average borrowings and an increase in short-term borrowing rates. Noninterest income increased by $5.2 million, primarily the result of an increase of $3.0 million in mortgage fee incomeproduction, and an increase of $2.2 million in gain on derivatives. The increase in mortgage fee income was driven by the increase in mortgage closed production volume, which increased by $200.2 million or 18.1% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The increase in gain on derivatives of $2.2 million, was largely the result of a 94.1% increase in the locked mortgage pipeline for the nine months ended September 30, 2019 compared to a 34.0% increase in the locked mortgage pipeline for the nine months ended September 30, 2018. Noninterest expense increased by $1.7 million, which was the result of an increase of $2.2 million in salaries and employees benefits expense and an increase of $424 thousand in travel, entertainment, dues, and subscriptions. These increases were partially offset by a decrease of $498 thousand in mortgage processing expense, a decrease of $241 thousand in occupancy and equipment expense, and a decrease of $110$246 thousand in professional fees.

Financial Holding Company

For the three months ended ~~September 30, 2019, excluding discontinued operations,~~March 31, 2020, the Financial Holding Company segment lost ~~$1.7~~$1.6 million compared to a loss of ~~$1.4~~$1.3 million in ~~2018.~~2019. Interest expense decreased ~~$177~~$250 thousand, noninterest income decreased ~~$190~~$275 thousand, and noninterest expense increased ~~$429~~$266 thousand. In addition, the income tax benefit increased ~~$128~~$81 thousand. The decrease in interest expense was due to a ~~$177~~$250 thousand decrease in interest on subordinated debt. The ~~increase~~decrease in noninterest income was primarily the result of ana decrease of ~~$103~~$163 thousand in intercompany services income related to Regulation ~~W and a decrease of $113 thousand in other operating income.~~W. The increase in noninterest expense was primarily the result of an increase of ~~$320~~$252 thousand in salaries and employee benefits ~~expenses and an increase of $109 thousand in other operating~~ expenses.

~~For the nine months ended September 30, 2019, excluding discontinued operations, the Financial Holding Company segment lost~~

$4.7 million compared to a loss of $3.9 million in 2018. Interest expense decreased $705 thousand, noninterest income increased $42 thousand, and noninterest expense increased $1.8 million. In addition, the income tax benefit decreased $250 thousand. The decrease in interest expense was due to a $705 thousand decrease in interest on subordinated debt. The increase in noninterest income was primarily the result of an increase of $289 thousand in intercompany services income related to Regulation W and an increase of $46 thousand in the holding gain on equity securities. These increases were offset by a decrease of $193 thousand in gain on sale of securities. The increase in noninterest expense was primarily the result of an increase of $1.3 million in salaries and employee benefits expense, an increase of $269 thousand in other operating expenses, an increase of $115 thousand in professional fees, an increase of $88 thousand in occupancy and equipment expense, an increase of $47 thousand in travel, entertainment, dues, and subscriptions, and an increase of $46 thousand in data processing and communications.

Note 12 – Pension and Supplemental Executive Retirement Plans

The Company participates in a trusteed pension plan known as the Allegheny Group Retirement Plan covering virtually all full-time employees. Benefits are based on years of service and the employee’s compensation. Accruals under the Plan were frozen as of May 31, 2014. Freezing the plan resulted in a re-measurement of the pension obligations and plan assets as of the freeze date. The pension obligation was re-measured using the discount rate based on the Citigroup Above Median Pension Discount Curve in effect on May 31, 2014 of 4.46%.

Information pertaining to the activity in the Company’s defined benefit plan, using the latest available actuarial valuations with a measurement date of ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows:


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Service cost	Service cost	$	—	$	—	$	—	$	—	Service cost	$	—	$	—
Interest cost	Interest cost	294		264		98		88		Interest cost	91		98
Expected Return on Plan Assets	Expected Return on Plan Assets	(306)		(279)		(102)		(93)		Expected Return on Plan Assets	(109)		(102)
Amortization of Net Actuarial Loss	Amortization of Net Actuarial Loss	204		230		68		77		Amortization of Net Actuarial Loss	105		68
Amortization of Prior Service Cost	Amortization of Prior Service Cost	—		—		—		—		Amortization of Prior Service Cost	—		—
Net Periodic Benefit Cost	Net Periodic Benefit Cost	$	192	$	215	$	64	$	72	Net Periodic Benefit Cost	$	87	$	64
Contributions Paid	Contributions Paid	$	270	$	337	$	90	$	179	Contributions Paid	$	349	$	90

On June 19, 2017, the Company and MVB Mortgage approved a Supplemental Executive Retirement Plan (“SERP”), pursuant to which the Chief Executive Officer of MVB Mortgage is entitled to receive certain supplemental nonqualified retirement benefits. The SERP took effect on December 31, 2017. If executive completes three years of continuous employment with MVB Mortgage prior to retirement date (which shall be no earlier than the date he attains age 55) he will, upon retirement, be entitled to receive $1.8 million payable in 180 equal consecutive monthly installments of $10 thousand. The liability is calculated by discounting the anticipated future cash flows at 4.0%. The liability accrued for this obligation was ~~$681~~$892 thousand and ~~$377~~$783 thousand as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Service cost was ~~$102~~$109 thousand and ~~$94~~$102 thousand for the three-month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively. Service cost was $305 thousand and $282 thousand for the nine-month periods ended September 30, 2019 and 2018,~~ respectively.

Note 13 – Comprehensive Income

The following tables present the components of accumulated other comprehensive income (“AOCI”) ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		Three Months Ended September 30, 2019		Three Months Ended September 30, 2018			(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Details about AOCI Components	Details about AOCI Components	Amount Reclassified from AOCI		Amount Reclassified from AOCI		Amount Reclassified from AOCI		Amount Reclassified from AOCI		Affected line item in the Statement where Net Income is presented	Details about AOCI Components	Amount Reclassified from AOCI		Amount Reclassified from AOCI		Affected line item in the Statement where Net Income is presented
Available-for-sale securities	Available-for-sale securities										Available-for-sale securities
Unrealized holding gains (losses)	Unrealized holding gains (losses)	$	(179)	$	327	$	(11)	$	1	Gain (loss) on sale of securities	Unrealized holding gains (losses)	$	276	$	(118)	Gain (loss) on sale of securities
		(179)		327		(11)		1		Total before tax		276		(118)		Total before tax
		48		(88)		2		—		Income tax expense		(75)		32		Income tax expense
		(131)		239		(9)		1		Net of tax		201		(86)		Net of tax
Defined benefit pension plan items	Defined benefit pension plan items										Defined benefit pension plan items
Amortization of net actuarial loss	Amortization of net actuarial loss	(204)		(230)		(68)		(77)		Salaries and benefits	Amortization of net actuarial loss	(105)		(68)		Salaries and benefits
		(204)		(230)		(68)		(77)		Total before tax		(105)		(68)		Total before tax
		55		62		18		21		Income tax expense		28		18		Income tax expense
		(149)		(168)		(50)		(56)		Net of tax		(77)		(50)		Net of tax
Investment hedge	Investment hedge										Investment hedge
Carrying value adjustment	Carrying value adjustment	162		—		36		—		Interest on investment securities - taxable	Carrying value adjustment	1,793		458		Interest on investment securities - taxable
		162		—		36		—		Total before tax		1,793		458		Total before tax
		(44)		—		(10)		—		Income tax expense		(484)		(124)		Income tax expense
		118		—		26		—		Net of tax		1,309		334		Net of tax

Total reclassifications	Total reclassifications	$	(162)	$	71	$	(33)	$	(55)		Total reclassifications	$	1,433	$	198


(Dollars in thousands)	(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment Hedge		Total		(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment Hedge		Total
Balance at December 31, 2019										Balance at December 31, 2019	$	2,942	$	(4,295)	$	32	$	(1,321)
Other comprehensive income (loss) before reclassification										Other comprehensive income (loss) before reclassification	1,032		(516)		—		516
Amounts reclassified from AOCI										Amounts reclassified from AOCI	(201)		77		(1,309)		(1,433)
Net current period OCI										Net current period OCI	831		(439)		(1,309)		(917)
Balance at March 31, 2020										Balance at March 31, 2020	$	3,773	$	(4,734)	$	(1,277)	$	(2,238)

Balance at December 31, 2018	Balance at December 31, 2018	$	(3,384)	$	(3,422)	$	—	$	(6,806)	Balance at December 31, 2018	(3,384)		(3,422)		—		(6,806)
Other comprehensive income (loss) before reclassification	Other comprehensive income (loss) before reclassification	5,776		(1,274)		—		4,502		Other comprehensive income (loss) before reclassification	1,357		(242)		—		1,115
Amounts reclassified from AOCI	Amounts reclassified from AOCI	131		149		(118)		162		Amounts reclassified from AOCI	86		50		(334)		(198)
Net current period OCI	Net current period OCI	5,907		(1,125)		(118)		4,664		Net current period OCI	1,443		(192)		(334)		917
Balance at September 30, 2019		$	2,523	$	(4,547)	$	(118)	$	(2,142)

Balance at July 1, 2019		$	1,520	$	(3,942)	$	(92)	$	(2,514)
Other comprehensive income (loss) before reclassification		994		(655)		—		339
Amounts reclassified from AOCI		9		50		(26)		33
Net current period OCI		1,003		(605)		(26)		372
Balance at September 30, 2019		$	2,523	$	(4,547)	$	(118)	$	(2,142)

Balance at December 31, 2017		(5)		(2,983)		—		(2,988)
Other comprehensive income (loss) before reclassification		(5,443)		542		—		(4,901)
Amounts reclassified from AOCI		(239)		168		—		(71)
Net current period OCI		(5,682)		710		—		(4,972)
Stranded AOCI		—		(646)		—		(646)
Mark to Market on equity positions held at December 31, 2017		(98)		—		—		(98)
Balance at September 30, 2018		$	(5,785)	$	(2,919)	$	—	$	(8,704)
Balance at March 31, 2019										Balance at March 31, 2019	$	(1,941)	$	(3,614)	$	(334)	$	(5,889)

Balance at July 1, 2018		(4,236)		(3,065)		—		(7,301)
Other comprehensive income (loss) before reclassification		(1,548)		90		—		(1,458)
Amounts reclassified from AOCI		(1)		56		—		55
Net current period OCI		(1,549)		146		—		(1,403)
Balance at September 30, 2018		$	(5,785)	$	(2,919)	$	—	$	(8,704)

Note 14 – Revenue Recognition

The Company records revenue from contracts with customers in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in

previous periods.

The Company’s primary sources of revenue are derived from interest and fees earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

The Company also completed its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contract-revenue (i.e. gross versus net). Based on the evaluation, the Company determined that the classification of certain debit and credit card processing related costs should change (i.e. costs previously recorded as expense in now recorded as contract-revenue). These classification changes resulted in immaterial changes to both revenue and expense. Since there was no net income impact upon adoption of the new guidance, a cumulative effect adjustment to beginning retained

earnings was not deemed necessary. Consistent with the modified retrospective approach, the Company did not adjust prior period amounts related to the debit and credit card related cost reclassifications discussed above.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees, monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Debit Card and Interchange Income

Debit card and interchange income is primarily comprised of interchange fees earned whenever the Bank’s debit and credit cards are processed through card payment networks, such as Visa. The Bank’s performance obligation for debit card and interchange income is generally satisfied, and the related revenue recognized, on a transactional basis. Payment is typically received immediately or in the following month.

Consulting Income

Consulting income is comprised of consulting revenue generated by Chartwell. Chartwell provides integrated regulatory compliance, state licensing, financial crimes prevention and enterprise risk management services that include consulting, outsourcing, testing and training solutions. Chartwell accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Chartwell evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Chartwell's services included in its contracts are distinct from one another. Chartwell determines the transaction price for each contract based upon the consideration it expects to receive for the distinct services being provided under the contract. Chartwell recognizes revenue as performance obligations are satisfied and the customer obtains control of the goods or services provided. In determining when performance obligations are satisfied, Chartwell considers factors such as contract terms, payment terms, an whether there is an alternative future use of the product or service. Consulting engagements may vary in length and scope but will generally include the review and/or preparation of regulatory filings, business plans, financial models, and other risk management services to customers within financial industries. Revenue from consulting services is recognized upon completion of deliverables as outlined in the consulting agreement. For more information on Chartwell, please see Note 16, “Business Combination” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Other Operating Income

Other operating income is primarily comprised of ATM fees, wire transfer fees, travelers check fees, revenue streams such as safe deposit box rental fees, and other miscellaneous service charges. ATM fees, wire transfer fees and travelers check fees are primarily generated when a Bank’s cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Bank determined that

since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Bank’s performance obligations for fees and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. The Bank’s performance obligation for the gains and losses on sales of other real estate owned is satisfied, and the related revenue recognized, after each sale of other real estate owned is closed.

The following presents noninterest income, segregated by revenue streams in scope and out of scope of Topic 606, for the periods indicated:


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Service charges on deposit accounts	Service charges on deposit accounts	$	985	$	741	$	337	$	275	Service charges on deposit accounts	$	450	$	315
Debit card and interchange income	Debit card and interchange income	472		459		150		167		Debit card and interchange income	100		141
Consulting income	Consulting income	25		—		25		—		Consulting income	1,009		—
Other	Other	379		144		108		87		Other	261		113
Noninterest income in scope of Topic 606	Noninterest income in scope of Topic 606	2,264		1,489		753		617		Noninterest income in scope of Topic 606	1,820		569
Noninterest income out of scope of Topic 606	Noninterest income out of scope of Topic 606	47,584		28,856		13,943		9,894		Noninterest income out of scope of Topic 606	9,030		8,196
Total noninterest income	Total noninterest income	$	49,848	$	30,345	$	14,696	$	10,511	Total noninterest income	$	10,850	$	8,765

Note 15 – Discontinued Operations

On June 30, 2016, the Company entered into an Asset Purchase Agreement with USI Insurance Services, 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. 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. The~~revenue and the Company reorganized MVB Insurance as a subsidiary of the Bank. The Company retained approximately $424 thousand in liabilities and received proceeds totaling $7.0 million related to this transaction.

Based on a measurement period that ended June 30, 2019, the Company ~~has~~ earned and iswas reasonably assured to receive an estimated earn-out payment of $600 thousand related to the Asset Purchase Agreement with USI. ~~As of June 30, 2019, the Company estimated the earn-out payment to be $600 thousand.~~ This estimate was recorded as contingent consideration from discontinued operations. On August 27, 2019, the Company adjusted the estimate recorded in the second quarter of 2019 to match the earn-out payment received of $575 thousand.

There were 0 assets or liabilities related to discontinued operations at ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

~~Net~~There was 0 net income from discontinued operations, net of tax, for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, were as follows:~~

Nine Months Ended September 30 Three Months Ended September 30
(Dollars in thousands) 2019 2018 2019 2018
NONINTEREST INCOME
Other operating income $ 575 $ — $ (25) $ —
Total noninterest income 575 — (25) —
Income from discontinued operations, before income taxes $ 575 $ — $ (25) $ —
Income tax expense - discontinued operations 148 — (6) —
Net income from discontinued operations $ 427 $ — $ (19) $ —
2019.

Note 16 – ~~Business Combination~~Subsequent Events

~~On September 13, 2019~~The Company evaluates subsequent events at the ~~Bank purchased full equity rights~~date of ~~Chartwell Compliance headquartered in Bethesda, Maryland. Purchase consideration for~~ the ~~acquisition totaled $4.1 million, including a cash payment~~consolidated balance sheet as well as conditions that arise after the balance sheet date but before the consolidated financial statements are issued. To the extent any events and conditions exist, disclosures are made regarding the nature of ~~$3.1 million~~events and the ~~delivery $1.0 million~~estimated financial effects for those events and conditions. The Company is not aware of ~~MVB common stock. Additionally, contingent consideration will be given to~~any subsequent events which would require recognition or disclosure in the ~~previous owners if outlined future~~consolidated financial ~~conditions of the company are met. Management estimated the fair value of the earnout utilizing the Black-Scholes option pricing model.~~statements other than those listed below.

Chartwell Compliance provides integrated regulatory compliance, state licensing, financial crimes prevention and enterprise risk management services that include consulting, outsourcing, testing and training solutions. As a stand-alone subsidiary of MVB Bank, Inc., Chartwell Compliance will expand its services to both Fintech and bank clients. Chartwell will coordinate with MVB Bank’s current compliance officers and be charged to help create and implement strategy and provide expert compliance resources to aid MVB in carrying out stringent and faster new client due diligence. Chartwell also will conduct enhanced monitoring and testing of clients.

4738

On April 3, 2020, the Bank entered into a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation (“FDIC”), as receiver for The ~~Company has accounted~~First State Bank, Barboursville, W.Va., providing for the ~~purchases under~~assumption by the ~~acquisition method~~Bank of ~~accounting~~certain liabilities and the purchase by the Bank of certain assets of First State. First State depositors automatically became depositors of the Bank and, subject to the insurance limitations, deposits will continue to be insured by the FDIC without interruption. In the Agreement, the Bank agreed to pay no deposit premium and to acquire the assets at a discount to book value of approximately $28.2 million. The Bank also acquired 3 branch locations in ~~accordance~~Barboursville, Teays Valley, and Huntington, W.Va. for aggregate consideration of approximately $1.5 million. The Bank further acquired certain other real estate owned (“OREO”) for 47.5% of the book value of such OREO. The deposits assumed by the Bank had an aggregate book balance of approximately $140.0 million, cash and securities of $37.0 million and loans with ~~FASB ASC topic 805, “Business Combinations,” whereby~~a book value of $83.7 million. Net proceeds received from the FDIC for the transaction was $39.6 million. The Bank estimates a bargain purchase gain of approximately $6.0 million related to this transaction but is still in the process of finalizing the mark to market analysis of the portfolio. The applicable disclosures for this business combination have not been made as the fair value estimates and purchase price allocation are not yet complete as of the date of financial statement issuance.

On April 17, 2020, Paladin Fraud, LLC (“PF”), a newly formed West Virginia limited liability company and wholly owned subsidiary of MVB Bank, entered into an Asset Purchase Agreement with Paladin, LLC, (“Paladin”), James Houlihan and Jamon Whitehead (collectively "Paladin Group"). Pursuant to the Purchase Agreement, PF acquired substantially all of the assets and certain liabilities of Paladin and the purchase price of the transaction consisted of 19,278 unregistered shares of MVB common stock and an undisclosed amount of cash. The Paladin Group is a respected leader in the fraud prevention industry and has formed a specialty niche that aligns well with the MVB as a preferred bank for Fintech companies.

On April 24, 2020, the Company completed the previously announced sale of certain assets and liabilities ~~were recorded by the Bank at their estimated fair values~~of 4 branch locations to Summit. Summit assumed $188.1 million in deposits and acquired $36.8 million in loans, as well as cash, real property, personal property and other fixed assets. The Company will recognize a gain of their acquisition date. The acquired assets and assumed liabilities of Chartwell Compliance were measured at estimated fair value. Management made significant estimates and exercised significant judgment in accounting for the acquisition of Chartwell Compliance.

~~The following table provides the purchase price as of the acquisition date, the identifiable assets acquired and liabilities assumed at their estimated fair values, and the resulting goodwill of $1.2~~approximately $10.0 million ~~recorded from the acquisition.~~


~~(Dollars in thousands)~~	~~As of September 13, 2019~~
~~Purchase Price Consideration:~~
~~Cash consideration~~	$	~~3,077~~
~~Closing MVB shares~~	~~1,033~~
~~Total purchase consideration~~	$	~~4,110~~
~~Assets acquired at fair value:~~
~~Cash and cash equivalents~~	$	~~426~~
~~Accounts receivable~~	~~165~~
~~Furniture and equipment, net~~	4
~~Intangibles, net~~	~~3,220~~
~~Total fair value of assets acquired~~	$	~~3,815~~
~~Liabilities assumed at fair value:~~
~~Other liabilities~~	$	~~855~~
~~Total fair value of liabilities acquired~~	$	~~855~~
~~Net assets acquired at fair value:~~	$	~~2,960~~
~~Amount of goodwill resulting from acquisition~~	$	~~1,150~~

related to this transaction.

4839

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of our consolidated financial condition at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 and the results of our operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report to Shareholders on Form 10-K for the year ended December 31, ~~2018.~~2019.

Forward-Looking Statements:

Statements in this Quarterly Report on Form 10-Q that are based on other than historical data are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

•statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of the Company and its subsidiaries (collectively “we,” “our,” or “us”), including the Bank; and

•statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” “outlook,” or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing our view as of any subsequent date. Forward-looking statements involve significant risks and uncertainties (both known and unknown) and actual results may differ materially from those presented, either expressed or implied, including, but not limited to, those presented in this Management’s Discussion and Analysis section. Factors that might cause such differences include, but are not limited to:

•our ability to successfully execute business plans, manage risks, and achieve objectives;

•changes in local, national and international political and economic conditions, including without limitation changes in the political and economic climate, economic conditions and fiscal imbalances in the United States and other countries, potential or actual downgrades in rating of sovereign debt issued by the United States and other countries, and other major developments, including wars, natural disasters, epidemics and pandemics, including the COVID-19 outbreak, military actions, and terrorist attacks;

•changes in financial market conditions, either internationally, nationally, or locally in areas in which we conduct operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development, and real estate prices;

•fluctuations in markets for equity, fixed-income, commercial paper, and other securities, including availability, market liquidity levels, and pricing; changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;

•our ability to successfully conduct acquisitions and integrate acquired businesses;

•potential difficulties in expanding our businesses in existing and new markets;

•increases in the levels of losses, customer bankruptcies, bank failures, claims, and assessments;

•changes in fiscal, monetary, regulatory, trade and tax policies and laws, including the recently enacted Tax Reform Act, and regulatory assessments and fees, including policies of the U.S. Department of Treasury, the ~~(Federal~~Federal Reserve, and the ~~FDIC);~~FDIC;

•the impact of executive compensation rules under the Dodd-Frank Act and banking regulations which may impact our ability and other American financial institutions to retain and recruit executives and other personnel necessary for their businesses and competitiveness;

•the impact of the Dodd-Frank Act and the Economic Growth, Regulatory Relief and Consumer Protection Act of ~~new international standards known as Basel III,~~2018 (the “EGRRCPA”), and rules and regulations thereunder, many of which have not yet been promulgated, on our required regulatory capital and liquidity levels, governmental assessments on us, the scope of business activities in which we may engage, the manner in which we engage in such activities, the fees that our subsidiaries may charge for certain products and services, and other matters affected by the Dodd-Frank Act and these international standards;

•continuing consolidation in the financial services industry; new legal claims against us, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies, or changes in existing legal matters;

•success in gaining regulatory approvals, when required, including for proposed mergers or acquisitions;

•changes in consumer spending and savings habits;

•increased competitive challenges and expanding product and pricing pressures among financial institutions;

•inflation and deflation;

•technological changes and our implementation of new technologies;

•our ability to develop and maintain secure and reliable information technology systems;

•legislation or regulatory changes which adversely affect our operations or business;

•our ability to comply with applicable laws and regulations; changes in accounting policies or procedures as may be required by the ~~Financial Accounting Standards Board~~FASB or regulatory agencies;

•costs of deposit insurance and changes with respect to FDIC insurance coverage levels; and

•other risks and uncertainties detailed in Part I, Item 1A, Risk Factors in the Annual Report to Shareholders on Form 10-K for the year ended December 31, ~~2018.~~2019.

Except to the extent required by law, we specifically disclaim any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

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Summary of Results of Operations


		Nine Months Ended September 30									Three Months Ended September 30										Three Months Ended March 31
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	2019			2018			2019			2018			(Dollars in thousands, except per share data)	2020			2019

Earnings and Per Share Data:	Earnings and Per Share Data:													Earnings and Per Share Data:
Net income from continuing operations		$	22,469		$	9,004		$	4,346		$	3,579
Net income from discontinued operations		427			—			(19)			—

Net income	Net income	22,896			9,004			4,327			3,579			Net income	$	1,048		$	3,192
Net income available to common shareholders	Net income available to common shareholders	22,532			8,638			4,206			3,456			Net income available to common shareholders	$	934		$	3,071
Earnings per share from continuing operations - basic		1.89			0.80			0.36			0.30
Earnings per share from discontinued operations - basic		0.04			—			—			—

Earnings per share - basic	Earnings per share - basic	1.93			0.80			0.36			0.30			Earnings per share - basic	$	0.08		$	0.26
Earnings per share from continuing operations - diluted		1.84			0.77			0.35			0.29
Earnings per share from discontinued operations - diluted		0.04			—			—			—

Earnings per share - diluted	Earnings per share - diluted	1.88			0.77			0.35			0.29			Earnings per share - diluted	$	0.08		$	0.26
Cash dividends paid per common share	Cash dividends paid per common share	0.125			0.08			0.05			0.03			Cash dividends paid per common share	$	0.09		$	0.035
Book value per common share	Book value per common share	16.84			14.13			16.84			14.13			Book value per common share	$	17.08		$	14.90
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	11,661,581			10,845,166			11,731,774			11,416,202			Weighted average shares outstanding - basic	11,942,767			11,607,543
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	11,957,385			11,690,314			12,098,335			13,113,259			Weighted average shares outstanding - diluted	12,298,092			13,177,281

Performance Ratios:	Performance Ratios:													Performance Ratios:
Return on average assets - continuing operations ¹		1.64		%	0.75		%	0.92		%	0.85		%
Return on average assets - discontinued operations ¹		0.03		%	—		%	—		%	—		%

Return on average assets¹	Return on average assets¹	1.67		%	0.75		%	0.92		%	0.85		%	Return on average assets¹	0.22		%	0.73		%
Return on average equity - continuing operations ¹		15.69		%	7.65		%	8.54		%	8.53		%
Return on average equity - discontinued operations ¹		0.30		%	—		%	(0.04)		%	—		%

Return on average equity ¹	Return on average equity ¹	15.99		%	7.65		%	8.50		%	8.53		%	Return on average equity ¹	1.95		%	7.18		%
Net interest margin ²	Net interest margin ²	3.45		%	3.37		%	3.42		%	3.43		%	Net interest margin ²	3.60		%	3.45		%
Efficiency ratio ³	Efficiency ratio ³	66.63		%	80.02		%	78.64		%	76.63		%	Efficiency ratio ³	91.25		%	81.14		%
Overhead ratio ^{1 4}	Overhead ratio ^{1 4}	4.55		%	4.52		%	4.96		%	4.38		%	Overhead ratio ^{1 4}	5.06		%	4.19		%

Asset Quality Data and Ratios:	Asset Quality Data and Ratios:													Asset Quality Data and Ratios:
Charge-offs	Charge-offs	$	676		$	679		$	—		$	294		Charge-offs	$	1,756		$	—
Recoveries	Recoveries	$	54		$	92		$	49		$	13		Recoveries	$	4		$	3
Net loan charge-offs to total loans^{1 5}	Net loan charge-offs to total loans^{1 5}	0.06		%	0.06		%	(0.01)		%	0.09		%	Net loan charge-offs to total loans^{1 5}	0.50		%	—		%
Allowance for loan losses	Allowance for loan losses	$	11,874		$	11,439		$	11,874		$	11,439		Allowance for loan losses	$	11,161		$	11,242
Allowance for loan losses to total loans ⁶	Allowance for loan losses to total loans ⁶	0.86		%	0.88		%	0.86		%	0.88		%	Allowance for loan losses to total loans ⁶	0.80		%	0.84		%
Nonperforming loans	Nonperforming loans	$	5,627		$	12,846		$	5,627		$	12,846		Nonperforming loans	$	5,909		$	7,075
Nonperforming loans to total loans	Nonperforming loans to total loans	0.41		%	0.99		%	0.41		%	0.99		%	Nonperforming loans to total loans	0.42		%	0.53		%

Capital Ratios:	Capital Ratios:													Capital Ratios:
Equity to assets	Equity to assets	10.51		%	9.92		%	10.51		%	9.92		%	Equity to assets	10.06		%	10.11		%
Bank Leverage ratio	Bank Leverage ratio	9.88		%	10.31		%	9.88		%	10.31		%	Bank Leverage ratio	9.83		%	10.33		%
Bank Common equity Tier 1 capital ratio	Bank Common equity Tier 1 capital ratio	11.83		%	12.68		%	11.83		%	12.68		%	Bank Common equity Tier 1 capital ratio	11.34		%	12.55		%
Bank Tier 1 risk-based capital ratio	Bank Tier 1 risk-based capital ratio	11.83		%	12.68		%	11.83		%	12.68		%	Bank Tier 1 risk-based capital ratio	11.34		%	12.55		%
Bank Total risk-based capital ratio	Bank Total risk-based capital ratio	12.62		%	13.56		%	12.62		%	13.56		%	Bank Total risk-based capital ratio	12.04		%	13.37		%

¹ Annualized for the quarterly periods presented

² Net interest income as a percentage of average interest earning assets

³ Noninterest expense as a percentage of net interest income and noninterest income

⁴ Noninterest expense as a percentage of average assets

⁵ Charge-offs less recoveries

⁶ Excludes loans held for sale

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Introduction

Corporate Overview

MVB Financial Corp. is a financial holding company and was organized in 2003. MVB operates principally through its ~~wholly-owned~~wholly owned subsidiary, MVB Bank, Inc. MVB Bank’s operating subsidiaries include MVB Mortgage, MVB Insurance, MVB CDC, and Chartwell.

MVB Bank was chartered in 1997 and commenced operations in 1999.

In 2012, MVB Bank acquired Potomac Mortgage Group, Inc. (“PMG” which began doing business under the registered trade name “MVB Mortgage”), a mortgage company in the northern Virginia area, and fifty percent (50%) interest in a mortgage services company, Lender Service Provider, LLC (“LSP”). In 2013, this fifty percent interest (50%) in LSP was reduced to a twenty-five percent (25%) interest. In 2017, a forfeiture of a partial interest occurred, which increased the interest owned to thirty-three percent (33%). At this time, LSP began doing business as Lenderworks.

MVB Insurance was originally formed in 2000. In 2013, MVB Insurance became a direct subsidiary of the Company. MVB Insurance continues to operate its title insurance business, which is immaterial in terms of revenue. The Company reorganized MVB Insurance as a subsidiary of the Bank in 2016.

MVB CDC was formed in 2017 and was created as a means to provide opportunities for loans and investments that help to increase access to equity capital in under-served urban and rural areas of West Virginia and our market areas in Virginia. MVB CDC promotes specific bank-driven economic development strategies, provides for effective support for its CRA compliance strategy, and helps to support positive local reputation of the Bank through marketing and visible activities in the communities where we live and work.

Chartwell Compliance, based from Bethesda, Maryland, was acquired by MVB on September 13, 2019. Chartwell Compliance provides integrated regulatory compliance, state licensing, financial crimes prevention and enterprise risk management services that include consulting, outsourcing, testing and training solutions. Chartwell will expand its services to both Fintech clients and banks, coordinating with MVB Bank’s current compliance officers and helping create and implement strategy and provide expert compliance resources to aid MVB in carrying out stringent and faster new client due diligence.

On November 21, 2019, the Company entered into a Purchase and Assumption Agreement with Summit Community Bank, Inc., a subsidiary of Summit Financial Group, Inc. pursuant to which Summit will purchase certain assets and assume certain liabilities of three branch locations in Berkeley County, WV and one branch location in Jefferson County, WV. Pursuant to the terms of the Purchase Agreement, Summit has agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, real property, personal property, and other fixed assets associated with the branch locations. The Company closed this transaction on April 24, 2020, as previously discussed in Note 16, “Subsequent Events” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

On March 2, 2020, the Bank and PMG (dba MVB Mortgage), entered into an Agreement by and among the Bank, PMG, Intercoastal Mortgage Company, a Virginia corporation (“Intercoastal”), and each of H. Edward Dean, III, Tom Pyne and Peter Cameron, providing for the combination of the mortgage origination services businesses of PMG and Intercoastal.

Pursuant to the terms of the Agreement, on the closing date, Intercoastal will convert into a Virginia limited liability company and PMG will contribute substantially all of its assets and liabilities associated with its mortgage operations to Intercoastal as a capital contribution, in exchange for common units of Intercoastal, representing 47% of the common interest of Intercoastal, as well as $7.5 million in preferred units (the “Transaction”). The completion of the Transaction is subject to certain regulatory approvals, conditions precedent and normal customary closing conditions. Subject to the satisfaction of such conditions, the Transaction is expected to close in mid-2020. In the Agreement, the Bank, MVB Mortgage, and Intercoastal have made customary representations, warranties, and covenants, including covenants to enter into ancillary agreements related to the Transaction and the operation of the business following the completion of the Transaction. MVB will recognize its ownership as a fair value equity investment and will no longer consolidate MVB Mortgage’s financial results.

On April 3, 2020, the Bank entered into a Purchase and Assumption Agreement with the FDIC, as receiver for The First State Bank, Barboursville, W.Va., providing for the assumption by the Bank of certain liabilities and the purchase by the Bank of certain assets of First State. First State depositors automatically became depositors of the Bank and, subject to the insurance limitations, deposits will continue to be insured by the FDIC without interruption. In the Agreement, the Bank agreed to pay no

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deposit premium and to acquire the assets at a discount to book value. The Bank also acquired three branch locations in Barboursville, Teays Valley, and Huntington, W.Va.

On April 17, 2020, Paladin Fraud, LLC, a West Virginia limited liability company and indirect wholly owned subsidiary of MVB Financial Corporation, entered into an Asset Purchase Agreement by and among Paladin Fraud, Paladin, LLC, a Washington limited liability company, James Houlihan and Jamon Whitehead. Pursuant to the Purchase Agreement, and upon the terms and conditions set forth therein, Paladin Fraud acquired substantially all of the assets and certain liabilities of Paladin, LLC, effective as of April 17, 2020.

Business Overview

The Company’s primary business activities, through its subsidiaries, are primarily community banking and mortgage banking. The Bank offers its customers a full range of products and services including:

•Various demand deposit accounts, savings accounts, money market accounts, and certificates of deposit;

•Commercial, consumer, and real estate mortgage loans and lines of credit;

•Debit and credit cards;

•Cashier’s checks and money orders;

•Safe deposit rental facilities; and

•Non-deposit investment services.

The Company is also involved in new innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments in Fintech. The dedicated Fintech sales team is based in Salt Lake City, UT and specializes in providing banking services to corporate Fintech clients, with an overarching focus on operational risk and compliance. This business line has the potential for fee income revenue as ~~partnerships~~relationships grow.

The Bank’s financial products and services are offered through its financial service locations and automated teller machines (“ATMs”) in West Virginia and Virginia, as well as telephone and internet-based banking through both personal computers and mobile devices. Non-deposit investment services are offered through an association with a broker-dealer. The Bank has deployed Automated Interactive Teller machines (“AITs”) in several branch locations. AITs provide services by featuring video interaction with a bank employee upon request. A customer can deposit cash and checks and withdraw cash, as well as a variety of other services typically occurring in a traditional branch location.

Since its opening in 1999, the Bank has experienced significant growth in assets, loans, and deposits due to strong community and customer support in Marion and Harrison counties in West Virginia, expansion into Jefferson, Berkeley, Monongalia, and Kanawha counties in West Virginia and, most recently, into Fairfax and Loudoun counties in Virginia. Since the acquisition of PMG, mortgage banking is now a much more significant focus, which has opened increased market opportunities in the Washington, DC metropolitan region, North Carolina, and South Carolina and added enough volume to further diversify the Company’s revenue stream.

This discussion and analysis should be read in conjunction with the prior year-end audited consolidated financial statements and footnotes thereto included in the Company’s ~~2018~~2019 filing on Form 10-K and the unaudited financial statements, ratios, statistics, and discussions contained elsewhere in this Form 10-Q.

At ~~September 30, 2019,~~March 31, 2020, the Company had ~~420~~459 full-time equivalent employees.

The Company’s principal office is located at 301 Virginia Avenue, Fairmont, West Virginia 26554, and its telephone number is (304) 363-4800. The Company’s Internet web site is www.mvbbanking.com.

Application of Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with U. S. generally accepted accounting principles and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not

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carried on the consolidated financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal forecasting techniques.

The most significant accounting policies followed by the Company are presented in Note 1, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the Company’s ~~2018~~2019 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in management’s discussion and analysis of operations, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective or complex judgments, and as such could be most subject to revision as new information becomes available.

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of losses inherent in classifications of homogeneous loans based on the Bank’s historical loss experience and consideration of current economic trends and conditions, all of which may be susceptible to significant change. Non-homogeneous loans are specifically evaluated due to the increased risks inherent in those loans. The loan portfolio also represents the largest asset type in the consolidated balance sheet. Note 1, “Summary of Significant Accounting Policies” of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the Company’s ~~2018~~2019 Annual Report on Form 10-K, describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the “Allowance for Loan Losses” section of Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q.

Results of Operations

Overview of the Statements of Income

For the three months ended ~~September 30, 2019,~~March 31, 2020, the Company earned ~~$4.3~~$1.0 million compared to ~~$3.6~~$3.2 million in the ~~third~~first quarter of ~~2018, excluding discontinued operations.~~2019. Net interest income increased by ~~$1.5~~$2.2 million, noninterest income increased by ~~$4.2~~$2.1 million, and noninterest expenses increased by ~~$5.0~~$6.2 million.

The increase in net interest income was driven by an increase of ~~$2.9~~$1.1 million in interest ~~income. The increase in interest~~ income ~~was partially offset by an increase~~and a decrease of ~~$1.4~~$1.1 million in interest expense. The increase in interest income was due to average loan growth of ~~$170.4~~$150.8 million with the yield on loans and loans held for sale ~~increasing~~decreasing by 1923 basis points, primarily due to ~~an increase~~a decrease in commercial loan yield of 2926 basis points and a decrease in real estate loan yield of 25 basis points. The ~~$61.9~~decrease in interest expense of $1.1 million ~~increase~~was due the cost of interest-bearing liabilities decreasing by 36 basis points, primarily due to a decrease in cost of funds on certificates of deposits of 25 basis points, which was offset by growth in average interest-bearing liabilities ~~generated the increase~~of $9.2 million. The decrease in interest expense ~~of $1.4 million. The increase in interest expense~~

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was mainly driven by a ~~$715~~$688 thousand decrease in interest expense on certificates of deposit, through short-term brokered certificates of deposit, and a decrease in the rates of certificates of deposits, and a $656 thousand decrease in interest expense on FHLB and other borrowings, due to a decrease in FHLB and other borrowings balances and a decrease in cost of funds on borrowings, which was offset by a $407 thousand increase in interest expense on money market checking, as a result of increasing ~~rates on~~balances in money market ~~checking, and a $450 thousand increase in interest expense~~checking. Certificates of deposit decreased by $93.8 million while the cost of funds on certificates of deposit ~~through short-term brokered certificates~~decreased by 25 basis points compared to the three months ended March 31, 2019. FHLB and other borrowings decreased by $59.3 million while the cost of ~~deposit, and an increase in~~funds on borrowings decreased by 86 basis points compared to the ~~rates of certificates of deposit.~~three months ended March 31, 2019. Money market checking increased by ~~$87.2~~$134.6 million while the cost of funds on money market checking ~~increased~~decreased by ~~56 basis point compared to the third quarter of 2018. Certificates of deposit increased by $18.3 million while the cost of funds on certificates of deposit increased by 40~~7 basis points compared to the ~~three months ended September 30, 2018.~~ first quarter of 2019.

The increase in noninterest income was primarily the result of an increase in mortgage fee income of ~~$2.5~~$4.5 million due to increased mortgage ~~productivity.~~productivity, and an increase in compliance consulting income of $1.0 million, driven by the addition of Chartwell. This increase was offset by a decrease in the gain on derivatives of $4.0 million. The increase in noninterest expense was mainly driven by the increases in salaries and benefits of ~~$3.9~~$4.4 million, largely driven by an increase in mortgage production, as well as the build-out of the ~~Fintech~~fintech operations team. Travel, entertainment, dues, and subscriptions expense increased by $528 thousand. This increase was mainly driven by travel for deposit acquisition and on-boarding costs, including due diligence, related to Fintech

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opportunities. Professional fees expense increased by $503 thousand. This increase was primarily due to increased legal fees related to the new entity Intercoastal Mortgage, LLC. The decrease in the gain on derivatives was the result of the volatility of rates due to the COVID-19 pandemic. Loan originations spiked during early March when Treasury yields were at an all-time low. Mortgage rates were "locked-in" near lows offering lower yields. The increased volume of originations resulted in unsettled mortgage positions to realize a large mark to market loss. However, the mark to market loss is also attributable to instability in the market for mortgage-backed securities and mortgage servicing rights.

The provision for loan losses, which is a product of management’s formal quarterly analysis, is recorded in response to inherent losses in the loan portfolio. Loan loss provisions of ~~$657 thousand and~~ $1.1 million and $300 thousand were made for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The significant ~~decrease~~increase in loan loss provision is the result of the net impact of ~~changes in outstanding loan portfolios,~~adjustments to the portfolio segmentation and changes in the level of recognized charge offs, ~~changes in~~ historical loss rates, and ~~changes~~qualitative adjustment factors.

Most notably, charge offs in the ~~level~~first quarter of ~~specific~~2020 totaled $1.8 million, while there were no charge offs in the first quarter of 2019. In 2020, there was a charge-off of a $1.8 million government lease financing loan ~~loss allocations. Most notably,~~stemming from the ~~commercial~~non-renewal of the underlying government contract unrelated to the COVID-19 pandemic. The historical loss rates ~~decreased~~were uniquely impacted in the ~~third~~first quarter of 2020 as a result of revisions to the portfolio segmentation, which were implemented to allow for the enhanced assessment of risk within the portfolio. More specifically, the most material enhancement included new commercial loan segments for purchased participation loans and government lease financing loans, as well as the division of the sole residential mortgage segment into a permanent mortgage segment and a construction mortgage segment. In general, this slightly reduced historical loss rates for the previously existing segments as it transitioned certain historical loan losses into the new segments. The most material impact of this enhancement was the impact of the $1.8 million charge off noted previously, which was a single loan to a borrower within the new government lease financing segment. This single charge off increased the historical loss rate by 67 basis points, or 145%, specific to this segment.

The qualitative adjustment factors were also uniquely impacted in the first quarter of 2020, primarily as a result of the COVID-19 pandemic. Given that the virus had just begun to have an effect on the economy, the government, and the way we live, in late March, the potential impacts were only beginning to reveal themselves as of the quarter ended March 31, 2020. As a result, quantifiable evidence of the impacts to our loan portfolios were not yet known in terms of potential problem loans and deterioration in collateral values. Meanwhile, as of quarter-end, management had not made any significant changes to lending strategies that would impact the nature and volume of our loan portfolios, or the concentrations of credit risk within those portfolios. However, the unprecedented initiatives of the Federal Government to provide support to the economy through new loan programs, has simultaneously served to temporarily mitigate some of the unknown impacts to our economy and our borrowers, while also adding some degree of increased risk to lending policies and procedures as a result of the pace and manner in which these programs have been developed and made available to the public. Furthermore, the impacts to the economic and business conditions in which we operate, and the strength of consumer sentiment were considered to have been materially impacted as of quarter-end, even if the full extent of such impacts were not yet known.

Total loan volume increased $22.0 million in the first quarter of 2020 versus a $36.9 million increase in the first quarter of 2019. The commercial loan portfolio increased by $30.7 million for the first quarter of 2020, in comparison to $21.0 million in the first quarter of 2019, ~~versus~~while the ~~same time period in 2018, which resulted in a need for relatively less provision per dollar of new~~residential mortgage loan ~~growth~~portfolio decreased by $10.1 million in the ~~third~~first quarter of ~~2019 versus~~2020, while increasing by $15.8 million in the ~~third~~first quarter of ~~2018. Meanwhile,~~2019. In addition, provision was impacted by a ~~$981~~$42 thousand increase in the specific loan loss allocations in the ~~third~~first quarter of ~~2019,~~2020, relative to a ~~$526~~$80 thousand increase in the ~~third~~first quarter of 2018. Loan volume deceased in the third quarter of 2019 versus the same time period in 2018. The residential mortgage loan portfolio increased by $17 million in the second quarter of 2019, while increasing by $38 million in the second quarter of 2018. Additionally, the commercial loan portfolio increased by $39 million for the three months ended September 30, 2019, in comparison to $45 million for the three months ended September 30, 2018. Meanwhile, there were no charge offs in the third quarter of 2019, while there were $295 thousand in the third quarter of 2018.

For the nine months ended September 30, 2019, the Company earned $22.5 million compared to $9.0 million for the nine months ended September 30, 2018, excluding discontinued operations. Net interest income increased by $5.9 million, noninterest income increased by $19.5 million, and noninterest expenses increased by $7.8 million. The increase in net interest income was driven by an increase of $11.0 million in interest income, which was partially offset by an increase of $5.1 million in interest expense. The increase in interest income was due to average loan growth of $191.9 million, with the yield on loans and loans held for sale increasing by 34 basis points, primarily due to an increase in commercial loan yield of 47 basis points and a 104-basis point increase in consumer loan yield. The $72.1 million increase in average interest-bearing liabilities generated the increase in interest expense of $5.1 million. The increase in interest expense was driven by a $2.9 million increase in interest expense on certificates of deposit, through short-term brokered certificates of deposit, and an increase in the rates of certificates of deposit, as well as a $2.1 million increase in interest expense on money market checking and an increase in the rates on money market checking. Average certificates of deposit increased by $105.4 million, while the cost of funds on certificates of deposit increased by 53 basis points since September 30, 2018. Average money market checking increased by $80.6 million, while the cost of funds on money market checking increased by 66 basis points compared to the nine months ended September 30, 2018. The increase in noninterest income was primarily the result of an increase in holding gain on equity securities of $13.2 million relating to a Fintech investment. The increase in noninterest expense is mainly due to an increase in salaries and benefits of $6.0 million, largely driven by an increase in mortgage production, as well as the build-out of the Fintech operations team.

The provision for loan losses, which is a product of management’s formal quarterly analysis, is recorded in response to inherent losses in the loan portfolio. Loan loss provisions of $1.6 million and $2.1 million were made for the nine months ended September 30, 2019 and 2018, respectively. The significant decrease in loan loss provision is the result of the net impact of changes in outstanding loan portfolios, changes in the level of recognized charge offs, changes in historical loss rates, and changes in the level of specific loan loss allocations. The decrease in loan loss provision is most attributable to decreased loan volume in the nine months ended September 30, 2019 versus the same time period in 2018. Most notably, the commercial loan portfolio increased by $83 million in the nine months ended September 30, 2019, in comparison to an increase of $145 million for the nine months ended September 30, 2018. Likewise, the residential mortgage loan portfolio decreased by $4 million in 2019, versus an increase of $53 million in 2018. Meanwhile, slightly reduced historical loan loss rates resulted in a need for relatively less provision per dollar of new loan growth in nine months ended September 30, 2019 versus the same time period in 2018. The reduction in historical loss rates is primarily the result of the rolling quarter loss rate calculation, which no longer includes certain historical quarters which reported some of the Bank’s most significant commercial loan losses. The historical loan loss rates have also decreased in the nine months ended September 30, 2019 as a result of the increased reliance upon the Bank’s actual loss rates for its Northern Virginia commercial loan portfolio, rather than relying more heavily on peer loss rates in the historical loan loss rate calculations. Peer loss rates had been used exclusively until such time as the Northern Virginia commercial loan portfolio had accumulated at least twelve quarters of loss history. Since that time, the calculation is gradually weighted more heavily towards the Company’s actual loss rates. Specific loan loss allocations increased by $472 thousand in the nine months ended September

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30, 2019, in comparison to an increase of $388 thousand in the nine months ended September 30, 2018. Lastly, the charge offs totaled $676 thousand in loans during the nine months ended September 30, 2019 versus $679 thousand for the same time period in 2018.2019.

Interest Income and Expense

Net interest income is the amount by which interest income on earning assets exceeds interest expense on interest-bearing liabilities. Interest-earning assets include loans, investment securities, and certificates of deposits in other banks. Interest-bearing liabilities include interest-bearing deposits and repurchase agreements, subordinated debt, and Federal Home Loan Bank (“FHLB”) and other borrowings. Net interest income is a primary source of revenue for the bank. Changes in market interest rates, as well as changes in the mix and volume of interest-earning assets and interest-bearing liabilities impact net interest income.

Net interest margin is calculated by dividing net interest income by average interest-earning assets. This ratio serves as a performance measurement of the net interest revenue stream generated by the Company’s balance sheet. The net interest margin continues to face considerable pressure due to the current rate environment and competitive pricing of loans and deposits in the Bank’s markets.

Due to the ongoing COVID-19 pandemic, there has been a significant amount of downward movement in the fed funds rate

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during the period. To begin the period, the fed funds rate was set at 1.50-1.75 due to the latest downward shift during the fourth quarter of 2019. With the economic volatility and increases in unemployment during March 2020, the Federal Reserve shifted the fed funds rate down to 0.00-0.25. Given all of these changes to the market rates, the Company has experienced increased pressure on net interest income.

For the three months ended ~~September 30,~~March 31, 2020 versus 2019, ~~versus 2018,~~ the Company was able to grow average loans and loans held for sale balances by ~~$170.4~~$150.8 million to $1.5 billion. Average investment securities increased ~~$3.5~~$5.4 million to ~~$232.0~~$237.5 million. Average interest-bearing liabilities increased by ~~$61.9~~$9.2 million, primarily the result of a ~~$87.2~~$134.6 million increase in average money market checking and a ~~$18.3~~$50.5 million increase in average NOW, offset by a $93.8 million decrease in average certificates of deposit balances, ~~offset by~~ a ~~$28.1~~$59.3 million decrease in average ~~NOW~~FHLB and other borrowings, and a ~~$10.4~~$13.4 million decrease in average subordinated debt. An increase in the Company’s average non-interest balances of ~~$78.2~~$117.4 million helped to grow a ~~37-basis~~33-basis point favorable spread on net interest margin in ~~2019~~2020 compared to a ~~23-basis~~30-basis point spread in ~~2018.~~2019.

The net interest margin for the three months ended ~~September 30,~~March 31, 2020 and 2019 was 3.60% and ~~2018 was 3.42% and 3.43%~~3.45%, respectively. The ~~1-basis~~15-basis point ~~decrease~~increase in the net interest margin for the three months ended ~~September 30, 2019~~March 31, 2020 was mainly the result of the cost of interest-bearing liabilities decreasing by 36 basis points. The cost of interest-bearing liabilities decrease was mainly the result of an 86-basis point decrease in FHLB and other borrowings and a ~~18-basis~~19-basis point decrease in interest-bearing deposits. More specifically, the decrease in interest-bearing deposits was as follows: a 25-basis point decrease in certificates of deposit, a 7-basis point decrease in money market checking, a 4-basis point decrease in NOW, with a 9-basis point increase in IRAs. This decrease in cost of interest-bearing liabilities was offset by a 24-basis point decrease in yield on average earning assets for the three months ended March 31, 2020 versus 2019, primarily the result of a ~~19-basis~~23-basis point ~~increase~~decrease in yield on loans and loans held for sale ~~offset by~~and a ~~7-basis~~39-basis point decrease in yield on investment securities. More specifically, the ~~increase~~decrease in yield on loans and loans held for sale was driven by ~~an increase~~a decrease in the yield on commercial ~~loan yield~~loans of 2926 basis points and a ~~203-basis~~25-basis point ~~increase~~decrease in yield on ~~consumer~~real estate loans. Cost of interest-bearing liabilities for the three months ended September 30, 2019 versus 2018 increased by 33 basis points. The cost of interest-bearing liabilities increase was mainly the result of a 24-basis point increase in FHLB and other borrowings and a 40-basis point increase in interest-bearing deposits. More specifically, the increase in interest-bearing deposits was as follows: a 56-basis point increase in money market checking, a 40-basis point increase in certificates of deposit, a 26-basis point increase in IRAs, and an 23-basis point increase in NOW, with a 0-basis point change in cost of funds in savings.

For the nine months ended September 30, 2019 versus 2018, the Company was able to grow average loans and loans held for sale balances by $191.9 million to $1.4 billion. Average investment securities decreased $2.1 million to $228.2 million. Average interest-bearing liabilities increased by $72.1 million, primarily the result of a $105.4 million increase in average certificates of deposit balances and a $80.6 million increase in average money market checking, offset by a $70.1 million decrease in average NOW and a $16.1 million decrease in average FHLB and other borrowing balances. An increase in the Company’s average non-interest balances of $89.5 million helped to grow a 35-basis point favorable spread on net interest margin in 2019 compared to a 19-basis point in 2018.

The net interest margin for the nine months ended September 30, 2019 and 2018 was 3.45% and 3.37%, respectively. The 8-basis point increase in the net interest margin for the nine months ended September 30, 2019 was the result of a 35-basis point increase in yield on average earning assets, primarily the result of a 34-basis point increase in yield on loans and loans held for sale and a 15-basis point increase in yield on investment securities. More specifically, the increase in yield on loans and loans held for sale was driven by an increase in commercial loan yield of 47 basis points and a 104-basis point increase in yield on consumer loans. Cost of interest-bearing liabilities for the nine months ended September 30, 2019 versus 2018 increased by 43 basis points. The cost of interest-bearing liabilities increase was mainly the result of a 64-basis point increase in FHLB and other borrowings and a 51-basis point increase in interest-bearing deposits. More specifically, the increase in interest-bearing deposits was as follows: a 66-basis point increase in money market checking, a 53-basis point increase in certificates of deposit, a 35-basis point increase in IRAs, and a 18-basis point increase in NOW, which was offset by an 7-basis point decrease in savings.

Company and Bank management continuously monitor the effects of net interest margin on the performance of the Bank and, thus, the Company. Growth and mix of the balance sheet will continue to impact net interest margin in future periods.

During periods of decreasing rates, yields will continue to decline. The Company has some protection from this as loans with balances of $630.3 million have rate floors. Of these, $624.7 million have rate floors above 1 percent, $605.5 million have rate floors above 2 percent, $601.7 million have rate floors above 3 percent, $487.8 million have rate floors above 4 percent, $250.4 million have rate floors above 5 percent, and $47.2 million have rate floors above 6 percent.

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MVB Financial Corp. and Subsidiaries

Average Balances and Interest Rates

(Unaudited) (Dollars in thousands)


		Three Months Ended September 30, 2019										Three Months Ended September 30, 2018											Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost		(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets	Assets													Assets
Interest-bearing deposits in banks	Interest-bearing deposits in banks	$	9,562	$	61	2.53	%	$	5,178	$	30	2.30	%	Interest-bearing deposits in banks	$	13,643	$	49	1.44	%	$	7,546	$	49	2.63	%
CDs with other banks	CDs with other banks	14,143		71		1.99		14,778		73		1.96		CDs with other banks	12,549		62		1.98		14,778		73		2.00
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	122,648		689		2.23		148,499		869		2.32		Taxable	127,327		666		2.10		139,692		879		2.55
Tax-exempt	Tax-exempt	109,324		879		3.19		79,961		715		3.55		Tax-exempt	110,188		877		3.19		92,417		837		3.67
Loans and loans held for sale: ¹	Loans and loans held for sale: ¹													Loans and loans held for sale: ¹
Commercial	Commercial	1,002,595		13,599		5.38		883,051		11,323		5.09		Commercial	1,089,212		13,863		5.11		951,836		12,594		5.37
Tax exempt	Tax exempt	11,229		100		3.53		14,231		125		3.48		Tax exempt	11,760		106		3.62		14,251		123		3.50
Real estate	Real estate	464,769		5,490		4.69		408,719		4,909		4.77		Real estate	429,720		4,953		4.62		411,639		4,941		4.87
Consumer	Consumer	8,612		149		6.86		10,844		132		4.83		Consumer	7,473		123		6.60		9,654		127		5.34
Total loans	Total loans	1,487,205		19,338		5.16		1,316,845		16,489		4.97		Total loans	1,538,165		19,045		4.97		1,387,380		17,785		5.20
Total earning assets	Total earning assets	1,742,882		21,038		4.79		1,565,261		18,176		4.61		Total earning assets	1,801,872		20,699		4.61		1,641,813		19,623		4.85
Less: Allowance for loan losses	Less: Allowance for loan losses	(11,232)						(10,717)						Less: Allowance for loan losses	(11,366)						(11,071)
Cash and due from banks	Cash and due from banks	18,366						18,020						Cash and due from banks	20,766						16,088
Other assets	Other assets	134,871						108,618						Other assets	136,744						112,301
Total assets	Total assets	$	1,884,887					$	1,681,182					Total assets	$	1,948,016					$	1,759,131

Liabilities	Liabilities													Liabilities
Deposits:	Deposits:													Deposits:
NOW	NOW	$	384,977	$	942	0.97	%	$	413,121	$	773	0.74	%	NOW	$	407,462	$	798	0.79	%	$	357,005	$	729	0.83	%
Money market checking	Money market checking	333,849		1,391		1.65		246,624		676		1.09		Money market checking	432,175		1,451		1.35		297,607		1,044		1.42
Savings	Savings	37,335		1		0.01		42,760		1		0.01		Savings	36,867		1		0.01		40,235		1		0.01
IRAs	IRAs	17,342		84		1.92		17,950		75		1.66		IRAs	16,573		78		1.89		17,826		79		1.80
CDs	CDs	366,749		2,035		2.20		348,467		1,585		1.80		CDs	334,810		1,582		1.90		428,610		2,270		2.15
Repurchase agreements and federal funds sold	Repurchase agreements and federal funds sold	9,493		12		0.50		17,911		10		0.22		Repurchase agreements and federal funds sold	9,520		10		0.42		14,206		14		0.40
FHLB and other borrowings	FHLB and other borrowings	212,102		1,383		2.59		202,670		1,199		2.35		FHLB and other borrowings	115,930		573		1.98		175,222		1,229		2.84
Subordinated debt	Subordinated debt	9,535		156		6.49		19,932		333		6.63		Subordinated debt	4,124		35		3.40		17,524		285		6.60
Total interest-bearing liabilities	Total interest-bearing liabilities	1,371,382		6,004		1.74		1,309,435		4,652		1.41		Total interest-bearing liabilities	1,357,461		4,528		1.34		1,348,235		5,651		1.70
Noninterest bearing demand deposits	Noninterest bearing demand deposits	271,294						193,116						Noninterest bearing demand deposits	331,962						214,541
Other liabilities	Other liabilities	38,618						10,710						Other liabilities	43,463						18,450
Total liabilities	Total liabilities	1,681,294						1,513,261						Total liabilities	1,732,886						1,581,226

Stockholders’ equity	Stockholders’ equity													Stockholders’ equity
Preferred stock	Preferred stock	7,644						7,834						Preferred stock	7,334						7,834
Common stock	Common stock	11,773						11,467						Common stock	11,997						11,659
Paid-in capital	Paid-in capital	119,166						113,482						Paid-in capital	122,663						116,925
Treasury stock	Treasury stock	(1,084)						(1,084)						Treasury stock	(1,135)						(1,084)
Retained earnings	Retained earnings	67,312						43,793						Retained earnings	74,401						49,161
Accumulated other comprehensive (loss)	Accumulated other comprehensive (loss)	(1,218)						(7,571)						Accumulated other comprehensive (loss)	(130)						(6,590)
Total stockholders’ equity	Total stockholders’ equity	203,593						167,921						Total stockholders’ equity	215,130						177,905
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,884,887					$	1,681,182					Total liabilities and stockholders’ equity	$	1,948,016					$	1,759,131

Net interest spread	Net interest spread					3.05						3.20		Net interest spread					3.27						3.15
Net interest income-margin	Net interest income-margin			$	15,034	3.42	%			$	13,524	3.43	%	Net interest income-margin			$	16,171	3.60	%			$	13,972	3.45	%

¹Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.

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~~MVB Financial Corp. and Subsidiaries~~

~~Average Balances and Interest Rates~~

~~(Unaudited) (Dollars in thousands)~~

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
(Dollars in thousands) Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost
Assets
Interest-bearing deposits in banks $ 8,904 $ 163 2.45 % $ 4,183 $ 64 2.05 %
CDs with other banks 14,498 216 1.99 14,778 220 1.99
Investment securities:
     Taxable 127,631 2,336 2.45 151,362 2,655 2.35
     Tax-exempt 100,530 2,610 3.47 78,910 2,087 3.54
Loans and loans held for sale: ¹
     Commercial 973,547 39,258 5.39 830,371 30,582 4.92
     Tax exempt 12,831 337 3.51 14,318 371 3.46
     Real estate 441,238 15,794 4.79 388,494 13,755 4.73
     Consumer 9,217 417 6.05 11,731 440 5.01
Total loans 1,436,833 55,806 5.19 1,244,914 45,148 4.85
Total earning assets 1,688,396 61,131 4.84 1,494,147 50,174 4.49
Less: Allowance for loan losses (11,174) (10,281)
Cash and due from banks 16,820 16,933
Other assets 129,594 105,743
     Total assets $ 1,823,636 $ 1,606,542
Liabilities
Deposits:
     NOW $ 368,709 $ 2,510 0.91 % $ 438,784 $ 2,382 0.73 %
     Money market checking 319,919 3,721 1.56 239,305 1,604 0.90
     Savings 39,066 3 0.01 45,247 27 0.08
     IRAs 17,627 250 1.90 17,880 207 1.55
     CDs 403,294 6,640 2.20 297,876 3,718 1.67
Repurchase agreements and federal funds sold 11,764 37 0.42 19,535 49 0.34
FHLB and other borrowings 180,552 3,707 2.75 196,610 3,110 2.11
Subordinated debt 14,821 728 6.57 28,441 1,433 6.74
     Total interest-bearing liabilities 1,355,752 17,596 1.74 1,283,678 12,530 1.31
Noninterest bearing demand deposits 245,705 156,165
Other liabilities 31,305 9,764
     Total liabilities 1,632,762 1,449,607
Stockholders’ equity
Preferred stock 7,770 7,834
Common stock 11,709 10,896
Paid-in capital 117,923 104,776
Treasury stock (1,084) (1,084)
Retained earnings 58,726 41,046
Accumulated other comprehensive (loss) (4,170) (6,533)
     Total stockholders’ equity 190,874 156,935
     Total liabilities and stockholders’ equity $ 1,823,636 $ 1,606,542
Net interest spread 3.10 3.18
Net interest income-margin $ 43,535 3.45 % $ 37,644 3.37 %

¹~~Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate.~~

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Noninterest Income

Mortgage fee income, gain (loss) on derivatives, interchange income, commercial swap fee income, insurance and investment services income, income on bank owned life insurance and portfolio loan sales generate the core of the Company’s noninterest income. Also, service charges on deposit accounts continue to be part of the core of the Company’s noninterest income and include mainly non-sufficient funds and returned check fees, allowable overdraft fees and service charges on commercial accounts.

For the three months ended ~~September 30, 2019,~~March 31, 2020, noninterest income totaled ~~$14.7~~$10.8 million compared to ~~$10.5~~$8.8 million for the same time period in ~~2018.~~2019. The ~~$4.2~~$2.1 million increase in noninterest income was primarily the result of an increase in mortgage fee income of ~~$2.5~~$4.5 million, an increase in compliance consulting income of $1.0 million, an increase in gain on ~~derivatives~~sale of ~~$1.8 million,~~securities of $394 thousand, and an increase in commercial swap fee income of $622 thousand, an increase in other operating income of $100 thousand, an increase in service charges on deposits of $62 thousand, and an increase on gain on sale of portfolio loans of $45 thousand. These increases were partially offset by a decrease in the holding gain on equity securities of $623 thousand and a decrease in income on bank owned life insurance of $296 thousand. The increase in mortgage fee income of $2.5 million is driven by an increase of $122.9 million in mortgage loans sold for the three months ended September 30, 2019 compared to the three months ended September 30, 2018. The increase in gain on derivatives of $1.8 million was largely the result of a decrease of 1.06% in the locked pipeline of residential mortgage loans during the three months ended September 30, 2019 compared to a decrease of 19.62% in the locked pipeline of residential mortgage loans during the three months ended September 30, 2018. The increase in commercial swap fee income of $622 thousand is due to swap volume of $29.8 million for the third quarter of 2019 compared to $400 thousand for the third quarter of 2018.The increase of $100 thousand in other operating income was primarily due to an increase of $21 thousand in dividends from bank stock, an increase of $15 thousand in wire transfer fees, and an increase of $13 thousand in dividends on FHLB stock.

For the nine months ended September 30, 2019, noninterest income totaled $49.8 million compared to $30.3 million for the same time period in 2018. The $19.5 million increase in noninterest income was primarily the result of an increase in holding gain on equity securities of $13.2 million, an increase in mortgage fee income of $3.4 million, an increase in gain on derivatives of $2.2 million, an increase in commercial swap fee income of $727 thousand, an increase in other operating income of $284 thousand, and an increase in service charges on deposits of $244$240 thousand. These increases were partially offset by a decrease in the gain on ~~sale~~derivatives of ~~available-for-sale securities~~$4.0 million and a decrease in income on bank owned life insurance of ~~$506~~$302 thousand. ~~The increase in the holding gain on equity securities was the result of a recent valuation of the Company’s fintech investment portfolio.~~

The increase in mortgage fee income of ~~$3.4~~$4.5 million is driven by an increase of $171.7 million in mortgage loans sold for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increase in compliance consulting income of $1.0 million is due to the ~~increase~~addition of ~~$161.3 million in mortgage loans sold volume for~~ the ~~nine months ended September 30, 2019 compared to the nine months ended September 30, 2018~~. ~~The increase in gain on derivatives of $2.2 million was largely the result of an increase of 94.10% in the locked pipeline of residential mortgage loans~~Chartwell team during ~~the nine months ended September 30, 2019 compared to an increase of 34.04% in the locked pipeline of residential mortgage loans during the nine months ended September 30, 2018~~. 2019. The increase in commercial swap fee income of ~~$727~~$240 thousand is due to swap volume of ~~$39.1~~$12.3 million for the ~~nine months ended September 30, 2019~~first quarter of 2020 compared to ~~$29.4~~$3.0 million for the~~nine months ended September 30, 2018~~. first quarter of 2019. The increase of ~~$284~~$153 thousand in other operating income was primarily due to an increase of ~~$165~~$60 thousand in dividends on FHLB stock and an increase of ~~$50~~$32 thousand in wire transfer fees. The decrease in the gain on derivatives of $4.0 million was largely the result of the volatility of rates due to the COVID-19 pandemic. Loan originations spiked during early March when Treasury yields were at an all-time low. Mortgage rates were "locked-in" near lows offering lower yields. The increased volume of commitments to originate loans at locked-in rates resulted in unsettled mortgage positions to realize a large mark to market loss. However, some of the mark to market loss is also attributable to instability in the market for mortgage-backed securities and mortgage servicing rights.

Noninterest Expense

The Company had ~~420~~459 full-time equivalent personnel at ~~September 30, 2019,~~March 31, 2020, as noted, compared to ~~395~~389 full-time equivalent personnel as of ~~September 30, 2018.~~March 31, 2019. Company and Bank management will continue to strive to find new ways of increasing efficiencies and leveraging its resources, while effectively optimizing customer service.

Salaries and employee benefits, occupancy and equipment, travel and entertainment, dues and subscriptions, data processing and communications, mortgage processing and professional fees generate the core of the Company’s noninterest expense. The Company’s efficiency ratio was ~~78.64%~~91.25% for the ~~third~~first quarter of ~~2019~~2020 compared to ~~76.63%~~81.14% for the ~~third~~first quarter of ~~2018. The Company’s efficiency ratio was 66.63% for the nine months ended September 30, 2019 compared to 80.02% for the same time period in 2018.~~2019. This ratio measures the efficiency of noninterest expenses incurred in relationship to net interest income plus noninterest income. The ~~decreased~~increased efficiency ratio for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 is the result of the growth in noninterest expense outpacing the growth in net interest income and noninterest ~~income outpacing the growth in noninterest expense and was particularly affected by the holding gain on equity securities.~~income.

For the three months ended ~~September 30, 2019,~~March 31, 2020, noninterest expense totaled ~~$23.4~~$24.7 million compared to $18.4 million for the same time period in ~~2018.~~2019. The ~~$5.0 million increase in noninterest expense was primarily the result of the following:~~

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~~Salaries and employee benefits expense increased by $3.9 million. The increase was largely driven by an increase in mortgage production, as well as the build-out of the Fintech operations team.~~

Travel, entertainment, dues, and subscriptions expense increased by $413 thousand. This increase was mainly driven by travel for deposit acquisition and on-boarding costs, including due diligence, related to Fintech opportunities.

~~Professional fees expense increased by $301 thousand. This increase was largely due to an increase in Fintech-related consulting fees and due to Chartwell related acquisition costs.~~

~~Marketing, contributions and sponsorships increased by $166 thousand. This increase was mainly due to increased marketing efforts related to the promotion of new fintech projects.~~

~~Occupancy and equipment expense increased by $151 thousand. This increase was primarily driven by the branch expansion and additional personnel related to overall corporate expansion.~~

~~Data processing and communications increased by $130 thousand. The increase was primarily driven by data processing projects focusing on improving internal systems.~~

Mortgage processing expense decreased by $139 thousand. This decrease was driven by a $136 thousand decrease in LSP, LLC services due to increased efficiencies. Following an increase in ownership in late 2017, management has focused on reducing operating costs and overhead expenses.

~~For the nine months ended September 30, 2019, noninterest expense totaled $62.2 million compared to $54.4 million for the same time period in 2018. The $7.8~~$6.2 million increase in noninterest expense was primarily the result of the following:

Salaries and employee benefits expense increased by ~~$6.0~~$4.4 million. The increase was ~~largely driven by an increase in~~primarily the result of increased mortgage production, ~~as well as~~the build-out of other Company administration, the build-out of the Fintech ~~operations team.~~team, increased incentive and stock-based compensation, and the additional team members acquired as a result of the Chartwell acquisition during the third quarter of 2019.

Travel, entertainment, dues, and subscriptions expense increased by ~~$728~~$528 thousand. This increase was mainly driven by travel for deposit acquisition and on-boarding costs, including due diligence, related to Fintech ~~opportunities~~

~~Occupancy~~opportunities. Travel, entertainment, dues, and ~~equipment expense increased by $526 thousand. This increase was primarily~~subscriptions for the compliance consulting team added during 2019 have also driven by the ~~branch expansion and additional personnel related to overall corporate expansion.~~increase.

Professional fees expense increased by ~~$477~~$503 thousand. This increase was primarily due to increased legal fees related to the new entity Intercoastal Mortgage, LLC and increases due to special projects, Fintech products, and technology development.

Other operating expense increased by $331 thousand. This increase was largely due to ~~an increase in Fintech-related consulting fees and due~~amortization of intangibles related to the 2019 Chartwell ~~related acquisition costs.~~acquisition.

Data processing and ~~communication expense~~communications increased by ~~$290~~$175 thousand. The increase was primarily driven by data processing ~~projects focusing on improving internal systems.~~related to the Purchase and Assumption Agreement with Summit Community Bank that the Company expects to close in in the second

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Mortgage processing expense decreased by $498 thousand. This decrease was driven by a $534 thousand decrease in LSP, LLC services due to increased efficiencies. Following an increase in ownership in late 2017, management has focused on reducing operating costs and overhead expenses.quarter of 2020.

Return on Average Assets (Annualized)

~~Excluding discontinued operations, the~~The Company’s return on average assets was ~~0.92%~~0.22% for the ~~third~~first quarter of ~~2019,~~2020, compared to ~~0.85%~~0.73% for the ~~third~~first quarter of ~~2018.~~2019. The ~~increased~~decreased return for the ~~third~~first quarter of ~~2019~~2020 is a direct result of a ~~$767 thousand increase~~$2.1 million decrease in earnings, while average total assets increased by ~~$203.7~~$188.9 million, primarily the result of a ~~$170.4~~$150.8 million increase in average total loans and loans held for sale and a ~~$26.3~~$24.4 million increase in average other assets. ~~The increase in other assets is primarily driven by the right-of-use assets totaling $12.9 million related to the implementation of ASU 2016-02,~~ ~~Leases (Topic 842).~~

Excluding discontinued operations, the Company’s return on average assets was 1.64% for the nine months ended September 30, 2019, compared to 0.75% for the nine months ended September 30, 2018. The increased return for the nine months ended September 30, 2019 is a direct result of a $13.5 million increase in earnings, mainly driven by the $13.8 million in holding gain on equity securities, while average total assets increased by $217.1 million, primarily the result of a $191.9 million increase in average total loans and loans held for sale and a $23.9 million increase in average other assets. The increase in other assets is

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~~primarily driven by the right-of-use assets totaling $12.9 million related to the implementation of ASU 2016-02,~~ ~~Leases (Topic 842).~~

Return on Average Equity (Annualized)

~~Excluding discontinued operations, the~~The Company’s return on average stockholders’ equity was ~~8.54%~~1.95% for the ~~third~~first quarter of ~~2019,~~2020, compared to ~~8.53%~~7.18% for the ~~third~~first quarter of ~~2018.~~2019. The ~~increased~~decreased return for the ~~third~~first quarter of ~~2019~~2020 is a direct result of a ~~$767 thousand increase~~$2.1 million decrease in earnings, while average stockholders’ equity increased by ~~$35.7~~$37.2 million. The increase in average stockholders’ equity was primarily due to a $25.2 million increase in retained earnings, a $6.5 million decrease in accumulated other comprehensive loss and a $5.7 million increase in paid-in ~~capital, primarily due to the subordinated debt conversions, and a $23.5 million increase in retained earnings.~~

Excluding discontinued operations, the Company’s return on average stockholders’ equity was 15.69% for the nine months ended September 30, 2019, compared to 7.65% for the nine months ended September 30, 2018. The increased return for the nine months ended September 30, 2019 is a direct result of a $13.5 million increase in earnings, mainly driven by the $13.8 million in holding gain on equity securities, while average stockholders’ equity increased by $33.9 million. The increase in average stockholders’ equity was primarily due to an $13.1 million increase in paid-in capital, primarily due to the subordinated debt conversions, and a $17.7 million increase in retained earnings.capital.

Overview of the Consolidated Balance Sheets

The greatest balance changes since December 31, ~~2018~~2019 were as follows: total assets increased by ~~$211.0~~$155.6 million, to ~~$2.0~~$2.1 billion, loans increased ~~$78.0~~$22.0 million, to $1.4 billion, available-for-sale investment securities ~~increased $4.5~~decreased $12.7 million, to ~~$226.1~~$223.1 million, deposits increased ~~$147.3~~$333.2 million, to ~~$1.5~~$1.6 billion, borrowings ~~increased $26.8~~decreased $192.1 million, to ~~$241.6~~$30.8 million, and stockholders’ equity ~~increased~~decreased by ~~$29.5 million,~~$783 thousand, to ~~$206.2~~$211.2 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled ~~$36.6~~$88.9 million at ~~September 30, 2019,~~March 31, 2020, compared to ~~$22.2~~$28.0 million at December 31, ~~2018.~~2019.

Management believes the current balance of cash and cash equivalents adequately serves the Company’s liquidity and performance needs. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources, and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable the Company to meet cash obligations as they come due.

With the changes in the industry related to COVID-19, the Company has focused on maintaining greater liquidity. Management believes liquidity needs could be greater during this volatile time within the industry and markets. Based upon this volatility, the Company has adjusted the balance sheet to maintain a greater balance of cash and cash equivalents than has typically been used to maintain liquidity.

Investment Securities

Investment securities totaled ~~$244.5~~$242.1 million at ~~September 30, 2019,~~March 31, 2020, compared to ~~$231.2~~$254.3 million at December 31, ~~2018.~~2019. As of ~~September 30, 2019,~~March 31, 2020, the investment portfolio is comprised of the following mix of securities:

•~~45.8%~~48.2% – Municipal securities

•~~21.8%~~15.4% – U.S. Agency securities

•~~20.5%~~23.7% – U.S. Sponsored Mortgage-backed securities

•~~4.4%~~4.9% – Other securities

•~~7.5%~~7.8% – Equity securities

The Company and Bank management monitor the earnings performance and liquidity of the investment portfolio on a regular basis through Asset and Liability Committee (“ALCO”) meetings. The ALCO also monitors net interest income and assists in the management of interest rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity is maintained to satisfy depositor requirements and the various credit needs of its customers. The Company and Bank management believe the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.

Due to the COVID-19 pandemic, there has been increased volatility within the investment market. Given the balance mix of the

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Company to begin the period, management was able to take advantage of opportunities in selling available-for-sale investment securities for gains and purchased securities at favorable pricing levels.

Loans

The Company’s loan portfolio totaled $1.4 billion as of ~~September 30, 2019~~March 31, 2020 and totaled ~~$1.3~~$1.4 billion as of December 31, ~~2018.~~2019. The Bank’s lending is primarily focused in the Marion, Harrison, ~~Jefferson, Berkeley,~~ Monongalia, and Kanawha counties of West Virginia, and Fairfax and Loudoun counties of Virginia, with a secondary focus on the adjacent counties. Its extended

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market is in the adjacent counties. The portfolio consists principally of commercial lending, mortgage lending, which includes single-family residential mortgages, and consumer lending. The growth in loans is primarily attributable to organic growth within the Bank’s primary lending areas and Northern Virginia.

Loan Concentration

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018, $1.0~~2019, $1.1 billion, or ~~74.1%~~78.4% and ~~$941.0 million,~~$1.1 billion, or ~~72.1%~~77.4%, respectively, of our loan portfolio consisted of commercial loans. A significant portion of the nonresidential real estate loan portfolio is secured by commercial real estate. The majority of nonresidential real estate loans that are not secured by real estate are lines of credit secured by accounts receivable and equipment and obligations of states and political subdivisions. While the loan concentration is in nonresidential real estate loans, the nonresidential real estate portfolio is comprised of loans to many different borrowers, in numerous different industries but primarily located in our market areas.

Allowance for Loan Losses

The allowance for loan losses was ~~$11.9~~$11.2 million or 0.80% of total loans at March 31, 2020 compared to $11.8 million or 0.86% of total loans at ~~September 30, 2019 compared to $10.9 million or 0.84% of total loans at~~ December 31, ~~2018.~~2019. The ~~nominal increase~~decrease in this ratio was the direct result of the net impact of ~~changes in outstanding loan portfolios,~~adjustments to the portfolio segmentation, changes in the level of recognized ~~charges~~charge offs, changes in historical loss rates, changes in outstanding loan portfolios, and changes in the level of specific loan loss ~~allocations since December 31, 2018.~~allocations. The Bank management continually monitors the risk in the loan portfolio through review of the monthly delinquency reports and the Loan Review Committee. The Loan Review Committee is responsible for the determination of the adequacy of the allowance for loan losses. This analysis involves both experience of the portfolio to date and the makeup of the overall portfolio. Specific loss estimates are derived for individual loans based on specific criteria such as current delinquent status, related deposit account activity, where applicable, and changes in the local and national economy. When appropriate, ~~Management~~management also considers public knowledge and/or verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.

Capital Resources

The Bank considers a number of alternatives, including but not limited to deposits, short-term borrowings, and long-term borrowings when evaluating funding sources. Traditional deposits continue to be the most significant source of funds, totaling ~~$1.5~~$1.6 billion at ~~September 30, 2019.~~March 31, 2020.

Noninterest-bearing deposits remain a core funding source for the Bank and thus, the Company. At ~~September 30, 2019,~~March 31, 2020, noninterest-bearing balances totaled ~~$275.0~~$387.5 million compared to ~~$213.6~~$278.5 million at December 31, ~~2018.~~2019. Of the ~~$275.0~~$387.5 million, noninterest-bearing balances of ~~$96.0~~$156.2 million are related to Fintech opportunities and noninterest-bearing balances of ~~$34.7~~$96.0 million are related to title business funds. The Company and Bank management intend to continue to focus on finding ways to increase the base of noninterest-bearing sources.

Interest-bearing deposits totaled $1.2 billion at ~~September 30, 2019~~March 31, 2020 compared to ~~$1.1~~$1.0 billion at December 31, ~~2018.~~2019.

At ~~September 30, 2019,~~March 31, 2020, the Bank had brokered deposits of ~~$115.6~~$181.2 million and CDs with other banks of ~~$36.6~~$125.7 million. At December 31, ~~2018,~~2019, brokered deposits totaled ~~$142.8~~$63.9 million and CDs with other banks totaled ~~$9.6~~$44.3 million. Due to the liquidity stress within the industry being caused by the COVID-19 pandemic, management has focused on creating liquidity in anticipation of loan deferrals and other potential cash flow disruptions.

Average interest-bearing deposits totaled ~~$1.1~~$1.2 billion during the ~~third~~first quarter of ~~2019~~2020 compared to $1.1 billion during the ~~third~~first quarter of ~~2018,~~2019, an increase of ~~$71.3~~$86.6 million. Average noninterest bearing deposits totaled ~~$271.3~~$332.0 million during the ~~third~~first quarter of 2020 compared to $214.5 million during the first quarter of 2019, ~~compared to $193.1 million during the third quarter of 2018,~~ an increase of ~~$78.2~~$117.4 million. Management will continue to emphasize deposit growth opportunities from the network of current customers and Fintech partners. The Company and Bank

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management will also concentrate on balancing deposit growth with adequate net interest margin to meet the Company’s strategic goals.

Along with traditional deposits, the Bank has access to both repurchase agreements, which are corporate deposits secured by pledging securities from the investment portfolio, and FHLB and other borrowings to fund its operations and investments. At ~~September 30, 2019,~~March 31, 2020, repurchase agreements totaled ~~$9.5~~$9.3 million compared to ~~$14.9~~$10.2 million at December 31, ~~2018.~~2019. In addition to the aforementioned funds alternatives, the Bank has access to more than ~~$84.5~~$295.6 million through additional advances from the FHLB of Pittsburgh and the ability to readily sell jumbo certificates of deposits to other banks as well as brokered deposit markets.

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Liquidity

Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated operating cash needs, loan demand, and deposit withdrawals, without incurring a sustained negative impact on net interest income. It is MVB’s policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions.

The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from loans, and income from loans and investment securities. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, cash provided by financing activities totaled ~~$154.7~~$138.4 million, while ~~outflows~~inflows from investing activity totaled ~~$74.6~~$1.1 million. When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, the Federal Reserve discount window, brokered deposits and CDARS. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are ~~primarily~~ classified as available-for-sale and can be utilized as an additional source of liquidity.

The Company has an effective shelf registration covering $75 million of debt and equity securities, of which approximately $75 million remains available, subject to Board authorization and market conditions, to issue equity or debt securities at our discretion. While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to sell securities on acceptable terms at any given time or at all.

Current Economic Conditions

The Company considers its primary market area to be comprised of those counties where it has a physical branch presence and their contiguous counties. This includes Marion, Harrison, Jefferson, Berkeley, Monongalia, and Kanawha counties of West Virginia and Fairfax and Loudoun counties of Virginia. In addition, MVB Mortgage has mortgage-only offices located in Virginia, Washington, DC, North Carolina, and South Carolina. The Bank currently operates a total of fifteen full-service banking branches: twelve in West Virginia and three in Virginia. MVB Mortgage operates eleven mortgage-only offices, located in Virginia, within the Washington, DC metropolitan area, Maryland, North Carolina, and South Carolina. In addition, MVB Mortgage has mortgage loan originators located at select Bank locations throughout West Virginia.

The Company originates various types of loans, including commercial and commercial real estate loans, residential real estate loans, home equity lines of credit, real estate construction loans, and consumer loans (loans to individuals). In general, the Company retains most of its originated loans (exclusive of long-term, fixed rate residential mortgages that are sold). However, loans originated in excess of the Bank’s legal lending limit are participated to other banking institutions and the servicing of those loans is retained by the Bank.

The current economic climate in the Company’s primary market areas reflect economic climates that are consistent with the general national climate. Given the recent outbreak of COVID-19, the economy has been impacted both nationally and internationally. Due to the nature of this situation, it is unclear what the duration and severity of the outbreak will be. This impact has been felt within the primary market area as well as unemployment rates have begun to escalate. Unemployment in the United States was ~~3.3%~~4.5% and ~~3.6%~~3.9% in ~~September~~March 2020 and 2019, ~~and 2018,~~ respectively.

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The unemployment levels in the Company’s primary market areas were as follows for the periods indicated:


		August 2019		August 2018			February 2020		February 2019
Berkeley County, WV	Berkeley County, WV	3.5	%	4.1	%	Berkeley County, WV	3.3	%	4.4	%
Harrison County, WV	Harrison County, WV	4.0		4.3		Harrison County, WV	5.1		5.4
Jefferson County, WV	Jefferson County, WV	3.2		3.4		Jefferson County, WV	2.8		3.6
Marion County, WV	Marion County, WV	4.9		5.5		Marion County, WV	5.1		6.1
Monongalia County, WV	Monongalia County, WV	3.7		4.3		Monongalia County, WV	3.4		4.4
Kanawha County, WV	Kanawha County, WV	4.4		5.0		Kanawha County, WV	4.8		5.7
Fairfax County, VA	Fairfax County, VA	2.3		2.6		Fairfax County, VA	2.1		2.6
Loudoun County, VA	Loudoun County, VA	2.3		2.6		Loudoun County, VA	2.1		2.6

Capital/Stockholders' Equity

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, stockholders’ equity ~~increased~~decreased approximately ~~$29.5 million~~$783 thousand to ~~$206.2~~$211.2 million. This ~~increase~~decrease consists of year-to-date net income ~~for the year-to-date~~ of ~~$22.9~~$1.0 million, ~~a decrease in other comprehensive loss of $4.7 million, stock based~~and stock-based compensation of ~~$1.3 million, and common stock options exercised totaling $876~~$498 thousand, offset by dividends paid totaling ~~$1.8 million.~~$1.2 million and an increase in other comprehensive loss of $917 thousand. As stockholders’ equity ~~increased,~~decreased, the equity to assets ratio ~~increased 0.41%~~decreased 0.84% to ~~10.51%~~10.06%. The Company paid

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dividends to common shareholders of ~~$1.5~~$1.1 million in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~$873~~$408 thousand in the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, and earned ~~$22.9~~$1.0 million in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 versus ~~$9.0~~$3.2 million in the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, resulting in the dividend payout ratio ~~decreasing~~increasing from ~~10.11%~~13.29% in the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 to ~~6.47%~~115.20% in the ~~nine~~three months ended ~~September 30, 2019.~~

The Company and the Bank have financed operations and growth over the years through the sale of equity. These equity sales have resulted in an effective source of capital. For more information related to equity sales, see Note 9, “Stock Offerings” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.March 31, 2020.

At ~~September 30, 2019,~~March 31, 2020, accumulated other comprehensive loss totaled ~~$2.1~~$2.2 million, ~~a decrease~~an increase in the loss of ~~$4.7 million~~$917 thousand from December 31, ~~2018.~~2019. Total securities available-for-sale in an unrealized loss position decreased by ~~$4.1 million~~$505 thousand to ~~$789~~$432 thousand at ~~September 30, 2019.~~March 31, 2020. The Company considers all securities with unrealized loss positions to be temporarily impaired, and consequently, does not believe the Company will sustain any material realized losses as a result of the current temporary decline in fair value.

Treasury stock totaled ~~51,077 shares.~~67,377 shares, up 16,300 shares from common stock repurchased during March 2020.

The primary source of funds for dividends to be paid by the Company are dividends received by the Company from the Bank. Dividends paid by the Bank are subject to restrictions by banking regulations. The most restrictive provision requires regulatory approval if dividends declared in any year exceeds that years retained net profits, as defined, plus the retained net profits, as defined, of the two preceding years.

Capital Requirements

The Bank’s total risk-based capital ratio decreased from ~~13.29%~~12.84% at December 31, ~~2018~~2019 to ~~12.62%~~12.04% at ~~September 30, 2019.~~March 31, 2020. The decrease in this ratio was largely due to an increase of risk-weighted assets of ~~$151.4~~$93.6 million ~~outpacing the increase~~and a $1.2 million decrease in total ~~capital of $9.8 million.~~capital.

The Bank is required to comply with applicable capital adequacy standards established by the FDIC (“Capital Rules”). The Company is exempt from the Federal Reserve Board’s capital adequacy standards as it believes it meets the requirements of the Small Bank Holding Company Policy Statement. State chartered banks, such as the Bank, are subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions.

The Capital Rules, among other things, (i) include a “Common Equity Tier 1” (“CET1”) measure, (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.

Under the Capital Rules, the minimum capital ratios effective as of January 1, 2015 are:

•4.5% CET1 to risk-weighted assets;

•6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

•8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

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•4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the leverage ratio”).

The Capital Rules also include a new “capital conservation buffer,” composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and ~~will increase~~increased by 0.625% on each subsequent January 1, until it ~~reaches~~reached 2.5% on January 1, 2019. The Capital Rules also provide for a “countercyclical capital buffer” that is only applicable to certain covered institutions and does not have any current applicability to the Company or the Bank. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer) will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

Since fully phased in on January 1, 2019, the Capital Rules require the Bank to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to

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risk-weighted assets of at least 8.5%, (iii) a minimum ratio of Total capital to risk-weighted assets of at least 10.5%; and (iv) a minimum leverage ratio of 4%. The Capital Rules also provide for a number of deductions from and adjustments to CET1.

The Capital Rules prescribe a standardized approach for risk weightings that expanded the risk-weighting categories from the general risk-based capital rules to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories.

In September 2017, the Federal Reserve Board, along with other bank regulatory agencies, proposed amendments to its capital requirements to simplify certain aspects of the capital rules for community banks, including the Bank, in an attempt to reduce the

regulatory burden for such smaller financial institutions. ~~Because~~In July 2019, the ~~amendments were proposed~~bank regulatory agencies finalized the rule which applies to banking organizations with ~~a request~~less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. The rule simplifies the capital treatment for comments and have not been finalized, we do not yet know what effect the final rules will have on the Bank’s capital calculations. In November 2017, the federal banking agencies extended for community banks the existing capital requirements for certain items, including mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority ~~interest, which~~interest. The rule also allows bank holding companies to redeem common stock without prior approval unless otherwise required. Generally, the final rule is effective as of April 1, 2020, however banking organizations were ~~scheduled~~permitted to ~~change effective~~use this simpler regulatory capital requirements as of January 1, ~~2018, in light of the simplification amendments being considered.~~2020.

In June 2016, the ~~Financial Accounting Standards Board~~FASB issued an update to the accounting standards for credit losses that included the Current Expected Credit Losses (“CECL”) methodology, which replaces the existing incurred loss methodology for certain financial assets. CECL becomes effective January 1, 2020. In December 2018, the federal bank regulatory agencies approved a final rule providing an option to phase-in, over a period of three years, the day-one regulatory capital effects resulting from the implementation of ~~CECL.~~CECL In July 2019, the FASB proposed changes to the effective date for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities that would delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company for fiscal year 2019, the proposed delay would be applicable. On November 15, 2019, the FASB issued an update which finalizes a delay in the effective date of the standard for smaller reporting companies until January 2023.

Notwithstanding the foregoing, the ~~Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (the “EGRRCPA”),~~EGRRCPA, which was enacted on May 24, 2018, simplifies capital calculations by requiring regulators to establish for insured depository institutions under $10 billion in assets a community bank leverage ratio (“CBLR”) (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements under the Capital Rules. Such institutions that meet the ~~community bank leverage ratio~~CBLR will automatically be deemed to be well-capitalized, although the regulators retain the flexibility to determine that the institution may not qualify for the ~~community bank leverage ratio~~CBLR test based on the institution’s risk profile. ~~On September 17,~~In November 2019, the ~~Board of the Federal Deposit Insurance Corporation passed~~federal bank regulators issued a final rule on the ~~community bank leverage ratio,~~CBLR, setting the minimum required ~~community bank leverage ratio~~CBLR at 9%. ~~In addition, the Federal Reserve Board was required to raise the asset threshold under its Small Bank Holding Company Policy Statement from $1 billion to $3 billion for bank or savings~~Depository institutions and ~~loan~~depository institution holding companies that ~~are exempt from~~have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9%, will be eligible to opt into the CBLR framework. Banking organizations that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements ~~provided that such companies meet certain other conditions such as not engaging~~ in ~~significant non-banking activities.~~the regulators’ capital rules and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the FDIA. As required by Section 4012 of the CARES Act, the federal banking agencies temporarily lowered the CBLR to 8% on April 6, 2020. These interim final rules set the CBLR at 8% through the end of 2020, 8.5% for 2021, and then re-establish it at 9% for 2022. The final rule ~~will go into effect~~was effective on January 1, 2020 and ~~until such time,~~ the ~~Capital Rules as described above remain~~CBLR framework will be available for banks to use in ~~effect.~~their March 31, 2020 Call Report. The Bank did not elect to apply the CBLR framework in the March 31, 2020 Call Report.

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With respect to the Bank, the Capital Rules also revise the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act, as discussed below under “Prompt Corrective Action.”

Prompt Corrective Action

The Federal Deposit Insurance Act (“FDIA”) requires among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures, which reflect changes under the Capital Rules that became effective on January 1, 2015, are the total capital ratio, the CET1 capital ratio, the Tier 1 capital ratio, and the leverage ratio.

A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a leverage ratio of 5.0% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure; (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a leverage ratio of 4.0% or greater and is not “well capitalized”; (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a CET1 capital ratio less than 4.5%, a Tier 1 risk-based capital ratio of less than 6.0% or a leverage ratio of less than 4.0%; (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a CET1 capital ratio less than 3.0%, a Tier

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1 risk-based capital ratio of less than 4.0% or a leverage ratio of less than 3.0%; and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.

As noted above, the EGRRCPA ~~will eliminate~~eliminated these requirements for banks with less than $10.0 billion in assets who elect to follow the ~~community bank leverage ratio once the rule goes into effect on January 1, 2020.~~CBLR.

The FDIA generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.

The appropriate federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository institution as adequately capitalized. The FDIA provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice. The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.

In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.

At ~~September 30, 2019,~~March 31, 2020, the Company is considered to be well-capitalized.

For further information regarding the capital ratios and leverage ratio of the Company and the Bank see the discussion under the section captioned “Capital/Stockholders’ Equity” included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 14, “Regulatory Capital Requirements” of the Notes to the Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the Company’s December 31, ~~2018~~2019 Annual Report on Form 10-K.

Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

Concentration of Credit Risk

The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to customers throughout the Marion, Harrison, Monongalia, ~~Kanawha, Jefferson,~~ and ~~Berkeley~~Kanawha County areas of West Virginia, as well as the Northern Virginia area and adjacent counties. Collateral for loans is primarily residential and commercial real estate, personal property, and business equipment. The Company evaluates the credit worthiness of each of its customers on a case-by-case basis, and the amount of collateral it obtains is based upon management’s credit evaluation.

Regulatory

The Company is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. The average balance maintained in accordance with such requirements was $0 on ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. During 2016, a deposit reclassification program was implemented and allowed the Company to reduce its requirement of reserve balances on hand in accordance with the Federal Reserve Board's daily Federal Reserve Requirement.

Contingent Liability

The subsidiary bank is involved in various legal actions arising in the ordinary course of business. In the opinion of management and counsel, the outcome of these matters will not have a significant adverse effect on the consolidated financial statements.

Off-Balance Sheet Commitments

The Bank has entered into certain agreements that represent off-balance sheet arrangements that could have a significant impact on the consolidated financial statements and could have a significant impact in future periods. Specifically, the Bank has entered

into agreements to extend credit or provide conditional payments pursuant to standby and commercial letters of credit. In addition, the Bank utilizes letters of credit issued by the FHLB to collateralize certain public funds deposits.

Commitments to extend credit, including loan commitments, standby letters of credit, and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

Market Risk

~~There~~Our operations are subject to many risks that could adversely affect our future financial condition and performance, including the market risk factors that are described in our Annual Report to Shareholders on Form 10-K for the year ended December 31, 2019. Other than the information below and as discussed throughout Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q, there have been no material changes in ~~market risks faced by the Company since December 31, 2018. For information regarding the Company’s~~our market risk ~~refer~~factors from those disclosed.

The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy as well as financial markets. The extent and magnitude of the economic slowdown which will occur as a result of the COVID-19 pandemic is unknown. Financial markets have adjusted dramatically to the expectation of reduced economic activity. The financial market benchmark most relevant to the Company’s ~~December 31, 2018, Form 10-K filed with~~current and future profitability is the ~~SEC.~~U.S. Government Treasury yield curve. The U.S. Government Treasury yield curve is used as a basis for the pricing of most bonds, loans, borrowings, deposits, and other fixed income yield curves. The U.S. Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset sensitive position, management expects that net interest income will decline. As the outlook for the COVID-19 pandemic improves, management expects that the U.S. Government Treasury curve will experience some degree of an upward shift over time.

Effects of Inflation and Changing Prices

Substantially all of the Company’s assets relate to banking and are monetary in nature. Therefore, they are not impacted by inflation to the same degree as companies in capital-intensive industries in a replacement cost environment. During a period of rising prices, a net monetary asset position results in loss in purchasing power and conversely a net monetary liability position results in an increase in purchasing power. In the banking industry, typically monetary assets exceed monetary liabilities. Therefore, as prices increase, financial institutions experience a decline in the purchasing power of their net assets.

The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy as well as financial markets. One factor that has historically had a strong relationship with inflation is the unemployment rate. This relationship is known as the Phillips Curve. The Phillips Curve presumes that as unemployment increases, inflation decreases. The intuition behind the Phillips Curve is that increased unemployment results in less consumer spending. A decline in consumer spending represents a decrease in demand in the market for goods and services and ultimately a decline in the overall level of prices for goods and services. Management expects risks to inflation to be to the downside rather than upside (the general level of prices is more likely to decrease than increase).

Future Outlook

The Company has invested in the infrastructure to support anticipated future growth in each key area, including personnel, technology, and processes to meet the growing compliance requirements in the industry. The Company believes it is well positioned in some of the finest markets in the State of West Virginia and the Commonwealth of Virginia and will continue to focus on the following: margin improvement; leveraging capital; organic portfolio loan growth; and operating efficiency. The key challenge for the Company in the future is to attract core deposits to fund growth in the new markets through continued delivery of outstanding customer service coupled with the highest quality products and technology. The Company is expanding the treasury services function to support the banking needs of financial and emerging technology companies, which will further enhance core deposits.

The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy as well as financial markets. The extent and magnitude of the economic slowdown which will occur as a result of the COVID-19 pandemic is unknown. Financial markets have adjusted dramatically to the expectation of reduced economic activity. The financial market benchmark most relevant to the Company’s current and future profitability is the U.S. Government Treasury yield curve. The U.S. Government Treasury yield curve is used as a basis for the pricing of most bonds, loans, borrowings, deposits, and other fixed income yield curves. The U.S. Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset sensitive position, Management expects that net interest income will decline. As the outlook for the

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COVID-19 pandemic improves, management expects that the U.S. Government Treasury curve will experience some degree of an upward shift over time.

Management expects that some customers will be unable to meet their financial obligations in the near-term as a result of the decreased economic activity brought on by the COVID-19 pandemic. However, management does not expect that these credit concerns will perpetuate indefinitely. Many customers may be eligible to defer loan payments to a later date. The Company is actively participating in the Paycheck Protection Program, evaluating other programs available to assist our clients and providing consumer deferrals consistent with GSE guidelines. Management is working to incorporate scenarios that reflect decreased loan cash flows in the short term into the Company’s interest rate risk models.

There has been considerable demand for the PPP implemented by the CARES Act to combat the economic slowdown brought on by the COVID-19 pandemic. The PPP was created to provide funding to small business owners who may have had to temporarily close or scale back production as a result of the COVID-19 pandemic. The intended use of this funding is to pay employees who may be temporarily unable to work. Management expects that demand for PPP loans will remain strong throughout the duration of the lockdown brought on by the COVID-19 pandemic. Some types of businesses, such as sole proprietorships, have only recently been able to apply for PPP funding. The original tranche of PPP funding of $349 billion ran out 13 days after the program's implementation, but the U.S. Government plans to provide additional funding.

Additionally, management has taken steps to generate liquidity in anticipation of temporary loan payment deferrals or other loan payment disruptions which are likely to materialize as a result of decreased economic activity brought on by the COVID-19 pandemic. Management has sold certain bond portfolio holdings and issued brokered deposits in order to generate cash. Management also has discretion to take further gains by selling additional available-for-sale investments and is well within policy limits for non-core funding sources.

Management expects core deposits to increase in the coming months. Many consumers are working from home or temporarily unemployed but still receiving income via unemployment or PPP. Additionally, many Americans are receiving their tax refunds for the 2019 filing year and up to $1,200 per person in stimulus payments from the CARES Act. Since consumers have fewer ways to spend their money during the lockdown brought on by the COVID-19 pandemic, management expects that deposits will remain relatively sticky until the pandemic lockdown ends.

On April 3, 2020, the Bank entered into a Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation, as receiver for The First State Bank, Barboursville, W.Va., providing for the assumption by the Bank of certain liabilities and the purchase by the Bank of certain assets of First State. First State depositors automatically became depositors of the Bank and, subject to the insurance limitations, deposits will continue to be insured by the FDIC without interruption.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk is composed primarily of interest rate risk. The Asset and Liability Committee (“ALCO”) is responsible for reviewing the interest rate sensitivity position and establishes policies to monitor and coordinate the Company’s sources, uses, and pricing of funds.

Interest Rate Sensitivity Management

The Company uses a simulation model to analyze, manage and formulate operating strategies that address net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various interest rate scenarios over a twenty-four-month period. The model is based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities. The model incorporates certain assumptions which management believes to be reasonable regarding the impact of changing interest rates and the prepayment assumption of certain assets and liabilities as of ~~June 30,~~December 31, 2019. The model assumes changes in interest rates without any management intervention to change the composition of the balance sheet. According to the model run for the period ended ~~June 30,~~December 31, 2019, over a twelve-month period, an immediate 100-basis point increase in interest rates would result in an increase in net interest income by ~~3.2%~~0.3%. An immediate 200-basis point increase in interest rates would result in an increase in net interest income by ~~5.7%~~1.3%. A 100-basis point decrease in interest rates would result in a decrease in net interest income of ~~9.1%~~6.9%. While management carefully monitors the exposure to changes in interest rates and takes actions as warranted to decrease any adverse impact, there can be no assurance about the actual effect of interest rate changes on net interest income.

The Company’s net interest income and the fair value of its financial instruments are influenced by changes in the level of interest rates. The Company manages its exposure to fluctuations in interest rates through policies established by its ALCO. The ALCO

meets quarterly and has responsibility for formulating and implementing strategies to improve balance sheet positioning and reviewing interest rate sensitivity.

The Company has counter-party risk which may arise from the possible inability of third-party investors to meet the terms of their forward sales contracts. The Company works with third-party investors that are generally well-capitalized, are investment grade, and exhibit strong financial performance to mitigate this risk. The Company monitors the financial condition of these third parties on an annual basis and the Company does not expect these third parties to fail to meet their obligations.

The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy as well as financial markets. The extent and magnitude of the economic slowdown which will occur as a result of the COVID-19 pandemic is unknown. Financial markets have adjusted dramatically to the expectation of reduced economic activity. The financial market benchmark most relevant to the Company’s current and future profitability is the U.S. Government Treasury yield curve. The U.S. Government Treasury yield curve is used as a basis for the pricing of most bonds, loans, borrowings, deposits, and other fixed income yield curves. The U.S. Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset sensitive position, management expects that net interest income will decline. As the outlook for the COVID-19 pandemic improves, management expects that the U.S. Government Treasury curve will experience some degree of an upward shift over time.

Management expects that some customers will be unable to meet their financial obligations in the near-term as a result of the decreased economic activity brought on by the COVID-19 pandemic. However, management does not expect that these credit concerns will perpetuate indefinitely. Many customers may be eligible to defer loan payments to a later date. Management is working to incorporate scenarios that reflect decreased loan cash flows in the short term into the Company’s interest rate risk models.

Item 4 – Controls and Procedures

The Company, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer, along with the Company’s Chief Financial Officer (the Principal Financial Officer), has evaluated the effectiveness as of ~~September 30, 2019,~~March 31, 2020, of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Company’s President and Chief Executive Officer, along with the Company’s Principal Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2019.~~March 31, 2020.

There have been no material changes in the Company’s internal control over financial reporting during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

From time to time in the ordinary course of business, the Company and its subsidiaries are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings, the results are difficult to predict at all. The Company is not aware of any asserted or unasserted legal proceedings or claims that the Company believes would have a material adverse effect on the Company’s financial condition or results of the Company’s operations.

Item 1A – Risk Factors

Our operations are subject to many risks that could adversely affect our future financial condition and performance, ~~and, therefore, the market value of our securities,~~ including the risk factors that are described in our Annual Report to Shareholders on Form 10-K for the year ended December 31, ~~2018. There~~2019. Other than the information below and as discussed throughout Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q, there have been no material changes in our risk factors from those disclosed.

The Company may face risks related to the recent outbreak of COVID-19, which has been declared a “pandemic” by the World Health Organization.

The full impact of COVID-19 is unknown and rapidly evolving. The outbreak and any preventative or protective actions that the Company or its customers may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations generally and could potentially impact the Company’s customers, providers, and third parties. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and the Company’s financial condition and results of operations. The extent to which the COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain the virus or treat its impact, among others. Banking and financial services have been designated essential businesses; therefore, the Company’s operations are continuing. The Company is currently evaluating and quantifying the impact on its consolidated financial statements.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~(a) Not applicable.

(b) Not applicable.

On August 12, 2019, the Board of Directors of the Company announced the approval of a stock repurchase program. Under the program, the Company is authorized to repurchase up to $5.0 million of its outstanding shares of common stock over the next 12 months or until the purchase is fully absorbed, whichever date comes first on the open market or in privately negotiated transactions. The stock repurchase program does not require the Company to repurchase any specified number of shares of its common stock, and it may be discontinued, suspended, or restarted at any time at the Company's discretion.

In March 2020, the Company repurchased 16,300 shares of its outstanding common stock at an average price of $16.00 per share.

The following table reflects share repurchase activity during the three months ended March 31, 2020:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs
March 1 - March 31, 2020	16,300	$	16.00	16,300	$	4,739,177
	16,300			16,300

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Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None.

Item 6 – Exhibits

The following exhibits are filed herewith:


Exhibit 31.1			Certificate of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2			Certificate of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1			Certificate of principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2			Certificate of principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.INS			XBRL Instance Document
Exhibit 101.SCH			XBRL Taxonomy Extension Schema
Exhibit 101.CAL			XBRL Taxonomy Extension Calculation Linkbase
Exhibit 101.DEF			XBRL Taxonomy Extension Definition Linkbase
Exhibit 101.LAB			XBRL Taxonomy Extension Label Linkbase
Exhibit 101.PRE			XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MVB Financial Corp.

Date:

~~October~~April 28, ~~2019~~2020

By:

/s/ Larry F. Mazza

Larry F. Mazza

President, CEO and Director

(Principal Executive Officer)

Date:

~~October~~April 28, ~~2019~~2020

By:

/s/ Donald T. Robinson

Donald T. Robinson

Executive Vice President and CFO

(Principal Financial and Accounting Officer)


		Page
PART I	FINANCIAL INFORMATION	3

Item 1	Financial Statements	3

	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	65
	Consolidated Statements of Changes in Stockholders’ Equity	76
	Consolidated Statements of Cash Flows	87
	Notes to the Consolidated Financial Statements	98

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4940

Item 3	Quantitative and Qualitative Disclosures About Market Risk	6758

Item 4	Controls and Procedures	6759

PART II	OTHER INFORMATION	6860

Item 1	Legal Proceedings	6860

Item 1A	Risk Factors	6860

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6860

Item 3	Defaults Upon Senior Securities	6861

Item 4	Mine Safety Disclosures	6861

Item 5	Other Information	6861

Item 6	Exhibits	6861

	SIGNATURES	6962