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 ~~March 31,~~September 30, 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)

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 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 ~~April 27,~~October 30, 2020, the Registrant had ~~11,949,767~~11,785,332 shares of common stock outstanding with a par value of $1.00 per share.

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)


		March 31, 2020		December 31, 2019			September 30, 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	$	25,670	$	18,430	Cash and due from banks	$	21,262	$	18,430
Interest bearing balances with banks	Interest bearing balances with banks	63,204		9,572		Interest bearing balances with banks	274,561		9,572
Total cash and cash equivalents	Total cash and cash equivalents	88,874		28,002		Total cash and cash equivalents	295,823		28,002
Certificates of deposit with other banks	Certificates of deposit with other banks	12,549		12,549		Certificates of deposit with other banks	12,301		12,549
Investment securities available-for-sale, at fair value	Investment securities available-for-sale, at fair value	223,101		235,821		Investment securities available-for-sale, at fair value	297,964		235,821
Equity securities	Equity securities	19,026		18,514		Equity securities	24,164		18,514
Loans held for sale	Loans held for sale	186,128		109,788		Loans held for sale	2,271		109,788
Loans:	Loans:	1,396,578		1,374,541		Loans:	1,428,593		1,374,541
Less: Allowance for loan losses	Less: Allowance for loan losses	(11,161)		(11,775)		Less: Allowance for loan losses	(25,913)		(11,775)
Net Loans	Net Loans	1,385,417		1,362,766		Net Loans	1,402,680		1,362,766
Premises and equipment, net	Premises and equipment, net	22,329		21,974		Premises and equipment, net	26,176		21,974
Bank owned life insurance	Bank owned life insurance	35,597		35,374		Bank owned life insurance	36,037		35,374
Equity method investment						Equity method investment	39,340		0
Accrued interest receivable and other assets	Accrued interest receivable and other assets	67,892		53,142		Accrued interest receivable and other assets	75,353		53,142
Assets of branches held for sale (See Footnote 1)		39,137		46,554
Assets of branches held for sale (See Note 1)						Assets of branches held for sale (See Note 1)	0		46,554
Goodwill	Goodwill	19,630		19,630		Goodwill	2,350		19,630
TOTAL ASSETS	TOTAL ASSETS	$	2,099,680	$	1,944,114	TOTAL ASSETS	$	2,214,459	$	1,944,114

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest bearing	Noninterest bearing	$	387,536	$	278,547	Noninterest bearing	$	642,835	$	278,547
Interest bearing	Interest bearing	1,210,703		986,495		Interest bearing	1,256,122		986,495
Total deposits	Total deposits	1,598,239		1,265,042		Total deposits	1,898,957		1,265,042

Deposits of branches held for sale (See Footnote 1)		187,807		188,270
Deposits of branches held for sale (See Note 1)						Deposits of branches held for sale (See Note 1)	0		188,270
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	58,196		41,685		Accrued interest payable and other liabilities	41,417		41,685
Repurchase agreements	Repurchase agreements	9,346		10,172		Repurchase agreements	10,045		10,172
FHLB and other borrowings	FHLB and other borrowings	30,815		222,885		FHLB and other borrowings	25,800		222,885
Subordinated debt	Subordinated debt	4,124		4,124		Subordinated debt	4,124		4,124
Total liabilities	Total liabilities	1,888,527		1,732,178		Total liabilities	1,980,343		1,732,178

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
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		11,998		11,995
Preferred stock, par value $1,000; 20,000 authorized; 733 issued in 2020 and 2019, respectively						Preferred stock, par value $1,000; 20,000 authorized; 733 issued in 2020 and 2019, respectively	7,334		7,334
Common stock, par value $1; 20,000,000 shares authorized; 12,068,627 shares issued and 11,889,001 shares outstanding in 2020 and 11,995,366 shares issued and 11,944,289 shares outstanding in 2019						Common stock, par value $1; 20,000,000 shares authorized; 12,068,627 shares issued and 11,889,001 shares outstanding in 2020 and 11,995,366 shares issued and 11,944,289 shares outstanding in 2019	12,069		11,995
Additional paid-in capital	Additional paid-in capital	123,049		122,516		Additional paid-in capital	124,474		122,516
Retained earnings	Retained earnings	72,354		72,496		Retained earnings	94,496		72,496
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,238)		(1,321)		Accumulated other comprehensive loss	(1,252)		(1,321)
Treasury stock, 67,377 shares in 2020 and 51,077 shares in 2019, at cost		(1,344)		(1,084)
Treasury stock; 179,626 shares in 2020 and 51,077 shares in 2019, at cost						Treasury stock; 179,626 shares in 2020 and 51,077 shares in 2019, at cost	(3,005)		(1,084)
Total stockholders’ equity	Total stockholders’ equity	211,153		211,936		Total stockholders’ equity	234,116		211,936
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,099,680	$	1,944,114	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,214,459	$	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)


		Three Months Ended March 31							Nine Months Ended September 30				Three Months Ended September 30
		2020		2019			2020		2019		2020		2019
INTEREST INCOME	INTEREST INCOME					INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	18,939	$	17,662	Interest and fees on loans	$	56,064	$	55,469	$	16,976	$	19,238
Interest on deposits with other banks	Interest on deposits with other banks	111		122		Interest on deposits with other banks	297		379		106		132
Interest on investment securities - taxable	Interest on investment securities - taxable	666		879		Interest on investment securities - taxable	1,554		2,336		411		689
Interest on tax exempt loans and securities	Interest on tax exempt loans and securities	983		960		Interest on tax exempt loans and securities	3,185		2,947		1,134		979
Total interest income	Total interest income	20,699		19,623		Total interest income	61,100		61,131		18,627		21,038

INTEREST EXPENSE	INTEREST EXPENSE					INTEREST EXPENSE
Interest on deposits	Interest on deposits	3,910		4,123		Interest on deposits	8,840		13,124		1,894		4,453
Interest on repurchase agreements	Interest on repurchase agreements	10		14		Interest on repurchase agreements	19		37		4		12
Interest on FHLB and other borrowings	Interest on FHLB and other borrowings	573		1,229		Interest on FHLB and other borrowings	1,524		3,707		699		1,383
Interest on subordinated debt	Interest on subordinated debt	35		285		Interest on subordinated debt	78		728		20		156
Total interest expense	Total interest expense	4,528		5,651		Total interest expense	10,461		17,596		2,617		6,004

NET INTEREST INCOME	NET INTEREST INCOME	16,171		13,972		NET INTEREST INCOME	50,639		43,535		16,010		15,034
Provision for loan losses	Provision for loan losses	1,138		300		Provision for loan losses	16,365		1,557		8,631		657
Net interest income after provision for loan losses	Net interest income after provision for loan losses	15,033		13,672		Net interest income after provision for loan losses	34,274		41,978		7,379		14,377

NONINTEREST INCOME	NONINTEREST INCOME					NONINTEREST INCOME
Service charges on deposit accounts	Service charges on deposit accounts	450		315		Service charges on deposit accounts	1,206		985		470		337
Income on bank owned life insurance	Income on bank owned life insurance	223		525		Income on bank owned life insurance	663		973		219		224
Interchange and debit card transaction fees	Interchange and debit card transaction fees	100		141		Interchange and debit card transaction fees	510		472		168		150
Mortgage fee income	Mortgage fee income	11,219		6,670		Mortgage fee income	33,427		28,030		7,264		11,496
Gain on sale of portfolio loans	Gain on sale of portfolio loans	130		55		Gain on sale of portfolio loans	302		228		172		50
Insurance and investment services income	Insurance and investment services income	207		156		Insurance and investment services income	620		502		224		179
Gain (loss) on sale of available-for-sale securities, net	Gain (loss) on sale of available-for-sale securities, net	276		(118)		Gain (loss) on sale of available-for-sale securities, net	865		(179)		35		(11)

(Loss) gain on derivatives, net		(3,562)		450
Gain (loss) on sale of equity securities, net						Gain (loss) on sale of equity securities, net	48		(7)		18		0
Gain (loss) on derivatives, net						Gain (loss) on derivatives, net	2,365		2,689		(7,508)		1,108
Commercial swap fee income	Commercial swap fee income	320		80		Commercial swap fee income	352		1,146		12		628
Holding gain on equity securities	Holding gain on equity securities	14		180		Holding gain on equity securities	111		13,767		94		0
Compliance consulting income	Compliance consulting income	1,009		—		Compliance consulting income	3,035		25		1,085		25
Bargain purchase gain						Bargain purchase gain	4,671		0		0		0
Gain on sale of banking centers						Gain on sale of banking centers	9,631		0		0		0
Equity method investment income						Equity method investment income	13,620		0		13,620		0
Gain on mortgage combination transaction						Gain on mortgage combination transaction	3,338		0		3,338		0
Other operating income	Other operating income	464		311		Other operating income	997		1,217		187		510
Total noninterest income	Total noninterest income	10,850		8,765		Total noninterest income	75,761		49,848		19,398		14,696

NONINTEREST EXPENSES	NONINTEREST EXPENSES					NONINTEREST EXPENSES
Salary and employee benefits	Salary and employee benefits	16,182		11,734		Salary and employee benefits	49,360		40,452		10,519		15,438
Occupancy expense	Occupancy expense	1,220		1,185		Occupancy expense	3,508		3,454		1,101		1,103
Equipment depreciation and maintenance	Equipment depreciation and maintenance	877		854		Equipment depreciation and maintenance	2,636		2,689		845		931
Data processing and communications	Data processing and communications	1,163		988		Data processing and communications	4,268		3,025		1,372		1,068
Mortgage processing	Mortgage processing	851		809		Mortgage processing	1,744		2,253		3		728
Marketing, contributions, and sponsorships	Marketing, contributions, and sponsorships	336		214		Marketing, contributions, and sponsorships	891		945		227		437
Professional fees	Professional fees	1,331		828		Professional fees	5,931		3,025		1,606		1,316
Printing, postage, and supplies	Printing, postage, and supplies	177		135		Printing, postage, and supplies	595		481		215		174
Insurance, tax, and assessment expense	Insurance, tax, and assessment expense	464		505		Insurance, tax, and assessment expense	1,607		1,410		577		418
Travel, entertainment, dues, and subscriptions	Travel, entertainment, dues, and subscriptions	1,218		690		Travel, entertainment, dues, and subscriptions	2,683		2,719		624		1,125
Other operating expenses	Other operating expenses	837		506		Other operating expenses	3,031		1,765		1,176		642
Total noninterest expense	Total noninterest expense	24,656		18,448		Total noninterest expense	76,254		62,218		18,265		23,380
Income before income taxes		1,227		3,989
Income tax expense		179		797
Income from continuing operations, before income taxes						Income from continuing operations, before income taxes	33,781		29,608		8,512		5,693
Income tax expense - continuing operations						Income tax expense - continuing operations	8,208		7,139		2,021		1,347
Net income from continuing operations						Net income from continuing operations	$	25,573	$	22,469	6,491		4,346
Income (loss) from discontinued operations, before income taxes						Income (loss) from discontinued operations, before income taxes	$	0	$	575	0		(25)
Income tax expense (benefit) - discontinued operations						Income tax expense (benefit) - discontinued operations	$	0	$	148	0		(6)
Net income (loss) from discontinued operations						Net income (loss) from discontinued operations	$	0	$	427	0		(19)
Net income	Net income	1,048		3,192		Net income	25,573		22,896		6,491		4,327
Preferred dividends	Preferred dividends	114		121		Preferred dividends	345		364		$	116	$	121
Net income available to common shareholders	Net income available to common shareholders	$	934	$	3,071	Net income available to common shareholders	$	25,228	$	22,532	6,375		4,206

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



Earnings per share from continuing operations - basic	$	2.11	$	1.89	$	0.53	$	0.36
Earnings per share from discontinued operations - basic	$	0	$	0.04	$	0	$	0
Earnings per share - basic	$	2.11	$	1.93	$	0.53	$	0.36
Earnings per share from continuing operations - diluted	$	2.07	$	1.84	$	0.53	$	0.35
Earnings per share from discontinued operations - diluted	$	0	$	0.04	$	0	$	0
Earnings per share - diluted	$	2.07	$	1.88	$	0.53	$	0.35
Weighted average shares outstanding - basic	11,948,857		11,661,581		11,948,989		11,731,774
Weighted average shares outstanding - diluted	12,185,137		11,957,385		12,116,418		12,098,335

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) (Dollars in thousands)


		Three Months Ended March 31							Nine Months Ended September 30				Three Months Ended September 30
		2020		2019			2020		2019		2020		2019
Net Income		$	1,048	$	3,192
Net income						Net income	$	25,573	$	22,896	$	6,491	$	4,327

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

Unrealized holding gains on securities available-for-sale	Unrealized holding gains on securities available-for-sale	1,414		1,859		Unrealized holding gains on securities available-for-sale	3,191		7,913		1,226		1,362

Income tax effect	Income tax effect	(382)		(502)		Income tax effect	(862)		(2,137)		(331)		(368)

Reclassification adjustment for (gain) loss recognized in income	Reclassification adjustment for (gain) loss recognized in income	(276)		118		Reclassification adjustment for (gain) loss recognized in income	(865)		179		(35)		11

Income tax effect	Income tax effect	75		(32)		Income tax effect	234		(48)		9		(2)

Change in defined benefit pension plan	Change in defined benefit pension plan	(706)		(332)		Change in defined benefit pension plan	(1,809)		(1,744)		(102)		(897)

Income tax effect	Income tax effect	190		90		Income tax effect	489		470		28		242

Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	105		68		Reclassification adjustment for amortization of net actuarial loss recognized in income	315		204		105		68

Income tax effect	Income tax effect	(28)		(18)		Income tax effect	(85)		(55)		(28)		(18)

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)		Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	(738)		(162)		95		(36)

Income tax effect	Income tax effect	484		124		Income tax effect	199		44		(26)		10

Total other comprehensive (loss) income		(917)		917
Total other comprehensive income						Total other comprehensive income	69		4,664		941		372

Comprehensive income	Comprehensive income	$	131	$	4,109	Comprehensive income	$	25,642	$	27,560	$	7,432	$	4,699

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			Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance at December 31, 2018	Balance at December 31, 2018	7,834		11,658		116,897		48,274		(6,806)		(1,084)		176,773		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
Net income																Net income	—		—		—		3,192		—		—		3,192
Other comprehensive income	Other comprehensive income	—		—		—		—		917		—		917		Other comprehensive income	—		—		—		—		917		—		917
Cash dividends paid ($0.035 per common share)	Cash dividends paid ($0.035 per common share)	—		—		—		(408)		—		—		(408)		Cash dividends paid ($0.035 per common share)	—		—		—		(408)		—		—		(408)
Dividends on preferred stock	Dividends on preferred stock	—		—		—		(121)		—		—		(121)		Dividends on preferred stock	—		—		—		(121)		—		—		(121)
Stock based compensation	Stock based compensation	—		—		425		—		—		—		425		Stock based compensation	—		—		425		—		—		—		425
Common stock options exercised	Common stock options exercised	—		8		86		—		—		—		94		Common stock options exercised	—		8		86		—		—		—		94

Balance at March 31, 2019	Balance at March 31, 2019	$	7,834	$	11,666	$	117,408	$	50,937	$	(5,889)	$	(1,084)	$	180,872	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)
Net income																Net income	—		—		—		15,377		—		—		15,377
Other comprehensive income																Other comprehensive income	—		—		—		—		3,375		—		3,375
Cash dividends paid ($0.04 per common share)																Cash dividends paid ($0.04 per common share)	—		—		—		(464)		—		—		(464)
Dividends on preferred stock	Dividends on preferred stock	—		—		—		(114)		—		—		(114)		Dividends on preferred stock	—		—		—		(122)		—		—		(122)
Stock based compensation	Stock based compensation	—		—		498		—		—		—		498		Stock based compensation	—		—		401		—		—		—		401
Common stock options exercised	Common stock options exercised	—		3		35		—		—		—		38		Common stock options exercised	—		26		211		—		—		—		237
Restricted stock units vested																Restricted stock units vested	—		10		(10)		—		—		—		0
Common stock issued from subordinated debt conversion, net of costs																Common stock issued from subordinated debt conversion, net of costs	—		62		938		—		—		—		1,000

Common stock repurchased		—		—		—		—		—		(260)		(260)
Balance at June 30, 2019																Balance at June 30, 2019	$	7,834	$	11,764	$	118,948	$	65,728	$	(2,514)	$	(1,084)	$	200,676

Balance at March 31, 2020		$	7,334	$	11,998	$	123,049	$	72,354	$	(2,238)	$	(1,344)	$	211,153
Net income																Net income	—		—		—		4,327		—		—		4,327
Other comprehensive income																Other comprehensive income	—		—		—		—		372		—		372
Cash dividends paid ($0.05 per common share)																Cash dividends paid ($0.05 per common share)	—		—		—		(585)		—		—		(585)
Dividends on preferred stock																Dividends on preferred stock	—		—		—		(121)		—		—		(121)
Stock based compensation																Stock based compensation	—		—		493		—		—		—		493
Common stock options exercised																Common stock options exercised	—		46		499		—		—		—		545
Common stock issued related to Chartwell acquisition																Common stock issued related to Chartwell acquisition	—		55		978		—		—		—		1,033
Preferred stock redemption																Preferred stock redemption	(500)		—		—		—		—		—		(500)

Balance at September 30, 2019																Balance at September 30, 2019	$	7,334	$	11,865	$	120,918	$	69,349	$	(2,142)	$	(1,084)	$	206,240


	Preferred Stock		Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
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

Net income	—		—		—		18,034		—		—		18,034
Other comprehensive income	—		—		—		—		45		—		45
Cash dividends paid ($0.09 per common share)	—		—		—		(1,076)		—		—		(1,076)
Dividends on preferred stock	—		—		—		(115)		—		—		(115)
Stock based compensation	—		—		627		—		—		—		627

Restricted stock units vested	—		49		(49)		—		—		(7)		(7)
Common stock issued related to Paladin acquisition	—		19		221		—		—		—		240
Common stock repurchased	—		—		—		—		—		(401)		(401)

Balance at June 30, 2020	$	7,334	$	12,066	$	123,848	$	89,197	$	(2,193)	$	(1,752)	$	228,500

Net income	—		—		—		6,491		—		—		6,491
Other comprehensive income	—		—		—		—		941		—		941
Cash dividends paid ($0.09 per common share)	—		—		—		(1,076)		—		—		(1,076)
Dividends on preferred stock	—		—		—		(116)		—		—		(116)
Stock based compensation	—		—		592		—		—		—		592
Common stock options exercised	—		3		34		—		—		—		37


Common stock repurchased	—		—		—		—		—		(1,253)		(1,253)

Balance at September 30, 2020	$	7,334	$	12,069	$	124,474	$	94,496	$	(1,252)	$	(3,005)	$	234,116

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)


		Three Months Ended March 31,							Nine Months Ended September 30,
		2020		2019			2020		2019
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net Income		$	1,048	$	3,192
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Net income						Net income	$	25,573	$	22,896
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization and accretion of investments	Net amortization and accretion of investments	302		280		Net amortization and accretion of investments	1,112		917
Net amortization of deferred loan costs	Net amortization of deferred loan costs	114		72		Net amortization of deferred loan costs	779		190
Provision for loan losses	Provision for loan losses	1,138		300		Provision for loan losses	16,365		1,557
Depreciation and amortization	Depreciation and amortization	908		759		Depreciation and amortization	761		2,346
Stock based compensation	Stock based compensation	498		425		Stock based compensation	1,717		1,319
Loans originated for sale	Loans originated for sale	(484,989)		(239,160)		Loans originated for sale	(1,334,910)		(1,151,918)
Proceeds of loans sold	Proceeds of loans sold	419,868		255,682		Proceeds of loans sold	1,475,854		1,095,794
Mortgage fee income	Mortgage fee income	(11,219)		(6,670)		Mortgage fee income	(33,427)		(28,030)
Gain on sale of available-for-sale securities	Gain on sale of available-for-sale securities	(276)		(33)		Gain on sale of available-for-sale securities	(899)		(80)
Loss on sale of available-for-sale securities	Loss on sale of available-for-sale securities	—		151		Loss on sale of available-for-sale securities	34		259

Gain on sale of equity securities						Gain on sale of equity securities	(48)		0
Loss on sale of equity securities						Loss on sale of equity securities	0		7
Gain on sale of portfolio loans	Gain on sale of portfolio loans	(130)		(55)		Gain on sale of portfolio loans	(302)		(228)
Income on bank owned life insurance	Income on bank owned life insurance	(223)		(525)		Income on bank owned life insurance	(663)		(973)
Deferred taxes	Deferred taxes	(929)		21		Deferred taxes	3,958		(4,214)
Amortization of operating lease right-of-use asset	Amortization of operating lease right-of-use asset	8		20		Amortization of operating lease right-of-use asset	73		56
Holding gain on equity securities	Holding gain on equity securities	(14)		(180)		Holding gain on equity securities	(111)		(13,767)
Bargain purchase gain						Bargain purchase gain	(4,671)		0
Gain on sale of banking centers						Gain on sale of banking centers	(9,631)		0
Gain on mortgage combination transaction						Gain on mortgage combination transaction	(3,338)		0
Equity method investment income						Equity method investment income	(13,620)		0
Changes in other assets	Changes in other assets	(18,839)		(16,801)		Changes in other assets	(36,742)		(19,120)
Changes in other liabilities	Changes in other liabilities	14,116		15,447		Changes in other liabilities	3,444		27,208
Net cash (used in) provided by operating activities		(78,619)		12,925
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	91,308		(65,781)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Purchases of investment securities available-for-sale	Purchases of investment securities available-for-sale	(16,325)		(20,400)		Purchases of investment securities available-for-sale	(132,896)		(52,892)
Maturities/paydowns of investment securities available-for-sale	Maturities/paydowns of investment securities available-for-sale	18,990		5,236		Maturities/paydowns of investment securities available-for-sale	42,770		29,287
Sales of investment securities available-for-sale	Sales of investment securities available-for-sale	10,318		13,694		Sales of investment securities available-for-sale	48,579		26,996
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		(16,063)		(36,866)
Purchases of premises & equipment						Purchases of premises & equipment	(4,211)		(1,134)
Disposals of premises & equipment						Disposals of premises & equipment	1,687		0
Net increase in loans						Net increase in loans	(43,869)		(78,593)
Purchases of restricted bank stock	Purchases of restricted bank stock	(7,439)		(6,119)		Purchases of restricted bank stock	(24,013)		(34,507)
Redemptions of restricted bank stock	Redemptions of restricted bank stock	13,414		8,352		Redemptions of restricted bank stock	33,578		31,604

Proceeds from sale of certificates of deposit with banks						Proceeds from sale of certificates of deposit with banks	1,241		1,237
Purchases of certificates of deposit with banks						Purchases of certificates of deposit with banks	(993)		0
Proceeds from sale of other real estate owned	Proceeds from sale of other real estate owned	52		97		Proceeds from sale of other real estate owned	7,700		731
Proceeds from death benefit of bank owned life insurance policies	Proceeds from death benefit of bank owned life insurance policies	—		688		Proceeds from death benefit of bank owned life insurance policies	0		688
Purchase of equity securities	Purchase of equity securities	(498)		(450)		Purchase of equity securities	(6,260)		(1,300)
Sales of equity securities						Sales of equity securities	669		5,968
Net cash paid for branch divestiture						Net cash paid for branch divestiture	(136,005)		0
Net cash provided by (used in) business combinations and divestitures						Net cash provided by (used in) business combinations and divestitures	57,306		(2,651)
Net cash used in investing activities						Net cash used in investing activities	(154,717)		(74,566)
FINANCING ACTIVITIES						FINANCING ACTIVITIES
Net increase in deposits						Net increase in deposits	491,259		147,250
Net decrease in repurchase agreements						Net decrease in repurchase agreements	(127)		(5,465)
Net change in FHLB and other borrowings						Net change in FHLB and other borrowings	(154,483)		26,754

Subordinated debt redemption						Subordinated debt redemption	0		(12,400)

Net cash provided by (used in) investing activities		1,065		(35,883)
FINANCING ACTIVITIES
Net increase in deposits and deposits in branches held for sale		332,734		121,505
Net decrease in repurchase agreements		(826)		(2,372)
Net change in FHLB & other borrowings		(192,070)		(100,003)

Preferred stock redemption						Preferred stock redemption	0		(500)
Common stock options exercised	Common stock options exercised	38		94		Common stock options exercised	75		876
Common stock repurchased	Common stock repurchased	(260)		—		Common stock repurchased	(1,921)		0
Cash dividends paid on common stock	Cash dividends paid on common stock	(1,076)		(408)		Cash dividends paid on common stock	(3,228)		(1,457)
Cash dividends paid on preferred stock	Cash dividends paid on preferred stock	(114)		(121)		Cash dividends paid on preferred stock	(345)		(364)
Net cash provided by financing activities	Net cash provided by financing activities	138,426		18,695		Net cash provided by financing activities	331,230		154,694
Increase (decrease) in cash and cash equivalents		60,872		(4,263)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	267,821		14,347
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	28,002		22,221		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	$	88,874	$	17,958	Cash and cash equivalents at end of period	$	295,823	$	36,568

Supplemental disclosure of cash flow information:
Loans transferred to other real estate owned		$	23	$	63
Initial recognition of operating lease right-of-use assets		—		12,935
Initial recognition of operating lease liabilities		—		15,659
Cashless stock options exercised		35		—

Cash payments for:
Interest on deposits, repurchase agreements and borrowings		$	5,511	$	6,136



Business combination non-cash disclosures:
Assets acquired in business combination (net of cash received)	$	87,722	$	3,389
Liabilities assumed in business combination	148,731		855

Supplemental disclosure of cash flow information:
Loans transferred to other real estate owned	$	800	$	79
Cashless stock options exercised	35		0
Restricted stock units vested	49		10
Common stock issued related to Paladin acquisition	240		0
Common stock converted from subordinated debt	0		1,000
Initial recognition of operating lease right-of-use assets	0		12,935
Initial recognition of operating lease liabilities	0		15,659

Cash payments for:
Interest on deposits, repurchase agreements and borrowings	$	13,275	$	19,387
Income taxes	7,613		2,536

See accompanying notes to unaudited consolidated financial statements.

710

Notes to the Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies

Nature of Operations

MVB Financial Corp. ~~(“the Company”~~(the "Company”) is a financial holding company ~~and was~~ organized in 2003. MVB operates principally through its 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”), Paladin Fraud, LLC (“Paladin”), and MVB Technology, LLC (“MVB Technology”).

On March 2, 2020, the Bank and PMG, 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 converted into a Virginia limited liability company and PMG contributed 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 Company recognizes its ownership as an equity method investment, initially recorded at fair value held at MVB Mortgage. This transaction was closed on July 1, 2020 and is further discussed in Note 6,“Equity Method Investment” and in Note 17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Principles of Consolidation and Basis of Presentation

These consolidated financial statements have been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States of America (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. 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, 2019 has been derived from audited financial statements included in the Company’s 2019 filing on Form 10-K. Operating results for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 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.

Unconsolidated investments where the Company has the ability to exercise significant influence over the operating and financial policies of the respective investee are accounted for using the equity method of accounting; those that are not consolidated or accounted for using the equity method of accounting are accounted for under cost or fair value accounting. For these investments accounted for under the equity method, the Company records its investment in non-consolidated affiliates and the portion of income or loss in equity in earnings of non-consolidated affiliates. The Company periodically evaluates these investments for impairment. As of September 30, 2020, the Company holds 1 equity method investment.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~accounting principles generally accepted in the United States~~U.S. GAAP 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~~Company’s Annual Report on Form 10-K for the year ended December 31, 2019 ~~Form 10-K~~(the "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.

Business Combinations

U.S. GAAP requires that the acquisition method of accounting, formerly referred to as the purchase method, be used for all business combinations that an acquirer be identified for each business combination. Under U.S. GAAP, the acquirer is the entity that obtains control of one or more businesses in the business combination, and the acquisition date is the date the acquirer achieves control. U.S. GAAP requires that the acquirer recognize the fair value of assets acquired, liabilities assumed, and any non-controlling interest in the acquired entity at the acquisition date.

Assets and Liabilities of Branches Held for Sale

On November 21, 2019, the Company entered into a Purchase and Assumption Agreement with Summit Community Bank, Inc. (“Summit”), a subsidiary of Summit Financial Group, Inc., pursuant to which Summit will purchase certain assets and assume certain liabilities of 3 branch locations in Berkeley County, WV and 1 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, and as such, no assets or liabilities of branches are classified as held for sale as of September 30, 2020. The Company recognized a gain on sale of banking centers of $9.6 million.

Assets to be acquired and liabilities to 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

~~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, 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.


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

Noninterest-bearing deposits	$	19,251
Interest-bearing deposits	169,019
Deposits of branches held for sale	$	188,270

Coronavirus Disease (“COVID-19”) Pandemic

The consolidated financial statements contained in this Quarterly Report on Form 10-Q, 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,~~September 30, 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.~~continues to evolve. The outbreak and any preventative or protective actions that the Company or its ~~customers~~clients 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,~~clients, 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.

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 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 with an interest rate of 1% 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. The Company originated 455 PPP loans with original balances of $92.8 million and balances of $87.9 million as of September 30,

2020. For more information on the PPP loans, see Note 4, “Loans and Allowance for Loan Losses” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Purchased Credit Impaired Loans

Through the Federal Deposit Insurance Corporation ("FDIC")-assisted acquisition of The First State Bank (“First State”), the Company purchased individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, such that there is no carryover of the seller's allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.

Such PCI loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as, credit score, loan type, and date of origination. The Company estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan's or pool's contractual principal and interest over expected cash flows is not recorded (non-accretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. For more information on the PCI loans, see Note 4, “Loans and Allowance for Loan Losses” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Note 2 – Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued 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~~Accounting Standards Codification ("ASC") 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: 1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year; 2) the amount and timing of plan assets expected to be returned to the employer; 3) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law; 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; 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 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: 1) the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and 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~~As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the ~~impact of the pending adoption on its~~Company's 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 additions, modification, and removal of disclosure requirements. The ASU removed the following disclosure requirements: 1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy for timing of transfers between levels, 3) the valuation process for Level 3 fair value measurements, and 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: 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 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: 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; 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 3) clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 is effective for public business entities for fiscal years and interim periods within those years beginning after December 15, 2019. The Company adopted this standard and there was no material 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, 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 U.S. 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~~PCI 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 was 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. On November 15, 2019, the FASB 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 until January 2023. AsThe Company expects to recognize a one-time cumulative effect adjustment to the ~~Company~~allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a ~~smaller reporting company~~cross-functional implementation team. The team is working to develop an implementation plan which will include assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of this standard. The adoption of the this standard could result in an increase in the allowance for ~~fiscal year 2019,~~loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the ~~proposed delay would~~portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be ~~applicable.~~incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13 , we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

Note 3 – Investment Securities

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

Amortized cost and fair values of investment securities available-for-sale at ~~March 31,~~September 30, 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		$	37,101	$	483	$	(218)	$	37,366
U.S. Sponsored Mortgage-backed securities		56,229		1,159		(34)		57,354
U.S. agency securities										U.S. agency securities	$	52,602	$	994	$	(214)	$	53,382
U.S. sponsored mortgage-backed securities										U.S. sponsored mortgage-backed securities	67,931		382		(216)		68,097
Municipal securities	Municipal securities	112,940		3,818		(139)		116,619		Municipal securities	148,019		5,503		(178)		153,344
Other debt securities										Other debt securities	7,500		0		0		7,500
Total debt securities	Total debt securities	206,270		5,460		(391)		211,339		Total debt securities	276,052		6,879		(608)		282,323
Other securities	Other securities	11,662		141		(41)		11,762		Other securities	15,556		171		(86)		15,641
Total investment securities available-for-sale	Total investment securities available-for-sale	$	217,932	5,601		$	(432)	$	223,101	Total investment securities available-for-sale	$	291,608	7,050		$	(694)	$	297,964

Amortized cost and fair values of investment securities available-for-sale at December 31, 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		$	52,046	$	199	$	(249)	$	51,996
U.S. Sponsored Mortgage-backed securities		58,748		188		(624)		58,312
U.S. agency securities										U.S. agency securities	$	52,046	$	199	$	(249)	$	51,996
U.S. sponsored mortgage-backed securities										U.S. sponsored mortgage-backed securities	58,748		188		(624)		58,312
Municipal securities	Municipal securities	108,750		4,399		(57)		113,092		Municipal securities	108,750		4,399		(57)		113,092
Total debt securities	Total debt securities	219,544		4,786		(930)		223,400		Total debt securities	219,544		4,786		(930)		223,400
Other securities	Other securities	12,247		181		(7)		12,421		Other securities	12,247		181		(7)		12,421
Total investment securities available-for-sale	Total investment securities available-for-sale	$	231,791	$	4,967	$	(937)	$	235,821	Total investment securities available-for-sale	$	231,791	$	4,967	$	(937)	$	235,821

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


		March 31, 2020							September 30, 2020
		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	$	91	Within one year	$	0	$	0
After one year, but within five		7,985		8,274
After five years, but within ten		29,781		30,646
After one year, but within five years						After one year, but within five years	8,524		8,892
After five years, but within ten years						After five years, but within ten years	40,339		41,084
After ten years	After ten years	168,414		172,328		After ten years	227,189		232,347
Total	Total	$	206,270	$	211,339	Total	$	276,052	$	282,323

Investment securities with a carrying value of ~~$74.4~~$260.4 million at ~~March 31,~~September 30, 2020, were pledged to secure public funds, repurchase agreements, and potential borrowings at the Federal Reserve ~~discount window.~~Discount Window.

The Company’s investment portfolio includes securities that are in an unrealized loss position as of ~~March 31,~~September 30, 2020, the details of which are included in the following table. Although these securities, if sold at ~~March 31,~~September 30, 2020 would result in a pretax loss of ~~$432~~$694 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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 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 (22)		$	4,693	$	(51)	$	14,041	$	(167)
U.S. Sponsored Mortgage-backed securities (10)		1,655		(5)		7,544		(29)
Municipal securities (12)		6,668		(127)		830		(12)
U.S. agency securities (25)										U.S. agency securities (25)	$	11,520	$	(62)	$	13,166	$	(152)
U.S. sponsored mortgage-backed securities (8)										U.S. sponsored mortgage-backed securities (8)	14,701		(201)		1,996		(15)
Municipal securities (20)										Municipal securities (20)	18,566		(178)		292		0
Other securities ~~(5)~~(4)	Other securities ~~(5)~~(4)	4,059		(41)		—		—		Other securities ~~(5)~~(4)	3,937		(86)		0		0
		$	17,075	$	(224)	$	22,415	$	(208)		$	48,724	$	(527)	$	15,454	$	(167)

The following table discloses investments in an unrealized loss position at December 31, 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 (26)		$	8,160	$	(59)	$	15,399	$	(190)
U.S. Sponsored Mortgage-backed securities (40)		16,660		(170)		27,498		(454)
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)		Municipal securities (13)	6,018		(40)		828		(17)
Other securities (2)	Other securities (2)	1,093		(7)		—		—		Other securities (2)	1,093		(7)		0		0
		$	31,931	$	(276)	$	43,725	$	(661)		$	31,931	$	(276)	$	43,725	$	(661)

For the three-month periods ended ~~March 31,~~September 30, 2020 and 2019, the Company sold investments available-for-sale of ~~$10.3~~$7.4 million and ~~$13.7~~$380 thousand, respectively. These sales resulted in gross gains of $69 thousand and $0 and gross losses of $34 thousand and $11 thousand, respectively.

For the nine-month periods ended September 30, 2020 and 2019, the Company sold investments available-for-sale of $48.6 million and $27.0 million, respectively. These sales resulted in gross gains of ~~$276~~$899 thousand and ~~$33~~$80 thousand and gross losses of $0$34 thousand and ~~$151~~$259 thousand, respectively.

For the three-month periods ended ~~March 31,~~September 30, 2020 and 2019, the Company ~~did not sell any~~sold equity ~~investments.~~investments totaling $669 thousand and $6.0 million. These sales resulted in gross gains of $18 thousand and $0 and gross losses of $0 and $0, respectively.

For the nine-month periods ended September 30, 2020 and 2019, the Company sold equity investments totaling $669 thousand and $6.0 million, respectively. These sales resulted in gross gains of $48 thousand and $0 and gross losses of $0 and $7 thousand, respectively.

For the three-month periods ended ~~March 31,~~September 30, 2020 and 2019, the Company recognized unrealized holding gains on equity securities of ~~$14~~$94 thousand and ~~$180~~$0, respectively. For the nine-month periods ended September 30, 2020 and 2019, the Company recognized unrealized holding gains on equity securities of $111 thousand and $13.8 million, respectively. These were recorded in noninterest income in the consolidated statements of income.

MVB has invested, as a limited partner, in 3 Section 42 affordable housing investment funds. In exchange for these investments, MVB receives its pro rata share of income, expense, gains, and losses, including tax credits, that are received by the projects. As of September 30, 2020 and December 31, 2019, MVB has recognized, as an investment, $2.8 million and $3.1 million in the aggregate between the 3 affordable housing investment funds. In addition, MVB has recognized 0 gains or losses from the 3 affordable housing investment funds.

Note 4 – Loans and Allowance for Loan Losses

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


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019
Commercial and Non-Residential Real Estate	Commercial and Non-Residential Real Estate	$	1,094,494	$	1,063,828	Commercial and Non-Residential Real Estate	$	1,117,326	$	1,063,828
Residential Real Estate	Residential Real Estate	261,493		271,604		Residential Real Estate	234,758		271,604
Home Equity	Home Equity	36,856		35,106		Home Equity	34,784		35,106
Consumer	Consumer	3,763		3,697		Consumer	3,986		3,697
Purchased credit impaired loans:						Purchased credit impaired loans:
Commercial and Non-Residential Real Estate						Commercial and Non-Residential Real Estate	21,233		0
Residential Real Estate						Residential Real Estate	16,549		0
Home Equity						Home Equity	0		0
Consumer						Consumer	1,688		0
Total Loans	Total Loans	$	1,396,606	$	1,374,235	Total Loans	$	1,430,324	$	1,374,235
Deferred loan origination fees and costs, net		(28)		306
Deferred loan origination (fees) and costs, net						Deferred loan origination (fees) and costs, net	(1,731)		306
Loans receivable	Loans receivable	$	1,396,578	$	1,374,541	Loans receivable	$	1,428,593	$	1,374,541

Performing loans acquired as a result of the FDIC-assisted acquisition of First State are included with the Company's legacy loan portfolio within this Note. The PCI loans acquired from First State are discussed in a separate section, Purchased Credit Impaired Loans, at the end of this Note and are not included, unless otherwise indicated.

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 an 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, excluding the PCI loans acquired from First State, were $2.4 million and $2.0 million, while the related reserves were ~~$77~~$78 thousand and $139 thousand as of ~~March 31,~~September 30, 2020 and December 31, 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~~qualitative 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~~Bank management ~~tracks~~track 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~~quality of the loan ~~reviews, audits, and exams,~~review system, 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 considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of ~~March 31,~~September 30, 2020 and December 31, 2019, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was $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 ~~March 31,~~September 30, 2020:


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2019	December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775	December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Charge-offs	Charge-offs	(1,756)		—		—		—		(1,756)		Charge-offs	(1,856)		0		(23)		0		(1,879)
Recoveries	Recoveries	—		—		2		2		4		Recoveries	9		0		6		2		17
Provision (recovery)		1,255		—		(93)		(24)		1,138
ALL balance at March 31, 2020		$	9,597	$	1,272	$	236	$	56	$	11,161
Provision												Provision	15,893		356		38		(30)		16,257
Allowance contributed with mortgage combination transaction												Allowance contributed with mortgage combination transaction	0		(354)		0		0		(354)
ALL balance at September 30, 2020												ALL balance at September 30, 2020	$	24,144	$	1,274	$	348	$	50	$	25,816
Individually evaluated for impairment	Individually evaluated for impairment	$	532	$	—	$	—	$	—	$	532	Individually evaluated for impairment	$	1,984	$	0	$	0	$	0	$	1,984
Collectively evaluated for impairment	Collectively evaluated for impairment	$	9,065	$	1,272	$	236	$	56	$	10,629	Collectively evaluated for impairment	$	22,160	$	1,274	$	348	$	50	$	23,832


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at June 30, 2020	$	15,401	$	1,846	$	264	$	58	$	17,569
Charge-offs	(100)		0		0		0		(100)
Recoveries	3		0		2		0		5
Provision	8,840		(218)		82		(8)		8,696
Allowance contributed with mortgage combination transaction	0		(354)		0		0		(354)
ALL balance at September 30, 2020	$	24,144	$	1,274	$	348	$	50	$	25,816

The following table summarizes the primary segments of the ~~Company~~Company's loan portfolio as of ~~March 31,~~September 30, 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	$	7,737	$	2,385	$	104	$	—	$	10,226	Individually evaluated for impairment	$	14,350	$	3,051	$	95	$	6	$	17,502
Collectively evaluated for impairment	Collectively evaluated for impairment	1,086,757		259,108		36,752		3,763		1,386,380		Collectively evaluated for impairment	1,102,976		231,707		34,689		3,980		1,373,352
Total Loans	Total Loans	1,094,494		261,493		36,856		3,763		1,396,606		Total Loans	1,117,326		234,758		34,784		3,986		1,390,854


(Dollars in thousands)	(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total		(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2018	December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939	December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939
Charge-offs	Charge-offs	—		—		—		—		—		Charge-offs	(666)		0		0		(10)		(676)
Recoveries	Recoveries	—		1		1		1		3		Recoveries	1		1		2		50		54
Provision	Provision	259		11		19		11		300		Provision	1,721		(98)		60		(126)		1,557
ALL balance at March 31, 2019		$	8,864	$	1,417	$	704	$	257	$	11,242
ALL balance at September 30, 2019												ALL balance at September 30, 2019	$	9,661	$	1,308	$	746	$	159	$	11,874
Individually evaluated for impairment	Individually evaluated for impairment	$	1,123	$	—	$	—	$	—	$	1,123	Individually evaluated for impairment	$	1,515	$	0	$	0	$	0	$	1,515
Collectively evaluated for impairment	Collectively evaluated for impairment	$	7,741	$	1,417	$	704	$	257	$	10,119	Collectively evaluated for impairment	$	8,146	$	1,308	$	746	$	159	$	10,359


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at June 30, 2019	$	8,971	$	1,229	$	712	$	256	$	11,168

Recoveries	0		0		0		49		49
Provision (recovery)	690		79		34		(146)		657
ALL balance at September 30, 2019	$	9,661	$	1,308	$	746	$	159	$	11,874

The following table summarizes the primary segments of the ~~Company~~Company's loan portfolio as of ~~March 31,~~September 30, 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	$	9,914	$	2,890	$	121	$	36	$	12,961	Individually evaluated for impairment	$	7,694	$	2,351	$	150	$	36	$	10,231
Collectively evaluated for impairment	Collectively evaluated for impairment	952,150		307,823		58,554		9,433		1,327,960		Collectively evaluated for impairment	1,016,172		288,627		59,324		7,936		1,372,059
Total Loans	Total Loans	$	962,064	$	310,713	$	58,675	$	9,469	$	1,340,921	Total Loans	$	1,023,866	$	290,978	$	59,474	$	7,972	$	1,382,290

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 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.

Commercial SBA PPP loans –This segment includes the loan originated through the recently created SBA PPP loans. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds.

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 described 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~~clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

1520

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 ~~March 31,~~September 30, 2020 and December 31, 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
March 31, 2020
September 30, 2020												September 30, 2020
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	2,598	$	240	$	698	$	3,296	$	4,407	Commercial Business	$	7,838	$	1,574	$	585	$	8,423	$	9,655
Commercial Real Estate	Commercial Real Estate	1,774		284		625		2,399		2,497		Commercial Real Estate	1,922		410		947		2,869		2,985
Acquisition & Development	Acquisition & Development	1,658		8		384		2,042		3,442		Acquisition & Development	0		0		3,058		3,058		4,460
SBA Paycheck Protection Program												SBA Paycheck Protection Program	0		0		0		0		0
Total Commercial	Total Commercial	6,030		532		1,707		7,737		10,346		Total Commercial	9,760		1,984		4,590		14,350		17,100
Residential	Residential	—		—		2,385		2,385		2,495		Residential	749		0		2,302		3,051		3,161
Home Equity	Home Equity	—		—		104		104		113		Home Equity	0		0		95		95		95
Consumer	Consumer	—		—		—		—		—		Consumer	0		0		6		6		6
Total Impaired Loans	Total Impaired Loans	$	6,030	$	532	$	4,196	$	10,226	$	12,954	Total Impaired Loans	$	10,509	$	1,984	$	6,993	$	17,502	$	20,362

December 31, 2019	December 31, 2019											December 31, 2019
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	2,606	$	249	$	644	$	3,250	$	4,308	Commercial Business	$	2,606	$	249	$	644	$	3,250	$	4,308
Commercial Real Estate	Commercial Real Estate	1,786		325		295		2,081		2,171		Commercial Real Estate	1,786		325		295		2,081		2,171
Acquisition & Development	Acquisition & Development	—		—		2,070		2,070		3,467		Acquisition & Development	0		0		2,070		2,070		3,467
SBA Paycheck Protection Program												SBA Paycheck Protection Program	0		0		0		0		0
Total Commercial	Total Commercial	4,392		574		3,009		7,401		9,946		Total Commercial	4,392		574		3,009		7,401		9,946
Residential	Residential	—		—		1,953		1,953		2,045		Residential	0		0		1,953		1,953		2,045
Home Equity	Home Equity	—		—		95		95		100		Home Equity	0		0		95		95		100
Consumer	Consumer	—		—		34		34		35		Consumer	0		0		34		34		35
Total Impaired Loans	Total Impaired Loans	$	4,392	$	574	$	5,091	$	9,483	$	12,126	Total Impaired Loans	$	4,392	$	574	$	5,091	$	9,483	$	12,126

Impaired loans have increased by ~~$743 thousand,~~$8.0 million, or ~~7.8%~~84.6%, during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. This change is the net effect of multiple factors, including the acquisition of $3.0 million in impaired loans from First State, the identification of ~~$980 thousand~~$7.5 million of impaired loans, curtailments of ~~$64 thousand,~~$2.0 million, the foreclosure of 1 consumer loan which required the reclassification of $23 thousand to other real estate owned, the reclassification of $6$26 thousand to performing loans based on improved repayment performance, and normal loan amortization of ~~$145~~$347 thousand.

The $7.5 million of loans recently classified as impaired are primarily concentrated in a single commercial loan relationship that includes 3 loans for a total of $5.3 million, or 70.7% of the total of recently impaired loans. The remaining $2.2 million represents 10 unrelated commercial loans totaling $706 thousand, 5 unrelated mortgage loans totaling $1.4 million, and a single home equity line of credit in the amount of $69 thousand, and 2 unrelated consumer loans totaling $6 thousand.

The $3.0 million in acquired loans includes $3.0 million in commercial loans and $26 thousand in home equity lines of credit.

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


		Three Months Ended March 31, 2020											Nine Months Ended September 30, 2020						Three Months Ended September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	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		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial	Commercial							Commercial
Commercial Business	Commercial Business	$	3,261	$	—	$	—	Commercial Business	$	5,225	$	0	$	0	$	7,785	$	0	$	0
Commercial Real Estate	Commercial Real Estate	2,898		26		23		Commercial Real Estate	3,124		77		79		3,264		26		26
Acquisition & Development	Acquisition & Development	2,048		29		19		Acquisition & Development	1,487		67		73		375		10		54
SBA Paycheck Protection Program								SBA Paycheck Protection Program	0		0		0		0		0		0
Total Commercial	Total Commercial	8,207		55		42		Total Commercial	9,836		144		152		11,424		36		80
Residential	Residential	2,382		5		5		Residential	2,683		14		14		3,085		5		5
Home Equity	Home Equity	101		—		—		Home Equity	94		0		0		69		0		0
Consumer	Consumer	19		—		—		Consumer	8		0		0		5		0		0
Total	Total	$	10,709	$	60	$	47	Total	$	12,621	$	158	$	166	$	14,583	$	41	$	85


		Three Months Ended March 31, 2019											Nine Months Ended September 30, 2019						Three Months Ended September 30, 2019
(Dollars in thousands)	(Dollars in thousands)	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		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial	Commercial							Commercial
Commercial Business	Commercial Business	$	3,608	$	—	$	—	Commercial Business	$	3,345	$	0	$	0	$	3,003	$	0	$	0
Commercial Real Estate	Commercial Real Estate	4,038		40		39		Commercial Real Estate	3,404		121		108		2,596		25		25
Acquisition & Development	Acquisition & Development	2,215		31		29		Acquisition & Development	2,174		92		91		2,132		31		31
SBA Paycheck Protection Program								SBA Paycheck Protection Program	0		0		0		0		0		0
Total Commercial	Total Commercial	9,861		71		68		Total Commercial	8,923		213		199		7,731		56		56
Residential	Residential	2,858		3		3		Residential	2,955		11		11		2,883		4		4
Home Equity	Home Equity	122		1		1		Home Equity	172		2		2		183		1		1
Consumer	Consumer	79		—		—		Consumer	46		0		0		36		0		0
Total	Total	$	12,920	$	75	$	72	Total	$	12,096	$	226	$	212	$	10,833	$	61	$	61

As of ~~March 31,~~September 30, 2020, the Bank’s other real estate owned balance totaled ~~$1.2 million.~~$6.4 million, of which $5.2 million was related to the acquisition of First State. The Bank held 441 foreclosed residential real estate ~~properties~~property representing ~~$380 thousand,~~$3.8 million, or ~~32%~~59.4%, 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,~~$2.6 million, or ~~68%~~40.6%, of other real estate owned is the result of the foreclosure of 214 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~~$206 thousand as of ~~March 31,~~September 30, 2020. These loans are included in the table above and have 0 specific allowance allocated to them.

As of ~~March 31,~~September 30, 2019, the Bank’s other real estate owned balance totaled ~~$2.1~~$1.4 million. The Bank held 1211 foreclosed residential real estate properties representing ~~$877~~$535 thousand, or ~~42%~~39%, 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 ~~$174~~$163 thousand. The 32 remaining residential real estate properties, totaling ~~$409~~$79 thousand, were the result of the foreclosure of 32 unrelated borrowers. The remaining ~~$1.2 million,~~$825 thousand, or ~~58%~~61%, of other real estate owned is the result of the foreclosure of 32 unrelated commercial development loans. There are 38 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was ~~$270~~$768 thousand as of ~~March 31,~~September 30, 2019. These loans are included in the table above and have 0 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~~$1 million 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 ~~March 31,~~September 30, 2020 and December 31, 2019:


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2020
September 30, 2020												September 30, 2020
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	516,247	$	17,697	$	12,762	$	—	$	546,706	Commercial Business	$	450,202	$	12,546	$	17,345	$	0	$	480,093
Commercial Real Estate	Commercial Real Estate	427,108		3,177		1,856		—		432,141		Commercial Real Estate	362,973		15,647		39,743		0		418,363
Acquisition & Development	Acquisition & Development	110,996		1,811		2,840		—		115,647		Acquisition & Development	107,347		18,744		4,870		0		130,961
SBA Paycheck Protection Program												SBA Paycheck Protection Program	87,909		0		0		0		87,909
Total Commercial	Total Commercial	1,054,351		22,685		17,458		—		1,094,494		Total Commercial	1,008,431		46,937		61,958		0		1,117,326
Residential	Residential	256,934		1,172		3,275		112		261,493		Residential	229,621		1,249		3,778		110		234,758
Home Equity	Home Equity	36,336		416		104		—		36,856		Home Equity	34,333		382		69		0		34,784
Consumer	Consumer	3,724		39		—		—		3,763		Consumer	3,951		35		0		0		3,986
Total Loans	Total Loans	$	1,351,345	$	24,312	$	20,837	$	112	$	1,396,606	Total Loans	$	1,276,336	$	48,603	$	65,805	$	110	$	1,390,854

December 31, 2019	December 31, 2019											December 31, 2019
Commercial	Commercial											Commercial
Commercial Business	Commercial Business	$	511,590	$	17,398	$	11,894	$	—	$	540,882	Commercial Business	$	511,590	$	17,398	$	11,894	$	0	$	540,882
Commercial Real Estate	Commercial Real Estate	406,712		3,564		1,494		—		411,770		Commercial Real Estate	406,712		3,564		1,494		0		411,770
Acquisition & Development	Acquisition & Development	106,428		1,869		2,879		—		111,176		Acquisition & Development	106,428		1,869		2,879		0		111,176

Total Commercial	Total Commercial	1,024,730		22,831		16,267		—		1,063,828		Total Commercial	1,024,730		22,831		16,267		0		1,063,828
Residential	Residential	267,367		1,946		2,177		114		271,604		Residential	267,367		1,946		2,177		114		271,604
Home Equity	Home Equity	34,641		383		82		—		35,106		Home Equity	34,641		383		82		0		35,106
Consumer	Consumer	3,613		56		28		—		3,697		Consumer	3,613		56		28		0		3,697
Total Loans	Total Loans	$	1,330,351	$	25,216	$	18,554	$	114	$	1,374,235	Total Loans	$	1,330,351	$	25,216	$	18,554	$	114	$	1,374,235

Loans classified as Special Mention totaled ~~$24.3~~$48.6 million and $25.2 million as of ~~March~~September 30, 2020 and December 31, 2019, respectively. The ~~decrease~~increase of ~~$904 thousand,~~$23.4 million, or ~~3.6%~~92.9%, was concentrated in the ~~residential mortgage~~commercial loan portfolio. This ~~decrease~~increase is primarily the result of the risk grade downgrade of 108 relationships, totaling $40.3 million. These relationships represent borrowers in industries that now represent increased risk as a result of the COVID-19 pandemic. More specifically, the largest relationship includes $15.5 million of loans that were originated to finance retail commercial real estate projects. Other significant loans included in these downgrades were an $11.0 million loan originated to finance a residential condominium project, $7.8 million in loans to finance commercial real estate projects, $3.1 million in loans to finance two hotel properties, and $2.5 million in loans to provide working capital for a commercial contractor. The remaining $400 thousand includes loans to three unrelated ~~borrowers, totaling $751 thousand, and normal loan amortization of the loans in this classification. While~~borrowers. Offsetting these additions to the total of Special Mention loans were 5 unrelated commercial loans ~~decreased~~which were paid in full since December 31, 2019, for a total of $12.1 million. Additionally, the total was impacted by ~~only $146 thousand, two unrelated loans were the cause~~charge-offs of ~~offsetting changes to this loan classification. More specifically,~~$1.9 million, which included a $2.2 million 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 underlying

lease agreement. Lastly, 5 loans totaling $2.9 million were downgraded to Substandard in 2020. The largest of these loans was a $1.9 million loan originated to finance the infrastructure of residential home sites. These lots are adjacent to a resort hotel property and are dependent on the hotel operations for repayment. These matters are being monitored and any significant developments will result in reevaluation of the risk grades, where appropriate, and the potential recognition of future recoveries.

Loans classified as Substandard totaled ~~$20.8~~$65.8 million and $18.6 million as of ~~March~~September 30, 2020 and December 31, 2019, respectively. The increase of ~~$2.2~~$47.2 million, or ~~12%~~254%, was concentrated in the ~~residential mortgage~~commercial loan portfolio. The increase is primarily the result of the risk grade downgrade of 126 unrelated commercial loans totaling $46.9 million. More specifically, the most significant impact was the downgrade of 2 relationships with loans totaling $32.5 million originated to finance 4 separate hotel properties. Other significant loans included in these downgrades were a $5.3 million loan originated to finance a retail commercial real estate project, $3.3 million in loans to finance 2 movie cinemas, $2.2 million in loans to finance an owner-occupied property that houses a private school, a $1.8 million loan to finance a recreational cabin rental project, and the $1.9 million residential infrastructure loan noted above. Additionally, the risk grade downgrade of 7 unrelated ~~borrowers, totaling $1.2 million. Of the 12 loans recently classified as Substandard, 10~~commercial relationships with loans totaling $751 thousand, ~~were downgraded~~and the acquisition of $3.2 million in Substandard loans from First State, further impacted the total of Substandard commercial loans. Meanwhile, Substandard mortgage loans increased by $1.6 million as a result of long-term erratic payment performance that has required non-accrual status of these loans. ~~Meanwhile,~~In addition, the total increase of Substandard commercial loans ~~increased~~was offset by ~~$1.2~~the $2.4 million ~~as a result of the risk grade downgrade of 9 unrelated loans totaling $834 thousand, and the $543 thousand increase~~decrease in the outstanding balance of a2 performing Substandard ~~loan,~~loans, which isare classified due to identified operational ~~risks.~~risks, the payoff of $1.8 million of unrelated Substandard loans, and the risk grade upgrade of a loan in the amount of $537 thousand. The remaining change in total Substandard loans is the result of loan amortization. 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 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 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 ~~March 31,~~September 30, 2020 and December 31, 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
March 31, 2020
September 30, 2020																		September 30, 2020
Commercial	Commercial																	Commercial
Commercial Business	Commercial Business	$	542,438	$	4,150	$	—	$	118	$	4,268	$	546,706	$	2,896	$	—	Commercial Business	$	473,803	$	5,155	$	986	$	149	$	6,290	$	480,093	$	8,027	$	0
Commercial Real Estate	Commercial Real Estate	431,478		485		—		178		663		432,141		625		—		Commercial Real Estate	417,464		200		0		699		899		418,363		1,125		0
Acquisition & Development	Acquisition & Development	115,371		—		—		276		276		115,647		384		—		Acquisition & Development	127,766		235		0		2,960		3,195		130,961		3,059		0
SBA Paycheck Protection Program																		SBA Paycheck Protection Program	87,909		0		0		0		0		87,909		0		0
Total Commercial	Total Commercial	1,089,287		4,635		—		572		5,207		1,094,494		3,905		—		Total Commercial	1,106,942		5,590		986		3,808		10,384		1,117,326		12,211		0
Residential	Residential	257,556		3,100		—		837		3,937		261,493		1,900		—		Residential	232,758		0		246		1,754		2,000		234,758		2,581		0
Home Equity	Home Equity	36,496		232		34		94		360		36,856		104		—		Home Equity	34,565		29		95		95		219		34,784		95		0
Consumer	Consumer	3,640		123		—		—		123		3,763		—		—		Consumer	3,986		0		0		0		0		3,986		6		0
Total Loans	Total Loans	$	1,386,979	$	8,090	$	34	$	1,503	$	9,627	$	1,396,606	$	5,909	$	—	Total Loans	$	1,378,251	$	5,619	$	1,327	$	5,657	$	12,603	$	1,390,854	$	14,893	$	0

December 31, 2019	December 31, 2019																	December 31, 2019
Commercial	Commercial																	Commercial
Commercial Business	Commercial Business	$	537,602	$	3,189	$	47	$	44	$	3,280	$	540,882	$	2,848	$	—	Commercial Business	$	537,602	$	3,189	$	47	$	44	$	3,280	$	540,882	$	2,848	$	0
Commercial Real Estate	Commercial Real Estate	411,070		522		178		—		700		411,770		295		—		Commercial Real Estate	411,070		522		178		0		700		411,770		295		0
Acquisition & Development	Acquisition & Development	110,717		180		—		279		459		111,176		390		—		Acquisition & Development	110,717		180		0		279		459		111,176		390		0

Total Commercial	Total Commercial	1,059,389		3,891		225		323		4,439		1,063,828		3,533		—		Total Commercial	1,059,389		3,891		225		323		4,439		1,063,828		3,533		0
Residential	Residential	267,515		3,003		549		537		4,089		271,604		1,461		—		Residential	267,515		3,003		549		537		4,089		271,604		1,461		0
Home Equity	Home Equity	34,382		545		84		95		724		35,106		95		—		Home Equity	34,382		545		84		95		724		35,106		95		0
Consumer	Consumer	3,610		1		58		28		87		3,697		34		—		Consumer	3,610		1		58		28		87		3,697		34		0
Total Loans	Total Loans	$	1,364,896	$	7,440	$	916	$	983	$	9,339	$	1,374,235	$	5,123	$	—	Total Loans	$	1,364,896	$	7,440	$	916	$	983	$	9,339	$	1,374,235	$	5,123	$	0

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 ~~March 31,~~September 30, 2020 and December 31, 2019, the Bank had specific reserve allocations for TDR’s of ~~$436 thousand~~$1.2 million and $527 thousand, respectively.

Loans considered to be troubled debt restructured loans totaled ~~$7.9~~$11.4 million and $7.7 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. Of these totals, ~~$4.3~~$2.6 million and $4.4 million, respectively, represent accruing troubled debt restructured loans and represent ~~42%~~15% and 46%, respectively of total impaired loans. Meanwhile, as of ~~March 31,~~September 30, 2020, ~~$3.0~~$2.9 million represent 4 loans to 2 borrowers that have defaulted under the restructured terms. The largest of these loans, at ~~$2.3~~$2.2 million, is a commercial loan ~~to a company dependent of~~and the ~~coal industry. The~~ other three of these loans, totaling ~~$669~~$647 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. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of ~~March 31,~~September 30, 2020 and December 31, 2019.

NaN commercial loans to 3 unrelated borrowers totaling $313 thousand were classified as TDR’s in the three months ended March 31, 2020. Upon the identification of financial difficulties on the part of the borrowers, the 2 related loans were modified

to extend the maturity date and allow for additional monitoring, while the other 2 unrelated loans were modified to lower loan principal and interest payments. These loans have paid as agreed under their modified terms.

During the quarter ended ~~March 31,~~September 30, 2020, no additional loans were classified as TDR's, and 0 restructured loan defaulted under their modified terms that were not already classified as non-performing for having previously defaulted under their modified terms.

New TDR's ¹
Three Months Ended March 31, 2020
(Dollars in thousands) Number of Contracts Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial
     Commercial Business 2 $ 154 $ 149
     Commercial Real Estate 2 159 159
     Acquisition & Development — — —
          Total Commercial 4 313 308
Residential — — ��
Home Equity — — —
Consumer — — —
          Total 4 $ 313 $ 308
NaN commercial loans to 1 borrower totaling $6.1 million were classified as TDR’s in the nine months ended September 30, 2020. Upon the identification of financial difficulties on the part of the borrowers, the loans were modified to allow for extended interest-only payments. Meanwhile, 4 additional commercial loans totaling $400 thousand and 1 mortgage loan with a balance of $87 thousand were classified as a TDR as a result of extended repayment terms. These loans have paid as agreed under their modified terms.

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

^{NaN unrelated commercial loans totaling $336 thousand and 2 unrelated residential real estate loans totaling $227 thousand were classified as TDR’s during the nine 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 for a commercial loan of this type. These loans have paid as agreed since they were renewed under modified terms.}


	New TDR's 1
	Nine Months Ended September 30, 2020					Three Months Ended September 30, 2020
(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	5	$	6,237	$	5,427	0	$	0	$	0
Commercial Real Estate	2	159		152		0	0		0
Acquisition & Development	0	0		0		0	0		0
SBA Paycheck Protection Program	0	0		0		0	0		0
Total Commercial	7	6,396		5,579		0	0		0
Residential	1	87		86		0	0		0
Home Equity	0	0		0		0	0		0
Consumer	0	0		0		0	0		0
Total	8	6,483		5,665		0	0		0


	Nine Months Ended September 30, 2019					Three Months Ended September 30, 2019
(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	$	336	$	333	0	$	0	$	0
Commercial Real Estate	0	0		0		0	0		0
Acquisition & Development	0	0		0		0	0		0
SBA Paycheck Protection Program	0	0		0		0	0		0
Total Commercial	2	336		333		0	0		0
Residential	2	227		255		2	227		255
Home Equity	0	0		0		0	0		0
Consumer	0	0		0		0	0		0
Total	4	$	563	$	588	2	$	227	$	255

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

Purchased Credit Impaired Loans

As a result of the FDIC-assisted acquisition of First State on April 3, 2020, the Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The Company did not hold any PCI loans as of September 30, 2019 or December 31, 2019.

The carrying amount of the PCI loan portfolio is as follows:


(Dollars in thousands)	As of September 30, 2020
Commercial	$	21,233
Residential	16,549
Home Equity	0
Consumer	1,688
Outstanding balance	$	39,470
Carrying amount, net of allowance	$	39,373

Accretable yield, or income expected to be collected, is as follows:


(Dollars in thousands)	As of September 30, 2020
Beginning balance	$	0
New loans purchased	11,746
Accretion of income	(1,593)
Reclassification from non-accretable difference	1,017
Disposals	0
Ending balance	$	11,170

For the PCI loan portfolio disclosed above, the Company decreased the allowance for loan losses by $76 thousand during the three-month period ended September 30, 2020 and increased the allowance for loan losses by $97 thousand during the nine-month period ended September 30, 2020.

There were no PCI loans purchased during the three month period ended September 30, 2020. PCI loans purchased during the nine month period ended September 30, 2020, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:


(Dollars in thousands)	As of September 30, 2020
Contractually required payments receivable of loans purchased during the period:
Commercial	$	36,046
Residential	47,787

Consumer	2,990
Cash flows expected to be collected at acquisition	$	86,823
Fair value of loans acquired at acquisition	$	50,235

Income is not recognized on PCI loans if the Company cannot reasonably estimate cash flows expected to be collected and, as of September 30, 2020, the Company held no such loans.


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2019	$	0	$	0	$	0	$	0	$	0
Charge-offs	0		(11)		0		0		(11)

Provision	0		108		0		0		108
ALL balance at September 30, 2020	$	0	$	97	$	0	$	0	$	97
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0
Collectively evaluated for impairment	$	0	$	97	$	0	$	0	97


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at June 30, 2020	$	121	$	52	$	0	$	0	$	173
Charge-offs	0		(11)		0		0		(11)

Provision	(121)		56		0		0		(65)
ALL balance at September 30, 2020	$	0	$	97	$	0	$	0	$	97

The following table summarizes the primary segments of the Company's PCI loan portfolio as of September 30, 2020:


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
Individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0
Collectively evaluated for impairment	21,233		16,549		0		1,688		39,470
Total Loans	21,233		16,549		0		1,688		39,470

The following table represents the classes of the PCI 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, 2020:


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2020
Commercial
Commercial Business	$	16,426	$	0	$	1,385	$	0	$	17,811
Commercial Real Estate	1,062		0		194		0		1,256
Acquisition & Development	2,009		0		157		0		2,166

Total Commercial	19,497		0		1,736		0		21,233
Residential	14,698		0		1,844		7		16,549

Consumer	1,402		3		0		283		1,688
Total Loans	$	35,597	$	3	$	3,580	$	290	$	39,470

The following table presents the classes of the PCI loan portfolio summarized by aging categories of performing loans and non-accrual loans as of September 30, 2020:


(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, 2020
Commercial
Commercial Business	$	15,597	$	190	$	584	$	1,440	$	2,214	$	17,811	$	1,502	$	0
Commercial Real Estate	932		0		130		194		324		1,256		72		0
Acquisition & Development	1,308		701		0		157		858		2,166		157		0

Total Commercial	17,837		891		714		1,791		3,396		21,233		1,731		0
Residential	12,588		500		418		3,043		3,961		16,549		3,360		0

Consumer	1,393		2		10		283		295		1,688		283		0
Total Loans	$	31,818	$	1,393	$	1,142	$	5,117	$	7,652	$	39,470	$	5,374	$	0

As the Company's PCI loan portfolio is accounted for in pools with similar risk characteristics in accordance with ASC 310-30, this portfolio is not subject to the impaired loan and TDR guidance. Rather, the revised estimated future cash flows of the individually modified loans are included in the estimated future cash flows of the pool.

Note 5 – Premises and Equipment

Premises and equipment were as follows:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019
Land	Land	$	3,510	$	3,257	Land	$	3,936	$	3,105
Buildings and improvements	Buildings and improvements	14,452		14,574		Buildings and improvements	14,350		13,352
Furniture, fixtures and equipment	Furniture, fixtures and equipment	17,164		16,869		Furniture, fixtures and equipment	16,638		15,553

Construction in progress	Construction in progress	1,662		1,019		Construction in progress	1,814		1,019
Leasehold improvements	Leasehold improvements	2,216		2,207		Leasehold improvements	2,832		1,985
		39,004		37,926			39,570		35,014
Accumulated depreciation	Accumulated depreciation	(16,675)		(15,952)		Accumulated depreciation	(13,394)		(13,040)
Net premises and equipment	Net premises and equipment	$	22,329	$	21,974	Net premises and equipment	$	26,176	$	21,974

The Company leases certain premises and equipment under operating and finance leases. At ~~March 31,~~September 30, 2020, the Company had lease liabilities totaling ~~$17.4~~$18.6 million and right-of-use assets totaling ~~$16.0~~$17.9 million related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. ~~For the three months ended March 31,~~At September 30, 2020, the weighted average remaining lease term for finance leases was ~~2.4~~1.9 years and the weighted average discount rate used in the measurement of finance lease liabilities was ~~2.80%~~2.78%. ~~For the three months ended March 31,~~At September 30, 2020, the weighted average remaining lease term for operating leases was ~~12.6~~13.2 years and the weighted average discount rate used in the measurement of operating lease liabilities was ~~3.63%~~2.93%.

Lease costs were as follows:


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		(Dollars in thousands)	Nine Months Ended September 30, 2020		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Three Months Ended September 30, 2019
Amortization of right-of-use assets, finance leases	Amortization of right-of-use assets, finance leases	$	18	$	20	Amortization of right-of-use assets, finance leases	$	49	$	13	$	58	$	18
Interest on lease liabilities, finance leases	Interest on lease liabilities, finance leases	1		2		Interest on lease liabilities, finance leases	3		1		6		2
Operating lease cost	Operating lease cost	544		530		Operating lease cost	1,594		473		1,489		482
Short-term lease cost	Short-term lease cost	14		25		Short-term lease cost	26		0		57		16
Variable lease cost	Variable lease cost	10		10		Variable lease cost	30		10		30		10
Total lease cost	Total lease cost	$	587	$	587	Total lease cost	$	1,702	$	497	$	1,640	$	528

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

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


		March 31, 2020							September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Finance Leases		Operating Leases		(Dollars in thousands)	Finance Leases		Operating Leases
2020	2020	$	77	$	2,021	2020	$	54	$	1,374
2021	2021	77		2,017		2021	54		1,786
2022	2022	32		1,872		2022	9		1,813
2023	2023	—		1,629		2023	0		1,724
2024	2024	—		1,585		2024	0		1,705
2025 and thereafter	2025 and thereafter	—		12,746		2025 and thereafter	0		14,492
Total future minimum lease payments	Total future minimum lease payments	$	186	$	21,870	Total future minimum lease payments	$	117	$	22,894
Less: Amounts representing interest	Less: Amounts representing interest	(6)		(4,692)		Less: Amounts representing interest	(3)		(4,426)
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	180	$	17,178	Present value of net future minimum lease payments	$	114	$	18,468

2129

Note 6 – Equity Method Investment

In the third quarter of 2020, the Company acquired a portion of Intercoastal Mortgage, LLC (“ICM”) and recognizes its ownership as an equity method investment initially recorded at fair value. In accordance with Rule 8-03(b)(3) of Regulation S-X, the Company must assess whether its equity method investment is a significant equity method investment. In evaluating the significance of this investment, the Company performed the income, asset, and investment tests described in S-X 3-05 and S-X 1-02(w). Rule 8-03(b)(3) of Regulation S-X requires summarized financial information in a quarterly report if any of the three tests exceeds 20%. Under the income test, the Company’s proportionate share of its equity method investee's aggregated net income exceeded the applicable threshold of 20%, and accordingly it is required to provide summarized income statement information for this investee for all periods presented.

The following table provides summarized income statement information for the Company's equity method investment for the three and nine months ended September 30, 2020. As ICM did not exist prior to July 1, 2020, no historical financial information is presented.


	Three Months Ended September 30		Nine Months Ended September 30
(Dollars in thousands)	2020			2020
Total revenues	$	62,915		$	62,915
Gross profit	33,765			33,765
Net income	28,979			28,979

For more information, please see Note 17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Note 67 – Deposits

Deposits were as follows:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2020		December 31, 2019
Noninterest-bearing demand	Noninterest-bearing demand	$	387,536	$	278,547	Noninterest-bearing demand	$	642,835	$	278,547
Interest-bearing demand	Interest-bearing demand	375,024		351,435		Interest-bearing demand	453,024		351,435
Savings and money markets	Savings and money markets	378,838		363,026		Savings and money markets	533,637		363,026
Time deposits, including CDs and IRAs	Time deposits, including CDs and IRAs	456,841		272,034		Time deposits, including CDs and IRAs	269,461		272,034
Total deposits	Total deposits	$	1,598,239	$	1,265,042	Total deposits	$	1,898,957	$	1,265,042

Time deposits that meet or exceed the FDIC insurance limit	Time deposits that meet or exceed the FDIC insurance limit	$	8,382	$	8,955	Time deposits that meet or exceed the FDIC insurance limit	$	15,890	$	8,955

Maturities of time deposits were as follows:


(Dollars in thousands)	(Dollars in thousands)	March 31, 2020		(Dollars in thousands)	September 30, 2020
2020	2020	$	336,219	2020	$	66,657
2021	2021	67,491		2021	108,547
2022	2022	32,344		2022	61,757
2023	2023	13,558		2023	20,578
2024	2024	7,229		2024	11,922
Total	Total	$	456,841	Total	$	269,461

Note 78 – Borrowed Funds

Short-term borrowings

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

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


(Dollars in thousands)	(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019			(Dollars in thousands)	As of and for the three months ended September 30, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	—		$	192,063		Balance at end of period	$	0		$	192,063
Average balance during the period	Average balance during the period	160,429			187,226			Average balance during the period	0			187,226
Maximum month-end balance	Maximum month-end balance	124,631			240,811			Maximum month-end balance	0			240,811
Weighted-average rate during the period	Weighted-average rate during the period	0.92		%	2.24		%	Weighted-average rate during the period	0		%	2.24		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.36		%	1.81		%	Weighted-average rate at end of period	0.39		%	1.81		%

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”) with ~~customers~~clients representing funds deposited by ~~customers,~~clients, on an overnight basis, that are collateralized by investment securities owned by the Company. Repurchase agreements with ~~customers~~clients 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~~client 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 repurchase agreements on the consolidated balance sheets.~~transaction. 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 ~~March 31,~~September 30, 2020 and December 31, 2019. These borrowings were collateralized with investment securities with a carrying value of ~~$9.7~~$10.7 million and $10.5 million at ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, and were comprised of U.S. ~~Government Agencies~~agency securities and ~~Mortgage backed~~U.S. sponsored mortgage-backed securities. Declines in the value of the collateral would require the Company to increase the amounts of securities pledged.

Repurchase agreements totaled ~~$9.3~~$10.0 million at ~~March 31,~~September 30, 2020, compared to $10.2 million at December 31, 2019.

Information related to repurchase agreements is summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019			(Dollars in thousands)	As of and for the three months ended September 30, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	9,346		$	10,172		Balance at end of period	$	10,045		$	10,172
Average balance during the period	Average balance during the period	9,520			11,252			Average balance during the period	10,145			11,252
Maximum month-end balance	Maximum month-end balance	9,788			14,655			Maximum month-end balance	10,505			14,655
Weighted-average rate during the period	Weighted-average rate during the period	0.44		%	0.43		%	Weighted-average rate during the period	0.17		%	0.43		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.13		%	0.44		%	Weighted-average rate at end of period	0.06		%	0.44		%

Long-term notes from the FHLB were as follows:

(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 $ 815 $ 822
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
$ 30,815 $ 30,822


(Dollars in thousands)	September 30, 2020		December 31, 2019
Fixed interest rate note, originated in April 2007, due in April 2022, with interest of 5.18% payable monthly	$	0	$	822
Fixed interest rate notes, originating in November 2019, due between November 2023 and November 2024, with interest of between 1.78% and 1.81% and interest-only payments monthly	20,000		30,000
Fixed interest rate note, originated in December 2017, due in December 2020, with interest of 2.18% and interest-only payments monthly	5,800		0
	$	25,800	$	30,822

The fixed interest rate note, originated in December 2017, due in December 2020, with interest of 2.18% and interest-only payments monthly, was acquired as a result of the First State acquisition on April 3, 2020.

In the three months ended September 30, 2020, the Company prepaid two long term notes totaling $10.8 million.

Subordinated Debt

Information related to subordinated debt is summarized as follows:


(Dollars in thousands)	(Dollars in thousands)	As of and for the three months ended March 31, 2020			As of and for the year ended December 31, 2019			(Dollars in thousands)	As of and for the three months ended September 30, 2020			As of and for the year ended December 31, 2019
Balance at end of period	Balance at end of period	$	4,124		$	4,124		Balance at end of period	$	4,124		$	4,124
Average balance during the period	Average balance during the period	4,124			12,125			Average balance during the period	4,124			12,125
Maximum month-end balance	Maximum month-end balance	4,124			17,524			Maximum month-end balance	4,124			17,524
Weighted-average rate during the period	Weighted-average rate during the period	3.35		%	6.35		%	Weighted-average rate during the period	1.94		%	6.35		%
Weighted-average rate at end of period	Weighted-average rate at end of period	2.36		%	3.51		%	Weighted-average rate at end of period	1.87		%	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 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 ~~March 31,~~September 30, 2020 and $4.1 million as of December 31, 2019 and interest expense of ~~$35~~$78 thousand and ~~$285~~$728 thousand for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 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.

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.

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
2020	2020	$	22	2020	$	5,800
2021	2021	32		2021	0
2022	2022	10,761		2022	0
2023	2023	10,000		2023	10,000
2024	2024	10,000		2024	10,000
Thereafter	Thereafter	4,124		Thereafter	4,124
		$	34,939		$	29,924

Note 89 – 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 2019 Annual Report on Form 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 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 and nine months ended ~~March 31,~~September 30, 2020. Valuation techniques are consistent with techniques used in prior periods. ~~Certain~~Preferred member interest in an equity method investment and 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 and nine months ended ~~March 31,~~September 30, 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 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 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 ~~March 31,~~September 30, 2020 and December 31, 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.


		March 31, 2020															September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Level I		Level II		Level III		Total		(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:	Assets:									Assets:
U.S. Government Agency securities		$	—	$	37,366	$	—	$	37,366
U.S. Sponsored Mortgage backed securities		—		57,354		—		57,354
U.S. agency securities										U.S. agency securities	$	0	$	53,382	$	0	$	53,382
U.S. sponsored mortgage-backed securities										U.S. sponsored mortgage-backed securities	0		68,097		0		68,097
Municipal securities	Municipal securities	—		79,993		36,626		116,619		Municipal securities	0		111,236		42,108		153,344
Other debt securities										Other debt securities	0		0		7,500		7,500
Other securities	Other securities	—		11,762		—		11,762		Other securities	0		15,641		0		15,641
Equity securities	Equity securities	512		—		—		512		Equity securities	144		0		0		144
Loans held for sale	Loans held for sale	—		186,128		—		186,128		Loans held for sale	0		2,271		0		2,271
Interest rate lock commitment		—		—		5,791		5,791

Interest rate swap	Interest rate swap	—		15,733		—		15,733		Interest rate swap	0		15,735		0		15,735
Fair value hedge	Fair value hedge	—		1,447		—		1,447		Fair value hedge	0		2,272		0		2,272
Bank-owned life insurance	Bank-owned life insurance	—		35,597		—		35,597		Bank-owned life insurance	0		36,037		0		36,037
Liabilities:	Liabilities:									Liabilities:
Interest rate swap	Interest rate swap	—		15,733		—		15,733		Interest rate swap	0		15,735		0		15,735
Fair value hedge	Fair value hedge	—		2,922		—		2,922		Fair value hedge	0		2,441		0		2,441
Mortgage-backed security hedges		—		5,317		—		5,317


	December 31, 2019
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
U.S. agency securities	$	0	$	51,996	$	0	$	51,996
U.S. sponsored mortgage-backed securities	0		58,312		0		58,312
Municipal securities	0		75,833		37,259		113,092
Other securities	0		12,421		0		12,421
Loans held for sale	0		109,788		0		109,788
Interest rate lock commitment	0		0		1,660		1,660
Interest rate swap	0		5,722		0		5,722
Fair value hedge	0		1,770		0		1,770
Bank-owned life insurance	0		35,374		0		35,374
Liabilities:
Interest rate swap	0		5,722		0		5,722
Fair value hedge	0		1,418		0		1,418
Mortgage-backed security hedges	0		186		0		186

2634

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 December 31, 2019	Balance at December 31, 2019	$	1,660	$	37,259	$	—	$	38,919	Balance at December 31, 2019	$	1,660	$	37,259	$	0	$	38,919
Realized and unrealized gains included in earnings	Realized and unrealized gains included in earnings	4,131		—		—		4,131		Realized and unrealized gains included in earnings	(1,660)		3		0		(1,657)
Purchase of securities	Purchase of securities	—		522		—		522		Purchase of securities	0		21,147		0		21,147
Maturities/calls										Maturities/calls	0		(15,574)		0		(15,574)
Unrealized gain included in other comprehensive income (loss)										Unrealized gain included in other comprehensive income (loss)	0		5,872		0		5,872
Unrealized loss included in other comprehensive income (loss)										Unrealized loss included in other comprehensive income (loss)	0		(6,599)		0		(6,599)
Balance at September 30, 2020										Balance at September 30, 2020	$	0	$	42,108	$	0	$	42,108

Balance at June 30, 2020										Balance at June 30, 2020	$	7,338	$	40,457	$	0	$	47,795
Realized and unrealized gains included in earnings										Realized and unrealized gains included in earnings	(7,338)		0		0		(7,338)
Purchase of securities										Purchase of securities	0		368		0		368
Maturities/calls										Maturities/calls	0		(61)		0		(61)
Unrealized gain included in other comprehensive income (loss)										Unrealized gain included in other comprehensive income (loss)	0		1,810		0		1,810
Unrealized loss included in other comprehensive income (loss)	Unrealized loss included in other comprehensive income (loss)	—		(1,155)		—		(1,155)		Unrealized loss included in other comprehensive income (loss)	0		(466)		0		(466)
Balance at March 31, 2020		$	5,791	$	36,626	$	—	$	42,417

Balance at September 30, 2020										Balance at September 30, 2020	$	0	$	42,108	$	0	$	42,108

Balance at December 31, 2018	Balance at December 31, 2018	$	1,750	$	33,122	$	300	$	35,172	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	506		—		—		506		Realized and unrealized gains included in earnings	565		0		0		565
Purchase of securities	Purchase of securities	—		—		450		450		Purchase of securities	0		682		1,300		1,982
Unrealized gain included in other comprehensive income (loss)	Unrealized gain included in other comprehensive income (loss)	—		5,012		—		5,012		Unrealized gain included in other comprehensive income (loss)	0		10,707		16,814		27,521
Unrealized loss included in other comprehensive income (loss)	Unrealized loss included in other comprehensive income (loss)	—		(1,333)		—		(1,333)		Unrealized loss included in other comprehensive income (loss)	0		(9,062)		0		(9,062)
Balance at March 31, 2019		$	2,256	$	36,801	$	750	$	39,807
Balance at September 30, 2019										Balance at September 30, 2019	$	2,315	$	35,449	$	18,414	$	56,178

Balance at June 30, 2019										Balance at June 30, 2019	$	2,541	$	30,537	$	1,550	$	34,628
Realized and unrealized losses included in earnings										Realized and unrealized losses included in earnings	(226)		0		0		(226)
Purchase of securities										Purchase of securities	0		573		50		623
Unrealized gain included in other comprehensive income (loss)										Unrealized gain included in other comprehensive income (loss)	0		4,339		16,814		21,153
Unrealized loss included in other comprehensive income (loss)										Unrealized loss included in other comprehensive income (loss)	0		0		0		0
Balance at September 30, 2019										Balance at September 30, 2019	$	2,315	$	35,449	$	18,414	$	56,178

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 2020 and 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.

•Other debt securities – Certain debt securities are recorded at fair value on a nonrecurring basis. These other debt securities, which include preferred member interest in an equity method investment, are securities without a readily determinable fair value and are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

•Equity securities – Certain equity securities are recorded at fair value on a nonrecurring basis. Equity securities without a readily determinable fair value are measured at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer.

~~Assets~~Certain assets of the Company are measured at fair value on a nonrecurring basis were adjusted during the nine months ended September 30, 2020 and the year ended December 31, 2019. The fair value of these assets as of ~~March 31,~~September 30, 2020 and December 31, 2019 are included in the table below:


		March 31, 2020															September 30, 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	$	—	$	—	$	9,694	$	9,694	Impaired loans	$	0	$	0	$	15,518	$	15,518
Other real estate owned	Other real estate owned	—		—		1,206		1,206		Other real estate owned	0		0		6,409		6,409
Other debt securities										Other debt securities	0		0		7,500		7,500
Equity securities	Equity securities	—		—		18,514		18,514		Equity securities	0		0		24,020		24,020


		December 31, 2019															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	$	—	$	—	$	8,909	$	8,909	Impaired loans	$	0	$	0	$	8,909	$	8,909
Other real estate owned	Other real estate owned	—		—		1,397		1,397		Other real estate owned	0		0		1,397		1,397
Equity securities	Equity securities	—		—		18,514		18,514		Equity securities	0		0		18,514		18,514

2836

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

March 31, 2020

September 30, 2020

Nonrecurring measurements:

Impaired loans

9,694

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 62%

Impaired loans

15,518

Appraisal of collateral 1

Appraisal adjustments 2

20% - 62%

Liquidation expense ²

5% - 10%

Liquidation expense 2

5% - 10%

Other real estate owned

1,206

Appraisal of collateral ¹

Appraisal adjustments ²

20% - 30%

Other real estate owned

6,409

Appraisal of collateral 1

Appraisal adjustments 2

20% - 30%

Liquidation expense ²

5% - 10%

Liquidation expense 2

5% - 10%

Other debt securities

7,500

Net asset value

Cost minus impairment

Equity securities

18,514

Net asset value

Cost minus impairment

Equity securities

24,020

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

36,626

Appraisal of bond ³

Bond appraisal adjustment ⁴

5% - 15%

Municipal securities (Local TIF bonds)

42,108

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

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

December 31, 2019

Nonrecurring measurements:

Impaired loans

8,909

Appraisal of collateral 1

Appraisal adjustments 2

20% - 62%

Liquidation expense 2

5% - 10%

Other real estate owned

1,397

Appraisal of collateral 1

Appraisal adjustments 2

20% - 30%

Liquidation expense 2

5% - 10%

Equity securities

18,514

Net asset value

Cost minus impairment

Recurring measurements:

Municipal securities (Local TIF bonds)

37,259

Appraisal of bond 3

Bond appraisal adjustment 4

5% - 15%

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.

2937

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)
March 31, 2020
September 30, 2020												September 30, 2020
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	88,874	$	88,874	$	88,874	$	—	$	—	Cash and cash equivalents	$	295,823	$	295,823	$	295,823	$	0	$	0
Certificates of deposits with other banks	Certificates of deposits with other banks	12,549		12,584		—		12,584		—		Certificates of deposits with other banks	12,301		12,592		0		12,592		0
Securities available-for-sale	Securities available-for-sale	223,101		223,101		—		186,475		36,626		Securities available-for-sale	297,964		297,964		0		248,356		49,608
Equity securities	Equity securities	19,026		19,026		512		—		18,514		Equity securities	24,164		24,164		144		0		24,020
Loans held for sale	Loans held for sale	186,128		186,128		—		186,128		—		Loans held for sale	2,271		2,271		0		2,271		0
Loans, net	Loans, net	1,385,417		1,386,857		—		—		1,386,857		Loans, net	1,402,680		1,422,972		0		0		1,422,972
Mortgage servicing rights	Mortgage servicing rights	344		344		—		—		344		Mortgage servicing rights	3,136		3,136		0		0		3,136
Interest rate lock commitment		5,791		5,791		—		—		5,791

Interest rate swap	Interest rate swap	15,733		15,733		—		15,733		—		Interest rate swap	15,735		15,735		0		15,735		0

Accrued interest receivable	Accrued interest receivable	8,445		8,445		—		1,702		6,743		Accrued interest receivable	7,460		7,460		0		2,084		5,376
Bank-owned life insurance	Bank-owned life insurance	35,597		35,597		—		35,597		—		Bank-owned life insurance	36,037		36,037		0		36,037		0

Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	1,598,239	$	1,594,168	$	—	$	1,594,168	$	—	Deposits	$	1,898,957	$	1,972,480	$	0	$	1,972,480	$	0
Repurchase agreements	Repurchase agreements	9,346		9,346		—		9,346		—		Repurchase agreements	10,045		10,045		0		10,045		0
FHLB and other borrowings	FHLB and other borrowings	30,815		30,818		—		30,818		—		FHLB and other borrowings	25,800		26,523		0		26,523		0
Mortgage-backed security hedges		5,317		5,317		—		5,317		—

Interest rate swap	Interest rate swap	15,733		15,733		—		15,733		—		Interest rate swap	15,735		15,735		0		15,735		0
Fair value hedge	Fair value hedge	2,922		2,922		—		2,922		—		Fair value hedge	2,441		2,441		0		2,441		0
Accrued interest payable	Accrued interest payable	808		808		—		808		—		Accrued interest payable	417		417		0		417		0
Subordinated debt	Subordinated debt	4,124		4,124		—		4,124		—		Subordinated debt	4,124		4,124		0		4,124		0

December 31, 2019	December 31, 2019											December 31, 2019
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	28,002	$	28,002	$	28,002	$	—	$	—	Cash and cash equivalents	$	28,002	$	28,002	$	28,002	$	0	$	0
Certificates of deposits with other banks	Certificates of deposits with other banks	12,549		12,586		—		12,586		—		Certificates of deposits with other banks	12,549		12,586		0		12,586		0
Securities available-for-sale	Securities available-for-sale	235,821		235,821		—		198,562		37,259		Securities available-for-sale	235,821		235,821		0		198,562		37,259
Equity securities	Equity securities	18,514		18,514		—		—		18,514		Equity securities	18,514		18,514		0		0		18,514
Loans held for sale	Loans held for sale	109,788		109,788		—		109,788		—		Loans held for sale	109,788		109,788		0		109,788		0
Loans, net	Loans, net	1,362,766		1,364,706		—		—		1,364,706		Loans, net	1,362,766		1,364,706		0		0		1,364,706
Mortgage servicing rights	Mortgage servicing rights	348		348		—		—		348		Mortgage servicing rights	348		348		0		0		348
Interest rate lock commitment	Interest rate lock commitment	1,660		1,660		—		—		1,660		Interest rate lock commitment	1,660		1,660		0		0		1,660
Interest rate swap	Interest rate swap	5,722		5,722		—		5,722		—		Interest rate swap	5,722		5,722		0		5,722		0
Fair value hedge	Fair value hedge	1,770		1,770		—		1,770				Fair value hedge	1,770		1,770		0		1,770
Accrued interest receivable	Accrued interest receivable	7,909		7,909		—		1,591		6,317		Accrued interest receivable	7,909		7,909		0		1,591		6,317
Bank-owned life insurance	Bank-owned life insurance	35,374		35,374		—		35,374		—		Bank-owned life insurance	35,374		35,374		0		35,374		0

Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	1,265,042	$	1,249,135	$	—	$	1,249,135	$	—	Deposits	$	1,265,042	$	1,249,135	$	0	$	1,249,135	$	0
Repurchase agreements	Repurchase agreements	10,172		10,172		—		10,172		—		Repurchase agreements	10,172		10,172		0		10,172		0
FHLB and other borrowings	FHLB and other borrowings	222,885		222,891		—		222,891		—		FHLB and other borrowings	222,885		222,891		0		222,891		0
Mortgage-backed security hedges	Mortgage-backed security hedges	186		186		—		186		—		Mortgage-backed security hedges	186		186		0		186		0
Interest rate swap	Interest rate swap	5,722		5,722		—		5,722		—		Interest rate swap	5,722		5,722		0		5,722		0
Fair value hedge	Fair value hedge	1,418		1,418		—		1,418		—		Fair value hedge	1,418		1,418		0		1,418		0
Accrued interest payable	Accrued interest payable	1,060		1,060		—		1,060		—		Accrued interest payable	1,060		1,060		0		1,060		0
Subordinated debt	Subordinated debt	4,124		4,124		—		4,124		—		Subordinated debt	4,124		4,124		0		4,124		0

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 910 – Stock Offerings

On August 12, 2019, the Board of Directors of the Company announced the approval of a stock repurchase program, of which 49,100 shares were repurchased for $706 thousand. On August 19, 2020, the Board of Directors of the Company announced the approval of an extension of the existing stock repurchase program. Under the ~~program,~~extended programs, 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,~~aggregate share repurchases are completed, 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~~ During the third quarter of 2020, the Company repurchased ~~16,300~~82,424 shares totaling $1.3 million. A total of ~~its outstanding common stock, with an average share price of $16.00.~~128,024 shares totaling $1.9 million have been repurchased in 2020.


Period	Total Number of Shares Purchased	Average Price Paid per Share
March 1 - March 31, 2020	16,300	$16.00
April 1 - April 30, 2020	0	$0
May 1 - May 31, 2020	100	$14.18
June 1 - June 30, 2020	29,200	$13.53
July 1 - July 31, 2020	3,500	$12.89
August 1 - August 31, 2020	20,532	$13.99
September 1 - September 30, 2020	58,392	$15.63

Note 1011 – 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.


		Three Months Ended March 31							Nine Months Ended September 30				Three Months Ended September 30
(Dollars in thousands except shares and per share data)	(Dollars in thousands except shares and per share data)	2020		2019		(Dollars in thousands except shares and per share data)	2020		2019		2020		2019
Numerator for basic earnings per share:	Numerator for basic earnings per share:					Numerator for basic earnings per share:
Net income		$	1,048	$	3,192
Net income from continuing operations						Net income from continuing operations	$	25,573	$	22,469	$	6,491	$	4,346
Less: Dividends on preferred stock	Less: Dividends on preferred stock	114		121		Less: Dividends on preferred stock	345		364		116		121
Net income from continuing operations available to common shareholders - basic						Net income from continuing operations available to common shareholders - basic	25,228		22,105		6,375		4,225
Net income from discontinued operations available to common shareholders - basic and diluted						Net income from discontinued operations available to common shareholders - basic and diluted	0		427		0		(19)
Net income available to common shareholders - basic	Net income available to common shareholders - basic	$	934	$	3,071	Net income available to common shareholders - basic	$	25,228	$	22,532	$	6,375	$	4,206

Numerator for diluted earnings per share:	Numerator for diluted earnings per share:					Numerator for diluted earnings per share:
Net income available to common shareholders - basic		$	934	$	3,071
Add: Dividends on convertible preferred stock		—		121
Add: Interest on subordinated debt (tax effected)		—		184
Net income available to common shareholders - diluted		$	934	$	3,376

Net income from continuing operations available to common shareholders - diluted						Net income from continuing operations available to common shareholders - diluted	$	25,228	$	22,105	$	6,375	$	4,225

Denominator:	Denominator:					Denominator:
Total average shares outstanding		11,942,767		11,607,543
Effect of dilutive convertible preferred stock		—		489,625
Effect of dilutive convertible subordinated debt		—		837,500
Total weighted-average shares outstanding						Total weighted-average shares outstanding	11,948,857		11,661,581		11,948,989		11,731,774

Effect of dilutive stock options and restricted stock units	Effect of dilutive stock options and restricted stock units	355,325		242,613		Effect of dilutive stock options and restricted stock units	236,280		295,804		167,429		366,561
Total diluted average shares outstanding		12,298,092		13,177,281
Total diluted weighted-average shares outstanding						Total diluted weighted-average shares outstanding	12,185,137		11,957,385		12,116,418		12,098,335

Earnings per share from continuing operations - basic						Earnings per share from continuing operations - basic	$	2.11	$	1.89	$	0.53	$	0.36
Earnings per share from discontinued operations - basic						Earnings per share from discontinued operations - basic	$	0	$	0.04	$	0	$	0
Earnings per share - basic	Earnings per share - basic	$	0.08	$	0.26	Earnings per share - basic	$	2.11	$	1.93	$	0.53	$	0.36
Earnings per share from continuing operations - diluted						Earnings per share from continuing operations - diluted	$	2.07	$	1.84	$	0.53	$	0.35
Earnings per share from discontinued operations - diluted						Earnings per share from discontinued operations - diluted	$	0	$	0.04	$	0	$	0
Earnings per share - diluted	Earnings per share - diluted	$	0.08	$	0.26	Earnings per share - diluted	$	2.07	$	1.88	$	0.53	$	0.35

For the three months ended ~~March 31,~~September 30, 2020 and 2019, approximately ~~366~~850 thousand and ~~385~~389 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, 2020 and 2019, approximately 815 thousand and 396 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 three months ended ~~March 31,~~September 30, 2020 and 2019, approximately 77188 thousand and 43113 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, 2020 and 2019, approximately 179 thousand and 120 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 1112 – 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~~Fintech division, Chartwell, and ~~Chartwell~~Paladin reside in the commercial and

retail banking segment. Revenue from financial holding company activities is mainly comprised of intercompany service income and dividends.

Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage origination process. The mortgage banking services are conducted by MVB Mortgage. On July 1, 2020, the Company announced the completion of MVB Mortgage’s combination with Intercoastal Mortgage Company, to become one of the largest independently-owned residential mortgage lending operations in the Mid-Atlantic region: ICM. The Company has recognized its ownership as an equity method investment, initially recorded at fair value. Income related to this equity method investment is included in the Mortgage Banking segment.

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


Three Months Ended March 31, 2020		Commercial & Retail Banking			Mortgage Banking			Financial Holding Company			Intercompany Eliminations					Consolidated
Three Months Ended September 30, 2020										Three Months Ended September 30, 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					$	18,737				$	78			$	0			$	(188)		$	18,627
Interest expense	Interest expense	3,838					1,387			35				(732)					4,528			Interest expense			2,553				232					20			(188)				2,617
Net interest income	Net interest income	14,936			1,031			(34)			238					16,171		Net interest income				16,184				(154)				(20)					0			16,010
Provision for loan losses	Provision for loan losses	1,132			6			—			—					1,138		Provision for loan losses				8,631				0				0					0			8,631
Net interest income after provision for loan losses	Net interest income after provision for loan losses	13,804			1,025			(34)			238					15,033		Net interest income after provision for loan losses				7,553				(154)				(20)					0			7,379

Noninterest Income:	Noninterest Income:																	Noninterest Income:
Mortgage fee income	Mortgage fee income	110			11,347			—			(238)					11,219		Mortgage fee income				26				7,238				0					0			7,264
Other income	Other income	3,346			(3,562)			1,504			(1,657)					(369)		Other income				3,080				9,555				1,481					(1,982)			12,134
Total noninterest income	Total noninterest income	3,456			7,785			1,504			(1,895)					10,850		Total noninterest income				3,106				16,793				1,481					(1,982)			19,398

Noninterest Expenses:	Noninterest Expenses:																	Noninterest Expenses:
Salaries and employee benefits	Salaries and employee benefits	5,866			7,884			2,432			—					16,182		Salaries and employee benefits				7,526				82				2,911					0			10,519
Other expense	Other expense	6,659			2,397			1,075			(1,657)					8,474		Other expense				8,389				68				1,271					(1,982)			7,746
Total noninterest expenses	Total noninterest expenses	12,525			10,281			3,507			(1,657)					24,656		Total noninterest expenses				15,915				150				4,182					(1,982)			18,265

Income (loss) before income taxes	Income (loss) before income taxes	4,735			(1,471)			(2,037)			—					1,227		Income (loss) before income taxes				(5,256)				16,489				(2,721)					0			8,512
Income tax expense (benefit)	Income tax expense (benefit)	1,012			(349)			(484)			—					179		Income tax expense (benefit)				(1,556)				4,245				(668)					0			2,021

Net income (loss)	Net income (loss)	$	3,723		$	(1,122)		$	(1,553)		$	—				$	1,048	Net income (loss)				$	(3,700)			$	12,244			$	(2,053)				$	0		$	6,491
Preferred stock dividends	Preferred stock dividends	—			—			114			—					114		Preferred stock dividends				0				0				116					0			116
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	3,723		$	(1,122)		$	(1,667)		$	—				$	934	Net income (loss) available to common shareholders				$	(3,700)			$	12,244			$	(2,169)				$	0		$	6,375

Capital Expenditures for the three-month period ended March 31, 2020		$	1,295		$	69		$	20		$	—				$	1,384
Total Assets as of March 31, 2020		2,112,842			337,445			216,989			(567,596)					2,099,680
Capital Expenditures for the three-month period ended September 30, 2020																		Capital Expenditures for the three-month period ended September 30, 2020				$	1,652			$	0			$	0				$	0		$	1,652
Total Assets as of September 30, 2020																		Total Assets as of September 30, 2020				2,225,615				56,646				238,564					(306,366)			2,214,459
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		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		2,748			16,882			—			—					19,630
Goodwill as of September 30, 2020																		Goodwill as of September 30, 2020				2,350				0				0					0			2,350
Goodwill as of December 31, 2019	Goodwill as of December 31, 2019	2,748			16,882			—			—					19,630		Goodwill as of December 31, 2019				2,748				16,882				0					0			19,630

3241


Three Months Ended March 31, 2019		Commercial & Retail Banking			Mortgage Banking			Financial Holding Company			Intercompany Eliminations					Consolidated
Three Months Ended September 30, 2019										Three Months Ended September 30, 2019				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					$	19,299				$	2,288			$	9			$	(558)		$	21,038
Interest expense	Interest expense	4,754					993			285				(381)					5,651			Interest expense			4,806				1,811					156			(769)				6,004
Net interest income	Net interest income	13,573			545			(284)			138					13,972		Net interest income				14,493				477				(147)					211			15,034
Provision for loan losses	Provision for loan losses	247			53			—			—					300		Provision for loan losses				625				32				0					0			657
Net interest income after provision for loan losses	Net interest income after provision for loan losses	13,326			492			(284)			138					13,672		Net interest income after provision for loan losses				13,868				445				(147)					211			14,377

Noninterest income:	Noninterest income:																	Noninterest income:
Mortgage fee income	Mortgage fee income	109			6,697			—			(136)					6,670		Mortgage fee income				121				11,587				0					(212)			11,496
Other income	Other income	1,566			476			1,779			(1,726)					2,095		Other income				2,138				1,112				1,516					(1,566)			3,200
Total noninterest income	Total noninterest income	1,675			7,173			1,779			(1,862)					8,765		Total noninterest income				2,259				12,699				1,516					(1,778)			14,696

Noninterest Expense:	Noninterest Expense:																	Noninterest Expense:
Salaries and employee benefits	Salaries and employee benefits	4,395			5,159			2,180			—					11,734		Salaries and employee benefits				4,820				8,318				2,300					0			15,438
Other expense	Other expense	5,352			2,025			1,061			(1,724)					6,714		Other expense				6,113				2,142				1,254					(1,567)			7,942
Total noninterest expenses	Total noninterest expenses	9,747			7,184			3,241			(1,724)					18,448		Total noninterest expenses				10,933				10,460				3,554					(1,567)			23,380

Income (loss) before income taxes	Income (loss) before income taxes	5,254			481			(1,746)			—					3,989		Income (loss) before income taxes				5,194				2,684				(2,185)					0			5,693
Income tax expense (benefit)	Income tax expense (benefit)	1,054			146			(403)			—					797		Income tax expense (benefit)				1,130				725				(508)					0			1,347

Net income (loss) from continuing operations																		Net income (loss) from continuing operations				4,064				1,959				(1,677)					0			4,346
Income from discontinued operations, before income taxes																		Income from discontinued operations, before income taxes				0				0				(25)					0			(25)
Income tax expense - discontinued operations																		Income tax expense - discontinued operations				0				0				(6)					0			(6)
Net income from discontinued operations																		Net income from discontinued operations				0				0				(19)					0			(19)
Net income (loss)	Net income (loss)	$	4,200		$	335		$	(1,343)		$	—				$	3,192	Net income (loss)				$	4,064			$	1,959			$	(1,696)				$	0		$	4,327
Preferred stock dividends	Preferred stock dividends	—			—			121			—					121		Preferred stock dividends				0				0				121					0			121
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	4,200		$	335		$	(1,464)		$	—				$	3,071	Net income (loss) available to common shareholders				$	4,064			$	1,959			$	(1,817)				$	0		$	4,206

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
Capital Expenditures for the three-month period ended September 30, 2019																		Capital Expenditures for the three-month period ended September 30, 2019				$	414			$	23			$	77				$	0		$	514
Total Assets as of September 30, 2019																		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	Total Assets as of December 31, 2018	1,753,932			165,430			196,537			(364,930)					1,750,969		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 September 30, 2019																		Goodwill as of September 30, 2019				2,748				16,882				0					0			19,630
Goodwill as of December 31, 2018	Goodwill as of December 31, 2018	1,598			16,882			—			—					18,480		Goodwill as of December 31, 2018				1,598				16,882				0					0			18,480


Nine Months Ended September 30, 2020	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	56,693	$	6,034	$	2	$	(1,629)	$	61,100
Interest expense	9,418		3,136		78		(2,171)		10,461
Net interest income	47,275		2,898		(76)		542		50,639
Provision for loan losses	16,361		4		0		0		16,365
Net interest income after provision for loan losses	30,914		2,894		(76)		542		34,274

Noninterest Income:
Mortgage fee income	176		33,793		0		(542)		33,427
Other income	24,218		19,347		4,664		(5,895)		42,334
Total noninterest income	24,394		53,140		4,664		(6,437)		75,761

Noninterest Expenses:
Salaries and employee benefits	19,562		21,550		8,248		0		49,360
Other expense	24,172		4,780		3,837		(5,895)		26,894
Total noninterest expenses	43,734		26,330		12,085		(5,895)		76,254

Income (loss) before income taxes	11,574		29,704		(7,497)		0		33,781
Income tax expense (benefit)	2,336		7,696		(1,824)		0		8,208




Net income (loss)	$	9,238	$	22,008	$	(5,673)	$	0	$	25,573
Preferred stock dividends	0		0		345		—		345
Net income (loss) available to common shareholders	$	9,238	$	22,008	$	(6,018)	$	0	$	25,228

Capital Expenditures for the nine-month period ended September 30, 2020	$	4,092	$	99	$	20	$	0	$	4,211
Total Assets as of September 30, 2020	2,225,615		56,646		238,564		(306,366)		2,214,459
Total Assets as of December 31, 2019	1,953,975		248,382		216,411		(474,654)		1,944,114
Goodwill as of September 30, 2020	2,350		0		0		0		2,350
Goodwill as of December 31, 2019	2,748		16,882		0		0		19,630


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		0		0		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		0		(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		0		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) before income taxes	29,928		5,770		(6,090)		0		29,608
Income tax expense (benefit)	6,969		1,574		(1,404)		0		7,139
Net income (loss) from continuing operations	22,959		4,196		(4,686)		0		22,469
Income from discontinued operations, before income taxes	0		0		575		0		575
Income tax expense - discontinued operations	0		0		148		0		148
Net income from discontinued operations	0		0		427		0		427
Net income (loss)	$	22,959	$	4,196	$	(4,259)	$	0	$	22,896
Preferred stock dividends	0		0		364		0		364
Net income (loss) available to common shareholders	$	22,959	$	4,196	$	(4,623)	$	0	$	22,532

Capital Expenditures for the three-month period ended September 30, 2019	$	915	$	83	$	136	$	0	$	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		0		0		19,630
Goodwill as of December 31, 2018	1,598		16,882		0		0		18,480

Commercial & Retail Banking

For the three months ended ~~March 31,~~September 30, 2020, the Commercial & Retail Banking segment ~~earned~~lost $3.7 million compared to ~~$4.2~~earning $4.1 million in 2019.

The loss was driven by an increase in provision expense of $8.0 million due to the recognition of increased risk within the loan portfolio as a result of the COVID-19 pandemic reflected through analysis of the qualitative adjustment factors, changes in the total outstanding balances of the loan portfolios, changes in the level of recognized charge-offs, and resulting changes in the historical loss rates.

Net interest income increased by ~~$1.4~~$1.7 million, primarily the result of ~~an increase~~a decrease of ~~$646~~$421 thousand in interest and fees on loans offset by a decrease of ~~$699 thousand in interest on FHLB and other borrowings, and a decrease of $213 thousand~~$2.6 million in interest on deposits. The ~~increase~~decrease in interest and fees on loans was the result of a 56-basis point decrease in the yield on commercial loans, despite an increase of ~~$146.8~~$157.6 million in the average ~~balance~~loan balances of commercial loans. The decrease in interest on deposits was the result of a decrease of ~~31-basis~~95 basis points in the cost of interest-bearing liabilities, ~~even with~~despite an increase of ~~$86.6~~$117.5 million in the average balance of deposits. In addition, a $500 thousand prepayment penalty was recorded for paying off long term borrowings, of which $10.8 million was paid off during the three months ended September 30,

2020.

Noninterest income increased by ~~$1.8 million which was~~$847 thousand, primarily the result of an increase of ~~$1.0~~$1.1 million in compliance 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~~which was partially offset by a decrease of ~~$302~~$616 thousand in ~~the income on bank-owned life insurance.~~commercial swap fee income.

Noninterest expense increased by ~~$2.8~~$5.0 million, primarily the result of an increase of ~~$1.5~~$2.7 million in salaries and employee benefits expense, an increase of ~~$430~~$802 thousand in other operating expenses, an increase of $572 thousand in professional fees, an increase of $485 thousand in data processing and communications expense, an increase of $277 thousand in occupancy and equipment expense, and an increase of ~~$479~~$176 thousand in ~~travel, entertainment, dues,~~insurance, tax, and ~~subscriptions.~~assessment expense. The increase in salaries and employee benefits expense is primarily the result of the build out of the Fintech team, the ~~build-out~~acquisition of Chartwell in September 2019 and the build out of other Company ~~personnel,~~personnel. The increases in professional fees and data processing and communications expense were primarily the result of deal costs related to the acquisition of First State, the acquisition of Paladin, LLC, the sale of the Eastern Panhandle banking centers, and the ~~additional team members acquired~~MVB Mortgage transaction.

For the nine months ended September 30, 2020, the Commercial & Retail Banking segment earned $9.2 million compared to $23.0 million in 2019.

Provision expense increased $14.9 million due to the recognition of increased risk within the loan portfolio as a result of the ~~Chartwell acquisition during~~COVID-19 pandemic reflected through analysis of the ~~third quarter~~qualitative adjustment factors, changes in the total outstanding balances of ~~2019.~~

~~In addition, provision expense increased $885 thousand due to~~ the ~~net impact of adjustments to the portfolio segmentation and~~loan portfolios, changes in the level of recognized ~~charge offs~~charge-offs, and resulting changes in the historical loss rates. In addition, adjustments to the loan portfolio segmentation used within the allowance for loan losses calculation impacted provision expense.

33Net interest income increased by $5.1 million, primarily the result of an increase of $864 thousand in interest and fees on loans and a decrease of $4.3 million in interest on deposits. The increase in interest and fees on loans was the result of $1.0 million in accretion from the acquired First State loans and an increase of $164.9 million in the average loan balances of commercial loans, in spite of a 44-basis point decrease in the yield on commercial loans. The decrease in interest on deposits was the result of a decrease of 72 basis points in the cost of interest-bearing liabilities, despite an increase of $129.6 million in the average balance of deposits. In addition, a $500 thousand prepayment penalty was recorded as interest expense for paying off long term borrowings, of which $10.8 million was paid off during the three months ended September 30, 2020.

Noninterest income increased by $4.7 million which was the result of an increase of $9.6 million in the gain on sale of banking centers, an increase of $4.7 million in the bargain purchase gain, an increase of $3.0 million in compliance consulting income, and an increase of $1.0 million in the gain on sale of available-for-sale securities. These increases were partially offset by a decrease of $13.5 million in the holding gain on equity securities.

Noninterest expense increased by $13.3 million, primarily the result of an increase of $6.1 million in salaries and employee benefits expense, an increase of $3.1 million in professional fees, an increase of $1.4 million in data processing and communications expense, an increase of $1.5 million in other operating expenses, and an increase of $579 thousand in travel, entertainment, dues, and subscriptions expense. The increase in salaries and employee benefits expense is primarily the result of the build out of the Fintech team the acquisition of Chartwell in September 2019 and the build out of other Company personnel. The increases in professional fees and data processing and communications expense were primarily the result of deal costs related to the acquisition of First State, the acquisition of Paladin, LLC, the sale of the Eastern Panhandle banking centers, and the MVB Mortgage transaction.

Mortgage Banking

On July 1, 2020, the Company announced the completion of MVB Mortgage’s combination with Intercoastal Mortgage Company, to become one of the largest independently-owned residential mortgage lending operations in the Mid-Atlantic region: ICM. The Company has recognized its ownership as an equity method investment, initially recorded at fair value. Income related to this equity method investment is included in the Mortgage Banking segment. The income from this equity method investment will replace the net interest income and mortgage fee income reported in prior periods.

For the three months ended ~~March 31,~~September 30, 2020, the Mortgage Banking segment ~~lost $1.1~~earned $12.2 million compared to ~~earning $335 thousand~~$2.0 million in 2019.

~~With~~Net interest income decreased $631 thousand, which was the result of a decrease of $2.2 million in interest and fees on loans, partially offset by a decrease of $1.6 million in interest on FHLB and other borrowings. The decrease in ~~U.S. Treasury~~interest and ~~mortgage rates, MVB Mortgage saw~~fees on loans was due to a ~~significant increase~~decrease of $145.5 million in ~~originations during the first quarter 2020. Mortgage originations increased above normal averages~~average real estate loans. The decrease in ~~the fourth quarter 2019~~interest on FHLB 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~~other borrowings was

due to ~~hedge the locked pipeline, caused~~ a decrease in short-term borrowing rates.

Noninterest income increased by $4.1 million, primarily the ~~valuation~~result of an increase of $13.6 million in equity method investment income and an increase of $3.3 million in the gain on the mortgage combination transaction. These increases were partially offset by a decrease of $8.6 million in the gain on derivatives and a decrease of $4.3 million in mortgage fee income. The decreases in both the gain on derivatives and mortgage fee income are directly related to the mortgage transaction that occurred on July 1, 2020. The Mortgage Banking segment retained all the loans held-for-sale that existed at the time of the ~~MBS market. This volatility in valuation caused~~transaction and the majority were sold during the third quarter 2020.

Noninterest expense decreased by $10.3 million, which was the result of a decrease of $8.2 million in salaries and employee benefits expense, a decrease of $724 thousand in mortgage processing expense, a decrease of $456 thousand in travel, entertainment, dues, and subscriptions expense, and a decrease of $357 thousand in occupancy and equipment expense. These decreases were a direct result of the ~~derivative asset of $3.6 million, which resulted in a net loss of $1.1 million at MVB Mortgage for~~mortgage transaction that occurred on July 1, 2020.

For the ~~three~~nine months ended ~~March 31, 2020. In addition, stress~~September 30, 2020, the Mortgage Banking segment earned $22.0 million compared 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$4.2 million in ~~premiums related to mortgage servicing rights. These reduced premiums also impacted the valuation~~2019. As noted above, many of the ~~derivative.~~differences noted below are also affected by the mortgage transaction that occurred on July 1, 2020.

Net interest income increased ~~$486 thousand,~~by $1.3 million, which was the result of an increase of ~~$880~~$176 thousand in interest and fees on loans, ~~which was~~ partially offset by ~~an increase~~a decrease of ~~$394 thousand~~$1.2 million in interest on FHLB and other borrowings. The increase in interest and fees on loans was ~~due to~~primarily the result of an increase of ~~$85.2~~$30.4 million in average real estate loans. The ~~increase~~decrease in interest on FHLB and other borrowings was due to ~~an increase of $81.0 million~~a decrease in ~~average borrowings.~~short-term borrowing rates.

Noninterest income increased by ~~$612 thousand,~~$22.3 million, primarily the result of an increase of ~~$4.7~~$13.6 million in equity method investment income, an increase of $5.7 million in mortgage fee income, and ~~a decrease~~an increase of ~~$4.0~~$3.3 million in the gain on ~~derivatives.~~mortgage combination transaction. The increase in mortgage fee income ~~of $4.7 million is~~was driven by an increase of ~~$171.7~~$304.4 million in mortgage loans sold for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2019. 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. As discussed above, the mark to market loss is attributable to instability in the market for MBS and mortgage servicing rights.

Noninterest expense ~~increased~~decreased by ~~$3.1 million,~~$194 thousand, which was the result of a decrease of $509 thousand in mortgage processing expense, a decrease of $436 thousand in travel, entertainment, dues, and subscriptions expense, and a decrease of $390 thousand in occupancy and equipment expense. These decreases were partially offset by an increase of ~~$2.7~~$1.0 million in salaries and ~~employee~~employees benefits expense, due to an increase in mortgage production volume, and an increase of ~~$246~~$365 thousand in professional fees.

Financial Holding Company

For the three months ended ~~March 31,~~September 30, 2020, the Financial Holding Company segment lost ~~$1.6~~$2.1 million compared to a loss of ~~$1.3~~$1.7 million from continuing operations in 2019. Interest expense decreased ~~$250~~$136 thousand, noninterest income decreased ~~$275~~$35 thousand, and noninterest expense increased ~~$266~~$628 thousand. In addition, the income tax benefit increased ~~$81~~$160 thousand. The decrease in interest expense was due to a ~~$250~~$136 thousand decrease in interest on subordinated debt. The decrease in noninterest income was primarily the result of a decrease of ~~$163~~$69 thousand in ~~intercompany services income related to Regulation W.~~the holding gain on equity securities that was partially offset by an increase of $17 thousand in the gain on sale of securities. The increase in noninterest expense was primarily the result of an increase of ~~$252~~$611 thousand in salaries and employee benefits ~~expenses.~~expense and an increase of $140 thousand in professional fees.

For the nine months ended September 30, 2020, the Financial Holding Company segment lost $5.7 million compared to a loss of $4.7 million from continuing operations in 2019. Interest expense decreased $650 thousand, noninterest income decreased $126 thousand, and noninterest expense increased $1.9 million. In addition, the income tax benefit increased $420 thousand. The decrease in interest expense was due to a $650 thousand decrease in interest on subordinated debt. The decrease in noninterest income was primarily the result of a decrease of $168 thousand in the holding gain on equity securities. The increase in noninterest expense was primarily the result of an increase of $1.7 million in salaries and employee benefits expense and an increase of $533 thousand in professional fees.

Note 1213 – 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 ~~March 31,~~September 30, 2020 and 2019 is as follows:


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		(Dollars in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
Service cost	Service cost	$	—	$	—	Service cost	$	0	$	0	$	0	$	0
Interest cost	Interest cost	91		98		Interest cost	273		294		91		98
Expected Return on Plan Assets	Expected Return on Plan Assets	(109)		(102)		Expected Return on Plan Assets	(327)		(306)		(109)		(102)
Amortization of Net Actuarial Loss	Amortization of Net Actuarial Loss	105		68		Amortization of Net Actuarial Loss	315		204		105		68
Amortization of Prior Service Cost	Amortization of Prior Service Cost	—		—		Amortization of Prior Service Cost	0		0		0		0
Net Periodic Benefit Cost	Net Periodic Benefit Cost	$	87	$	64	Net Periodic Benefit Cost	$	261	$	192	$	87	$	64
Contributions Paid	Contributions Paid	$	349	$	90	Contributions Paid	$	587	$	270	$	119	$	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 ~~$892 thousand~~$1.0 million and $783 thousand as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. Service cost was ~~$109~~$0 thousand and $102 thousand for the three-month periods ended ~~March 31,~~September 30, 2020 and 2019, respectively. Service cost was $219 thousand and $305 thousand for the nine-month periods ended September 30, 2020 and 2019, respectively.

Note 1314 – Comprehensive Income

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


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019			(Dollars in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
Details about AOCI Components	Details about AOCI Components	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		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)	$	276	$	(118)	Gain (loss) on sale of securities	Unrealized holding gains (losses)	$	865	$	(179)	$	35	$	(11)	Gain (loss) on sale of securities
		276		(118)		Total before tax		865		(179)		35		(11)		Total before tax
		(75)		32		Income tax expense		(234)		48		(9)		2		Income tax expense
		201		(86)		Net of tax		631		(131)		26		(9)		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	(105)		(68)		Salaries and benefits	Amortization of net actuarial loss	(315)		(204)		(105)		(68)		Salaries and benefits
		(105)		(68)		Total before tax		(315)		(204)		(105)		(68)		Total before tax
		28		18		Income tax expense		85		55		28		18		Income tax expense
		(77)		(50)		Net of tax		(230)		(149)		(77)		(50)		Net of tax
Investment hedge	Investment hedge						Investment hedge
Carrying value adjustment	Carrying value adjustment	1,793		458		Interest on investment securities - taxable	Carrying value adjustment	738		162		(95)		36		Interest on investment securities - taxable
		1,793		458		Total before tax		738		162		(95)		36		Total before tax
		(484)		(124)		Income tax expense		(199)		(44)		26		(10)		Income tax expense
		1,309		334		Net of tax		539		118		(69)		26		Net of tax

Total reclassifications	Total reclassifications	$	1,433	$	198		Total reclassifications	$	940	$	(162)	$	(120)	$	(33)

(Dollars in thousands) Unrealized gains (losses) on available for-sale securities Defined benefit pension plan items Investment Hedge Total
Balance at December 31, 2019 $ 2,942 $ (4,295) $ 32 $ (1,321)
     Other comprehensive income (loss) before reclassification 1,032 (516) — 516
     Amounts reclassified from AOCI (201) 77 (1,309) (1,433)
Net current period OCI 831 (439) (1,309) (917)
Balance at March 31, 2020 $ 3,773 $ (4,734) $ (1,277) $ (2,238)
Balance at December 31, 2018 (3,384) (3,422) — (6,806)
     Other comprehensive income (loss) before reclassification 1,357 (242) — 1,115
     Amounts reclassified from AOCI 86 50 (334) (198)
Net current period OCI 1,443 (192) (334) 917
Balance at March 31, 2019 $ (1,941) $ (3,614) $ (334) $ (5,889)


(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment Hedge		Total
Balance at December 31, 2019	$	2,942	$	(4,295)	$	32	$	(1,321)
Other comprehensive income (loss) before reclassification	2,329		(1,320)		0		1,009
Amounts reclassified from AOCI	(631)		230		(539)		(940)
Net current period OCI	1,698		(1,090)		(539)		69
Balance at September 30, 2020	$	4,640	$	(5,385)	$	(507)	$	(1,252)

Balance at June 30, 2020	$	3,771	$	(5,388)	$	(576)	$	(2,193)
Other comprehensive income (loss) before reclassification	895		(74)		0		821
Amounts reclassified from AOCI	(26)		77		69		120
Net current period OCI	869		3		69		941
Balance at September 30, 2020	$	4,640	$	(5,385)	$	(507)	$	(1,252)

Balance at December 31, 2018	(3,384)		(3,422)		0		(6,806)
Other comprehensive income (loss) before reclassification	5,776		(1,274)		0		4,502
Amounts reclassified from AOCI	131		149		(118)		162
Net current period OCI	5,907		(1,125)		(118)		4,664


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)		0		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)

Note 1415 – Revenue Recognition

The Company records revenue from contracts with customers in accordance with ~~Accounting Standards Update (“ASU”)~~ASU 2014-09, Revenue from Contracts with Customers ~~(Topic 606)~~ ("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.

Interchange and Debit Card ~~and Interchange Income~~Transaction Fees

~~Debit~~Interchange and debit card ~~and interchange income is~~transaction fees are 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.

Compliance Consulting Income

~~Consulting~~Compliance consulting income is comprised of consulting revenue generated by ~~Chartwell.~~Chartwell and Paladin. Chartwell provides integrated regulatory compliance, state licensing, financial crimes prevention, and enterprise risk management services that include consulting, outsourcing, testing, and training solutions. Paladin provides an extensive and customizable suite of fraud prevention services for merchants, credit agencies, Fintech companies, and other vendors to help clients and partners defend against threats. Chartwell ~~accounts~~and Paladin account 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~~The services promised are then evaluated in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. ~~Chartwell's~~Both Chartwell and Paladin's services included in its contracts are distinct from one another. ~~Chartwell determines the~~The transaction price for each contract is determined based upon the consideration ~~it expects~~expected to ~~receive~~be received for the distinct services being provided under the contract. ~~Chartwell recognizes revenue~~Revenue is recognized 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~~considered include 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.

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)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		(Dollars in thousands)	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Three Months Ended September 30, 2020		Three Months Ended September 30, 2019
Service charges on deposit accounts	Service charges on deposit accounts	$	450	$	315	Service charges on deposit accounts	$	1,206	$	985	$	470	$	337
Debit card and interchange income		100		141
Consulting income		1,009		—
Interchange and debit card transaction fees						Interchange and debit card transaction fees	510		472		168		150
Compliance consulting income						Compliance consulting income	3,035		25		1,084		25
Other	Other	261		113		Other	453		379		70		108
Noninterest income in scope of Topic 606	Noninterest income in scope of Topic 606	1,820		569		Noninterest income in scope of Topic 606	5,204		1,861		1,792		620
Noninterest income out of scope of Topic 606	Noninterest income out of scope of Topic 606	9,030		8,196		Noninterest income out of scope of Topic 606	70,557		47,987		17,606		14,076
Total noninterest income	Total noninterest income	$	10,850	$	8,765	Total noninterest income	$	75,761	$	49,848	$	19,398	$	14,696

Note 1516 – 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 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 earned and was reasonably assured to receive an estimated earn-out payment of $600 thousand related to the Asset Purchase Agreement with USI. 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 ~~March 31,~~September 30, 2020 or December 31, 2019.

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


	Nine Months Ended September 30,				Three Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
NONINTEREST INCOME
Other operating income	$	0	$	575	$	0	$	(25)
Total noninterest income	0		575		0		(25)

Income (loss) from discontinued operations, before income taxes	$	0	$	575	$	0	$	(25)
Income tax expense (benefit) - discontinued operations	0		148		0		(6)
Net income (loss) from discontinued operations	$	0	$	427	$	0	$	(19)

Note 1617 – ~~Subsequent Events~~Acquisitions and Divestitures

The Company evaluates subsequent events at the date of the 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 events and the estimated financial effects for those events and conditions. The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements other than those listed below.First State Bank Acquisition

OnAs previously disclosed, on April 3, 2020, the Bank entered into a Purchase and Assumption Agreement with the ~~Federal Deposit Insurance Corporation (“FDIC”),~~FDIC, as receiver for ~~The~~ First State, ~~Bank,~~ Barboursville, ~~W.Va.,~~WV, providing for the assumption by the Bank of certain liabilities and the purchase by the Bank of certain assets of First State. This was deemed to be a strategic opportunity to acquire deposits and certain assets of an institution that operated in counties contiguous to the Company's Southern WV market and further solidified the strategy for growth within core commercial markets. The Company has accounted for this acquisition under the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations, whereby the assets acquired and liabilities assumed were recorded by the Company at their estimated fair values as of their acquisition date. Fair value estimates were based on management's acceptance of a fair market valuation analysis performed by an independent third-party firm.

In first quarter 2020, the Bank submitted a bid to the FDIC which included a bid based upon acquiring loans at a discounted amount, and also assuming the deposits of First State ~~depositors automatically became depositors of~~with no deposit premium. The Bank was notified that it was the ~~Bank~~winning

bidder in the process, and ~~subject to~~ the ~~insurance limitations, deposits will continue to be insured~~net asset discount accepted by the FDIC ~~without interruption. In~~was $33.2 million. Immediately after the ~~Agreement,~~closing of this transaction, the ~~Bank agreed~~FDIC remitted these funds to ~~pay no deposit premium and to acquire~~ the ~~assets at a discount to book value~~Bank. As part of ~~approximately $28.2 million. The~~this transaction the Bank ~~also~~ acquired 3 branch locations in Barboursville, Teays Valley, and Huntington, ~~W.Va.~~WV. for aggregate consideration of approximately $1.5 million. ~~The Bank further acquired certain~~Also included was other real estate owned (“OREO”) ~~for 47.5%~~at 46.5% of the book value, ~~of such OREO. The~~along with deposits ~~assumed by the Bank had~~with an aggregate ~~book balance~~value of approximately $140.0 million, cash and investment securities of $37.0 million and loans with a book value of ~~$83.7~~$83.5 million. Net proceeds received from the FDIC for the transaction was $39.6 million.

Management made significant estimates and exercised significant judgement in accounting for the acquisition of First State. Management judgmentally assigned risk ratings to loans based on appraisals and estimated collateral values, expected cash flows, prepayment speeds, and estimated loss factors to measure fair values for the acquired loans. Premises and equipment was valued based on recent appraised values. Management used quoted or current market prices to determine the fair value of investment securities. These values are subject to change based on continued evaluations of appraisals and other loan-related assumptions.

The ~~Bank estimates a~~statement of net assets acquired and the resulting bargain purchase gain recorded is presented in the following tables. As explained in the notes that accompany the following table, the assets acquired and liabilities assumed were recorded at the acquisition date fair value.


(Dollars in thousands)	As recorded by The First State Bank		Fair Value Adjustments			As recorded by MVB
Assets
Cash and cash equivalents	$	26,053	$	0		$	26,053
Investment securities - available for sale at fair value	10,964		0			10,964
Loans	83,514		(22,861)		(a)	60,653
OREO	22,610		(10,520)		(b)	12,090
Premises and equipment, net	1,582		(12)		(c)	1,570
Accrued interest receivable and other assets	2,234		211		(d)	2,445
Total Assets	$	146,957	$	(33,182)		$	113,775

Liabilities
Deposits - transaction accounts	$	70,931	$	0		$	70,931
Deposits - certificates of deposit	$	69,029	$	2,560	(e)	$	71,589
Total deposits	$	139,960	$	2,560		$	142,520
FHLB and other borrowings	5,800		0			5,800
Accrued interest payable and other liabilities	411		0			411
Total Liabilities	$	146,171	$	2,560		$	148,731

Net identifiable assets acquired over/(under) liabilities assumed	$	786	$	(35,742)		$	(34,956)

(a) Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired loan portfolio and excludes the allowance for loan losses recorded by First State.

(b) Adjustment reflects the fair value of OREO acquired.

(c) Adjustment reflects the fair value adjustments based on the Company's evaluation of the acquired premises and equipment.

(d) Adjustment reflects the recording of the core deposit intangible on the acquired deposit accounts and the fair value adjustment to other assets.

(e) Adjustment arises since the interest rates paid on interest-bearing deposits where higher than rates available in the market on similar deposits as of the acquisition date.

The following table summarizes the assets acquired and liabilities assumed in the First State acquisition as of the acquisition date, and the pre-tax bargain purchase gain of ~~approximately $6.0~~$4.7 million ~~related~~recognized on the transaction.


(Dollars in thousands)
Assets acquired at fair value:
Cash and cash equivalents	$	26,053
Investment securities - available for sale at fair value	10,964
Loans	60,653
OREO	12,090
Premises and equipment, net	1,570
Accrued interest receivable and other assets	2,445
Total fair value of assets acquired	$	113,775

Liabilities assumed at fair value:
Deposits	$	142,520
FHLB and other borrowings	5,800
Accrued interest payable and other liabilities	411
Total fair value of liabilities acquired	$	148,731

Net assets assumed at fair value			$	(34,956)
Transaction cash consideration received from the FDIC			39,627
Bargain purchase gain, before tax			$	4,671

Acquired Loans

The following table outlines the contractually required payments receivable, cash flows the Company expects to ~~this transaction but is still in~~receive, non-accretable credit adjustments, and the ~~process of finalizing the mark to market analysis of the portfolio. The applicable disclosures~~accretable yield for ~~this business combination have not been made as the fair value estimates and purchase price allocation are not yet complete~~all First State loans as of the acquisition date:


(Dollars in thousands)	Contractually Required Payments Receivable		Non-Accretable Credit Adjustments		Cash Flows Expected to be Collected		Accretable FMV Adjustments		Carrying Value of Loans Receivable
Purchased credit impaired loans	$	86,823	$	24,842	$	61,981	$	11,746	$	50,235
Purchased performing loans	12,818		2,561		10,257		1,817		8,440
Other purchased loans	1,978		0		1,978		0		1,978
Total	$	101,620	$	27,403	$	74,217	$	13,563	$	60,653

At the acquisition of First State, the Company recorded all loans acquired at the estimated fair value on the purchase date with no carryover of the related allowance for loan losses. On the acquisition date, the Company segmented the loan portfolio into six loan pools: performing commercial, performing commercial real estate, performing consumer and residential real estate, classified commercial, classified commercial real estate, and classified consumer and residential real estate. Of the 934 loans acquired, 663 were determined to be of deteriorated credit and will be accounted for under ASC 310-30 and considered PCI loans. The 271 remaining loans acquired will be accounted for under ASC 310-20 and considered purchased performing loans. Other purchased loans include premium finance loans, credit cards, and overdrawn escrow accounts.

The Company had an independent third party determine the net discounted value of cash flows on approximately 718 performing loans totaling $39.5 million. The valuation took into consideration the loans' underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposures, and remaining balances. These performing loans were segmented into pools based on loan and payment type and in some cases, risk grade.

The Company established a credit risk-related non-accretable difference of $24.8 million relating to these acquired, credit-impaired loans, reflected in the recorded net fair value. We further estimated the timing and amount of expected cash flows in excess of the estimated fair value and established an accretable discount adjustment of $11.7 million at acquisition relating to these impaired loans.

The following table discloses the impact of the FDIC-assisted acquisition of First State since the acquisition date through

September 30, 2020. This table also presents certain pro forma information (net interest income and noninterest income and net income) as of the First State acquisition had occurred on January 1, 2019. The pro forma financial ~~statement issuance.~~information is not necessarily indicative of the results of operations had the acquisitions been effective as of these dates.

Deal-related costs from the First State acquisition of $1.2 million have been excluded from the three- and nine-month periods of 2020 pro forma information presented below and included in the three and nine-month periods of 2019 pro forma information below. The actual results and pro forma information were as follows:


	Nine Months Ended September 30,				Three Months Ended September 30,
(Dollars in thousands)	Revenue		Net Income		Revenue		Net Income
2020:
Actual First State results included in Consolidated Statements of Income since acquisition date	$	7,215	$	2,634	$	5,270	$	(319)
Supplemental consolidation pro forma as if First State had been acquired January 1, 2019	$	134,877	$	22,872	$	38,025	$	6,491

2019:
Supplemental consolidation pro forma as if First State had been acquired January 1, 2019	$	119,679	$	25,285	$	37,076	$	4,236

Paladin, LLC Acquisition

On April 17, 2020, Paladin Fraud, LLC, ~~(“PF”),~~ a ~~newly formed~~newly-formed West Virginia limited liability company and ~~wholly owned~~wholly-owned subsidiary of MVB Bank, entered into an Asset Purchase Agreement ~~with~~by and among Paladin Fraud, Paladin, LLC, ~~(“Paladin”),~~a Washington limited liability company, James Houlihan, and Jamon ~~Whitehead (collectively "Paladin Group").~~Whitehead. Pursuant to the Purchase Agreement, PFPaladin Fraud 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.

Divestiture of Four Eastern Panhandle, WV Branches

On April 24, 2020, the Company completed the previously announced sale of certain assets and liabilities of 4 branch locations to ~~Summit.~~Summit Financial Group, Inc. 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~~recognized a gain of ~~approximately $10.0~~$9.6 million related to this ~~transaction.~~transaction and was recorded in noninterest income for the nine months ended September 30, 2020. The associated assets and liabilities were included in C. Assets and deposits of branches held for sale were $0 as of September 30, 2020. The completion of this sale resulted in the Company exiting the Eastern Panhandle, WV market.

MVB Mortgage Combination with Intercoastal Mortgage Company

On July 1, 2020, the Company announced the completion of MVB Mortgage’s combination with Intercoastal Mortgage Company, to become one of the largest independently-owned residential mortgage lending operations in the Mid-Atlantic region: ICM. Per the terms of the agreement, MVB Mortgage contributed substantially all of its assets and in exchange received common units representing 47% of the common interest of ICMC, as well as $7.5 million in preferred units. The Company has recognized its ownership as an equity method investment, initially recorded at fair value. The Company recognized a gain on this transaction of $3.3 million, as reported in noninterest income.

Acquisition of Grand Software

On August 7, 2020, MVB Technology, LLC, a newly formed West Virginia limited liability company and wholly owned subsidiary of the Bank, entered into an Asset Purchase Agreement with Invest Forward, Inc., a Delaware corporation doing business as Grand. Pursuant to the Purchase Agreement, MVB Technology acquired the assets of Grand. The purchase price of the transaction consisted of cash totaling $1.0 million, plus the conversion of MVB’s note with Invest Forward. As of September 30, 2020, the assets acquired were recorded in premises and equipment with a balance of $1.3 million.

For further discussion on deal-related costs, see "Noninterest Expense" section of Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Quarterly Report on Form 10-Q.

3953

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 ~~March 31,~~September 30, 2020 and December 31, 2019 and the results of our operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 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~~the Form ~~10-K for the year ended December 31, 2019.~~10-K.

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,~~“project,” “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~~client 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 Reserve, and the 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 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;

4055

•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 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, 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.

4156

Summary of Results of Operations


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

Earnings and Per Share Data:	Earnings and Per Share Data:							Earnings and Per Share Data:

Net income from continuing operations								Net income from continuing operations	$	25,573		$	22,469		$	6,491		$	4,346
Net income (loss) from discontinued operations								Net income (loss) from discontinued operations	—			427			—			(19)
Net income	Net income	$	1,048		$	3,192		Net income	25,573			22,896			6,491			4,327
Net income available to common shareholders	Net income available to common shareholders	$	934		$	3,071		Net income available to common shareholders	25,228			22,532			6,375			4,206

Earnings per share from continuing operations - basic								Earnings per share from continuing operations - basic	2.11			1.89			0.53			0.36
Earnings per share from discontinued operations - basic								Earnings per share from discontinued operations - basic	—			0.04			—			—
Earnings per share - basic	Earnings per share - basic	$	0.08		$	0.26		Earnings per share - basic	2.11			1.93			0.53			0.36

Earnings per share from continuing operations - diluted								Earnings per share from continuing operations - diluted	2.07			1.84			0.53			0.35
Earnings per share from discontinued operations - diluted								Earnings per share from discontinued operations - diluted	—			0.04			—			—
Earnings per share - diluted	Earnings per share - diluted	$	0.08		$	0.26		Earnings per share - diluted	2.07			1.88			0.53			0.35
Cash dividends paid per common share	Cash dividends paid per common share	$	0.09		$	0.035		Cash dividends paid per common share	0.27			0.125			0.09			0.05
Book value per common share	Book value per common share	$	17.08		$	14.90		Book value per common share	19.07			16.84			19.07			16.84
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	11,942,767			11,607,543			Weighted average shares outstanding - basic	11,948,857			11,661,581			11,948,989			11,731,774
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	12,298,092			13,177,281			Weighted average shares outstanding - diluted	12,185,137			11,957,385			12,116,418			12,098,335

Performance Ratios:	Performance Ratios:							Performance Ratios:

Return on average assets - continuing operations 1								Return on average assets - continuing operations 1	1.63		%	1.64		%	1.21		%	0.92		%
Return on average assets - discontinued operations 1								Return on average assets - discontinued operations 1	—		%	0.03		%	—		%	—		%
Return on average assets¹	Return on average assets¹	0.22		%	0.73		%	Return on average assets 1	1.63		%	1.67		%	1.21		%	0.92		%

Return on average equity - continuing operations 1								Return on average equity - continuing operations 1	15.37		%	15.69		%	11.25		%	8.54		%
Return on average equity - discontinued operations 1								Return on average equity - discontinued operations 1	—		%	0.30		%	—		%	(0.04)		%
Return on average equity ¹	Return on average equity ¹	1.95		%	7.18		%	Return on average equity 1	15.37		%	15.99		%	11.25		%	8.50		%
Net interest margin ²		3.60		%	3.45		%
Efficiency ratio ³		91.25		%	81.14		%
Overhead ratio ^{1 4}		5.06		%	4.19		%
Net interest margin 2 3								Net interest margin 2 3	3.60		%	3.51		%	3.35		%	3.48		%
Efficiency ratio 4								Efficiency ratio 4	60.33		%	66.63		%	51.58		%	78.64		%
Overhead ratio 1 5								Overhead ratio 1 5	4.85		%	4.55		%	3.40		%	4.96		%

Asset Quality Data and Ratios:	Asset Quality Data and Ratios:							Asset Quality Data and Ratios:
Charge-offs	Charge-offs	$	1,756		$	—		Charge-offs	$	1,890		$	676		$	111		$	—
Recoveries	Recoveries	$	4		$	3		Recoveries	$	17		$	54		$	5		$	49
Net loan charge-offs to total loans^{1 5}		0.50		%	—		%
Net loan charge-offs to total loans 1 6								Net loan charge-offs to total loans 1 6	0.17		%	0.06		%	0.03		%	(0.01)		%
Allowance for loan losses	Allowance for loan losses	$	11,161		$	11,242		Allowance for loan losses	$	25,913		$	11,874		$	25,913		$	11,874
Allowance for loan losses to total loans ⁶		0.80		%	0.84		%
Allowance for loan losses to total loans 7								Allowance for loan losses to total loans 7	1.81		%	0.86		%	1.81		%	0.86		%
Nonperforming loans	Nonperforming loans	$	5,909		$	7,075		Nonperforming loans	$	14,893		$	5,627		$	14,893		$	5,627
Nonperforming loans to total loans	Nonperforming loans to total loans	0.42		%	0.53		%	Nonperforming loans to total loans	1.04		%	0.41		%	1.04		%	0.41		%

Capital Ratios:	Capital Ratios:							Capital Ratios:
Equity to assets	Equity to assets	10.06		%	10.11		%	Equity to assets	10.57		%	10.51		%	10.57		%	10.51		%
Bank Leverage ratio	Bank Leverage ratio	9.83		%	10.33		%	Bank Leverage ratio	10.64		%	9.88		%	10.64		%	9.88		%
Bank Common equity Tier 1 capital ratio	Bank Common equity Tier 1 capital ratio	11.34		%	12.55		%	Bank Common equity Tier 1 capital ratio	14.63		%	11.83		%	14.63		%	11.83		%
Bank Tier 1 risk-based capital ratio	Bank Tier 1 risk-based capital ratio	11.34		%	12.55		%	Bank Tier 1 risk-based capital ratio	14.63		%	11.83		%	14.63		%	11.83		%
Bank Total risk-based capital ratio	Bank Total risk-based capital ratio	12.04		%	13.37		%	Bank Total risk-based capital ratio	15.89		%	12.62		%	15.89		%	12.62		%

¹ Annualized for the quarterly periods presented

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

³ Presented on a fully tax-equivalent basis

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

⁴5 Noninterest expense as a percentage of average assets

⁵6 Charge-offs less recoveries

⁶7 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 ~~subsidiary,~~subsidiaries, MVB Bank, Inc. MVB Bank’s operating subsidiaries include MVB Mortgage, MVB Insurance, MVB CDC, Chartwell, Paladin, and ~~Chartwell.~~MVB Technology.

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 further in Note ~~16, “Subsequent Events”~~17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Pursuant to the terms of the Agreement, on the closing date, Intercoastal ~~will convert~~converted into a Virginia limited liability company and PMG ~~will contribute~~contributed 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 iswas 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~~The Company recognizes its ownership as aan equity method investment, initially recorded at fair ~~value equity investment~~value. This transaction was closed on July 1, 2020, as discussed further in Note 17, “Acquisitions and ~~will no longer consolidate MVB Mortgage’s financial results.~~Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

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. This transaction is discussed further in Note 17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

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. This transaction is discussed further in Note 17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

On August 7, 2020, MVB Technology, LLC, ~~effective~~a newly formed West Virginia limited liability company and wholly owned subsidiary of the Bank, entered into an Asset Purchase Agreement with Invest Forward, Inc., a Delaware corporation doing business as Grand. Pursuant to the Purchase Agreement, MVB Technology acquired the assets of ~~April~~Grand. The purchase price of the transaction consisted of cash totaling $1.0 million, plus the conversion of MVB’s note with Invest Forward. This transaction is discussed further in Note 17, ~~2020.~~“Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Business Overview

The Company’s primary business activities, through its subsidiaries, are primarily community banking and mortgage banking. The Bank offers its ~~customers~~clients 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 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~~client 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~~client support in Marion and Harrison counties in West Virginia, expansion into ~~Jefferson, Berkeley,~~ Monongalia, Kanawha, Putnam, and ~~Kanawha~~Cabell 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. Mortgage banking will continue to be a focus after the recent transaction, but the activity will be captured through the Company's equity method investment in Intercoastal.

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 2019 filing on Form 10-K and the unaudited financial statements, ratios, statistics, and discussions contained elsewhere in this Form 10-Q.

At ~~March 31,~~September 30, 2020, the Company had ~~459~~338 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 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 and accounting for business combinations to be the accounting ~~area~~areas that ~~requires~~require 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 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.

Accounting for business combinations involves the allocation of the fair value of the purchase consideration of acquisitions to the tangible assets, liabilities, and intangible assets acquired based on their estimated fair values. Purchase price allocations for business acquisitions require significant judgments, particularly with regards to the determination of value of identifiable assets, liabilities, and goodwill. Often, third-party consultants are used to assist in valuations requiring complex estimation. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. The fair value of a loan portfolio acquired in a business combination requires greater levels of management estimates and judgment than the remainder of assets acquired or liabilities assumed. On the date of acquisition, when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments, the loans are accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. The Company must estimate expected cash flows at each reporting date. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges and adjusted accretable yield which will have a positive impact on interest income. Loans that do not have evidence of credit deterioration at acquisition are accounted for under ASC 310-20, Nonrefundable Fees and Other Costs. For more information on the Company's business combinations, please see Note 17, “Acquisitions and Divestitures” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q. For more information on the Company's loan

portfolio, please see Note 4, “Loans and Allowance for Loan Losses” of the Notes to the Consolidated Financial Statements, included in Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Results of Operations

Overview of the Statements of Income

For the three months ended ~~March 31,~~September 30, 2020, the Company earned ~~$1.0~~$6.5 million compared to ~~$3.2~~$4.3 million in the ~~first~~third quarter of ~~2019.~~2019, excluding discontinued operations. Net interest income increased by ~~$2.2~~$1.0 million, provision for loan losses increased by $8.0 million, noninterest income increased by ~~$2.1~~$4.7 million, and noninterest expenses ~~increased~~decreased by ~~$6.2~~$5.1 million.

The increase in net interest income was driven by ~~an increase~~a decrease of ~~$1.1~~$3.4 million in interest ~~income and~~expense outpacing a decrease of ~~$1.1~~$2.4 million in interest expense. The increase in interest income was due to average loan growth of $150.8 million with the yield on loans and loans held for sale decreasing by 23 basis points, primarily due to a decrease in commercial loan yield of 26 basis points and a decrease in real estate loan yield of 25 basis points. income.

The decrease in interest expense of ~~$1.1~~$3.4 million was due to the cost of interest-bearing liabilities decreasing by 3695 basis points, primarily due to a decrease in cost of funds on money market checking of 134 basis points and a decrease in cost of funds on certificates of deposits of 25105 basis points, which was ~~offset~~driven by ~~growth~~a decrease in average interest-bearing liabilities of ~~$9.2~~$65.3 million. The decrease in interest expense was mainly driven by a ~~$688 thousand~~$1.1 million decrease in interest expense on certificates of deposit, through ~~short-term brokered certificates of deposit, and~~ a decrease in the rates ofon certificates of deposits, and a ~~$656 thousand~~$1.0 million 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 balances~~a decrease in ~~money market checking.~~rates. Certificates of deposit decreased by ~~$93.8~~$31.9 million while the cost of funds on certificates of deposit decreased by 25105 basis points compared to the three months ended ~~March 31, 2019. FHLB and other borrowings decreased by $59.3 million while the cost of funds on borrowings decreased by 86 basis points compared to the three months ended March 31,~~September 30, 2019. Money market checking increased by ~~$134.6~~$145.6 million while the cost of funds on money market checking decreased by 7134 basis points compared to the ~~first quarter~~three months ended September 30, 2019.

The decrease in interest income was due to the tax-equivalent yield on loans and loans held for sale decreasing by 66 basis points, primarily due to a decrease in real estate loan yield of ~~2019.~~134 basis points and a decrease in commercial loan yield of 56 basis points, offset by average loan growth of $13.4 million .

The increase in noninterest income was primarily the result of an increase in ~~mortgage fee~~equity method investment income of ~~$4.5~~$13.6 million, ~~due to increased~~a gain on mortgage ~~productivity,~~combination transaction of $3.3 million, and an increase in compliance consulting income of ~~$1.0 million, driven by the addition of Chartwell.~~$1.1 million. This increase was offset by a decrease in mortgage fee income of $4.2 million and a decrease in the gain on derivatives of ~~$4.0~~$8.6 million. The ~~increase~~changes in the equity method investment income, gain on mortgage combination transaction, mortgage fee income, and gain on derivatives were all largely driven by the MVB Mortgage transaction.

The decrease in noninterest expense was mainly driven by the ~~increases~~decrease in salaries and benefits of ~~$4.4~~$4.9 million and the decrease in mortgage processing of $725 thousand, largely driven by ~~an increase~~the MVB Mortgage transaction. The decrease in ~~mortgage production, as well as~~noninterest expense was also the ~~build-out~~result of ~~the fintech operations team. Travel,~~a decrease in travel, entertainment, dues and subscriptions ~~expense increased by $528 thousand. This increase was~~of $501 thousand, which is 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~~decreased travel during 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~~provision of ~~$1.1~~$8.6 million and ~~$300~~$657 thousand were made for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively. The ~~significant~~drastic increase in loan loss provision is mainly the result of changes to the ~~net impact of~~qualitative adjustment factor framework within the allowance methodology, in addition to adjustments to the risk grading of significant loans within the portfolio, ~~segmentation and~~changes in the outstanding balances of the loan portfolios, changes in the level of recognized ~~charge offs,~~charge-offs, and the resulting changes in the historical loss ~~rates, and qualitative adjustment factors.~~rates.

~~Most notably, charge offs~~Management has continued to evaluate the qualitative factor framework within the allowance for loan loss methodology in order to assess how well the framework can appropriately respond to the unprecedented risk presented by the COVID-19 pandemic. As a result, the framework was significantly enhanced to consider a much greater degree of risk than when the framework was originally designed. The framework has consistently generated an adequate allowance for loan loss within a generally stable economic environment, but the onset of the pandemic made it apparent that the framework required modifications to consider this greater degree of risk. These enhancements resulted in the ~~first~~need for $6.6 million in additional loan loss provision in the third quarter of 2020. While the ultimate timing and severity of impacts to the economic and business conditions in which we operate are not yet fully known, it is clear that the impacts will continue to be significant and it is likely that the impacts will evolve over time as businesses and individuals learn to adapt to a new way of operating and living. The breadth of the world-wide pandemic and the fact that it impacts virtually every industry has inherently created additional risk within the loan portfolios, despite there being no change to the nature of those portfolios. Furthermore, as a result of the ongoing analysis of the loan portfolios, it has become apparent that a significant number of borrowers are experiencing a strain on their operations, and as a result present an

increase in the volume and severity of problem loans. Additionally, it is evident that consumer sentiment has been impacted, although not as significantly as during the Great Recession. Other significant factors include the increasingly volatile social atmosphere, the evolving political climate as the election approaches, and the possibility and timing of a vaccine. 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 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. As a result, quantifiable evidence of the impacts to our loan portfolios have not yet fully revealed themselves in terms of delinquent loans or deterioration in collateral values. Meanwhile, as of quarter-end, management had not made any significant changes to lending strategies that would impact the concentrations of credit risk within those portfolios.

Meanwhile, total loan balances decreased $66.4 million in the third quarter of 2020 versus an increase of $55.9 million in the third quarter of 2019. The commercial loan portfolio decreased by $9.0 million for the third quarter of 2020, in comparison to an increase of $39.0 million in the third quarter of 2019, while the residential mortgage loan portfolio decreased by $55.4 million in the third quarter of 2020, while increasing by $17.2 million in the third quarter of 2019. Included in the commercial and total loan volume increases are PPP loans totaling $87.9 million as of September 30, 2020. In addition, net charge-offs in the third quarter of 2020 totaled ~~$1.8 million, while there were no charge offs~~$106 thousand, in comparison to net recoveries of $49 thousand in the ~~first~~third quarter of 2019. InAdditionally, provision was impacted by a $437 thousand increase in the specific loan loss allocations in the third quarter of 2020, ~~there~~relative to a $981 thousand increase in the third quarter of 2019. Lastly, the risk grade adjustment of significant loans within the portfolio resulted in the need for roughly $1.4 million in additional loan loss provision.

For the nine months ended September 30, 2020, the Company earned $25.6 million compared to $22.5 million for the nine months ended September 30, 2019, excluding discontinued operations. Net interest income increased by $7.1 million, provision for loan losses increased by $14.8 million, noninterest income increased by $25.9 million, and noninterest expenses increased by $14.0 million.

The increase in net interest income was driven by a ~~charge-off~~decrease of $7.1 million in interest expense outpacing interest income that remained flat. The decrease of $7.1 million in interest expense was due to a ~~$1.8~~85 basis point decrease in the cost of funds on money market checking, a 76 basis point decrease in the rates on certificates of deposits, and a 6 basis point decrease in the cost of funds on FHLB and other borrowings, offset by a $11.8 million ~~government lease financing loan stemming from~~increase in average interest-bearing liabilities. The decrease in interest expense was driven by a $1.3 million decrease in interest expense on money market checking, a $2.5 million decrease in interest expense on certificates of deposit, and a $2.2 million decrease in interest expense on FHLB and other borrowings. Average money market checking increased by $127.3 million, while the ~~non-renewal~~cost of funds on money market checking decreased by 85 basis points compared to the nine months ended September 30, 2019. Average certificates of deposit decreased by $15.1 million, while the cost of funds on certificates of deposit decreased by 76 basis points compared to the nine months ended September 30, 2019. Average FHLB and other borrowings decreased by $105.1 million, while the cost of funds on FHLB and other borrowings decreased by 6 basis points compared to the nine months ended September 30, 2019.

Interest income remained flat as a result of the ~~underlying government contract unrelated~~tax-equivalent yield on loans and loans held for sale decreasing by 46 basis points, primarily due to a decrease in real estate loan yield of 63 basis points and a decrease in commercial loan yield of 44 basis points, offset by average loan growth of $146.9 million.

The increase in noninterest income was primarily the result of an increase in equity method investment income of $13.6 million, a gain on sale of banking centers of $9.6 million, an increase in mortgage fee income of $5.4 million, a bargain purchase gain of $4.7 million, a gain on mortgage combination transaction income of $3.3 million, an increase in compliance consulting income of $3.0 million, and an increase in gain on sale of securities of $1.0 million. This increase was offset by a decrease in holding gain on equity securities of $13.7 million

The increase in noninterest expense was mainly due to an increase in salaries and benefits of $8.9 million, largely driven by an increase in mortgage production, as well as the build-out of the Fintech operations team. Professional fees expense increased by $2.9 million and data processing and communications increased by $1.2 million. Of the increases in professional fees and data processing and communications expense, $1.3 million and $780 thousand, respectively, were deal and conversion costs related to the First State acquisition, the Paladin, LLC acquisition, the sale of the Eastern Panhandle banking centers, and the MVB Mortgage transaction.

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 provision of $16.4 million and $1.6 million were made for the nine months ended September 30, 2020 and 2019, respectively. The drastic increase in loan loss provision is mainly the result of changes to the

qualitative adjustments factor framework within the allowance methodology, in addition to adjustments to the risk grading of significant loans within the portfolio, changes in the outstanding balances of the loan portfolios, changes in the level of recognized charge-offs, and the resulting changes in the historical loss rates.

The increase in loan loss provision is most attributable to the severe impact of the COVID-19 ~~pandemic.~~pandemic on the qualitative adjustment factors, as described in more detail above. The historical loss rates were also uniquely impacted induring the ~~first quarter of~~nine months ended September 30, 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~~a $1.8 million charge off ~~noted previously,~~of a government lease financing loan stemming from the non-renewal of the underlying government contract unrelated to the COVID-19 pandemic, which was ~~a single loan to a borrower within~~reflected in 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 ourMeanwhile, total 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~~balances decreased $16.8 million in the ~~first quarter of~~nine months ended September 30, 2020 versus ~~a $36.9~~an increase of $77.7 million ~~increase~~ in the ~~first quarter of~~nine months ended September 30, 2019. ~~The~~More specifically, the commercial loan portfolio increased by ~~$30.7~~$26.9 million ~~for the first quarter of~~in 2020, in comparison to ~~$21.0~~$84.0 million in ~~the first quarter of~~ 2019, while the residential mortgage loan portfolio decreased by ~~$10.1~~$37.5 million in ~~the first quarter of~~ 2020, while ~~increasing~~decreasing by ~~$15.8~~$2.6 million in 2019. Included in the ~~first quarter~~commercial and total loan volume increases are PPP loans totaling $87.9 million as of ~~2019.~~September 30, 2020. In addition, ~~provision was impacted by a $42 thousand increase in the~~ specific loan loss allocations increased by $1.4 million in the ~~first quarter of~~nine months ended September 30, 2020, ~~relative~~in comparison to ~~a $80~~$472 thousand ~~increase~~ in the ~~first quarter of~~nine months ended September 30, 2019. Lastly, charge-offs totaled $1.9 million during the nine months ended September 30, 2020 versus $622 thousand for the same time period in 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~~Fed Funds rate

~~Table of Contents~~

during the period. To begin 2020, the ~~period, the fed funds~~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~~Fed Funds rate down to ~~0.00-0.25.~~0.00-0.25 and remains at this rate as of September 30, 2020. Given all of these changes to the market rates, the Company has experienced increased pressure on net interest income.

For the three months ended ~~March 31,~~September 30, 2020 versus 2019, the Company was able to grow average loans and loans held for sale balances, including the related basis reduction from the acquired First State loans, by ~~$150.8~~$13.4 million to ~~$1.5~~$1.50 billion. Average investment securities increased ~~$5.4~~$13.8 million to ~~$237.5~~$245.8 million. Average interest-bearing liabilities ~~increased~~decreased by ~~$9.2~~$65.3 million, primarily the result of a ~~$134.6 million increase in average money market checking and a $50.5 million increase in average NOW, offset by a $93.8 million decrease in average certificates of deposit balances, a $59.3~~$178.0 million decrease in average FHLB and other borrowings, a $31.9 million decrease in average certificates of deposit, and a ~~$13.4~~$5.4 million decrease in average subordinated ~~debt.~~debt, offset by a $145.6 million increase in average money market checking. An increase in the Company’s average non-interest balances of ~~$117.4~~$271.2 million helped to ~~grow~~maintain a ~~33-basis~~26-basis point favorable spread on the tax-equivalent net interest margin in ~~2020 compared to a 30-basis point spread in 2019.~~2020.

The tax-equivalent net interest margin for the three months ended ~~March 31,~~September 30, 2020 and 2019 was ~~3.60%~~3.35% and ~~3.45%~~3.48%, respectively. Excluding the impact from the FDIC-assisted acquisition of First State, the fully-tax equivalent net interest margin for the quarter ended September 30, 2020 would have decreased 21 basis points. For the quarter ended September 30, 2020, the excess liquidity from increased cash balances accounted for 26 basis points of the decrease, the PPP loans originated during the second quarter accounted for 15 basis points of the decrease, and a $500 thousand prepayment penalty for paying off long term borrowings accounted for 10 basis points of the decrease.

The ~~15-basis~~13-basis point ~~increase~~decrease in the tax-equivalent net interest margin for the three months ended ~~March 31,~~September 30, 2020 was mainly the result of the decrease in tax-equivalent yield on earnings assets of 97 basis points outpacing the decrease in the cost of interest-bearing liabilities ~~decreasing by 36~~of 95 basis points.

The ~~cost of interest-bearing liabilities decrease was mainly the result of an 86-basis~~97-basis point decrease in ~~FHLB and other borrowings and a 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 intax-equivalent yield on average earning assets for the three months ended ~~March 31,~~September 30, 2020 versus 2019 was primarily the result of a ~~23-basis~~66-basis point decrease in the tax-equivalent yield on loans and loans held for sale and a ~~39-basis~~25-basis point decrease in the tax-equivalent yield on investment securities. More specifically, the decrease in the tax-equivalent yield on loans and loans held for sale was driven by a decrease in the yield on commercial loans of 2656 basis points and a ~~25-basis~~134-basis point decrease in yield on real estate loans.

The cost of interest-bearing liabilities decrease was mainly the result of a 457-basis point decrease in subordinated debt, a 34-basis point decrease in repurchase agreements and federal funds sold, and a 95-basis point decrease in interest-bearing deposits. More specifically, the decrease in interest-bearing deposits was as follows: a 134-basis point decrease in money market checking, a 105-basis point decrease in certificates of deposit, a 51-basis point decrease in IRAs. In addition, a $500 thousand prepayment penalty was recorded as interest expense for paying off long term borrowings, of which $10.8 million was paid off during the three months ended September 30, 2020.

For the nine months ended September 30, 2020 versus 2019, the Company was able to grow average loans and ~~Bank management continuously monitor~~loans held for sale balances, including the ~~effects~~related basis reduction from the acquired First State loans, by $146.9 million to $1.58 billion. Average investment securities increased $1.8 million to $229.9 million. Average interest-bearing liabilities increased by $11.8 million, primarily the result of ~~net interest margin~~a $127.3 million increase in average money market checking and a $16.7 million increase in average NOW, offset by a $105.1 million decrease in average FHLB and other borrowing balances, a $15.1 million decrease in average certificates of deposit and a $10.7 million decrease in average subordinated debt. An increase in the Company’s average non-interest balances of $196.7 million helped to maintain a 29-basis point favorable spread on the ~~performance of the Bank and, thus, the Company. Growth and mix of the balance sheet will continue to impact~~tax-equivalent net interest margin in ~~future periods. During~~2020.

The tax-equivalent net interest margin for the nine months ended September 30, 2020 and 2019 was 3.60% and 3.51%, respectively. Excluding the impact from the FDIC-assisted acquisition of First State, the fully-tax equivalent net interest margin for the nine months ended September 30 would have decreased 11 basis points. For the nine months ended September 30, the excess liquidity from increased cash balances accounted for 10 basis points of the decrease, the PPP loans originated during the second quarter accounted for 17 basis points of the decrease, and a $500 thousand prepayment penalty for paying off long term borrowings accounted for 4 basis points of the decrease.

The nine-basis point increase in the tax-equivalent net interest margin for the nine months ended September 30, 2020 was mainly the result of the decrease in the cost of interest-bearing liabilities of 72 basis points outpacing the decrease in tax-equivalent yield on earning assets of 57 basis points.

The 72-basis point decrease in cost of interest-bearing liabilities for the nine months ended September 30, 2020 versus 2019 was mainly the result of a 405-basis point decrease in subordinated debt, a 6-basis point decrease in FHLB and other borrowings, and a 61-basis point decrease in interest-bearing deposits. More specifically, the decrease in interest-bearing deposits was as follows: a 85-basis point decrease in money market checking, a 76-basis point decrease in certificates of deposit, and a 27-basis point decrease in IRAs. In addition, a $500 thousand prepayment penalty was recorded as interest expense for paying off long term borrowings, of which $10.8 million was paid off during the three months ended September 30, 2020.

The 57-basis point decrease in the tax-equivalent yield on average earning assets for the nine months ended September 30, 2020 versus 2019 was primarily the result of a 46-basis point decrease in the tax-equivalent yield on loans and loans held for sale and a 25-basis point decrease in the tax-equivalent yield on investment securities. More specifically, the decrease in the tax-equivalent yield on loans and loans held for sale was driven by a decrease in real estate loan yield of 63 basis points and a decrease in commercial loan yield of 44 basis points.

Net Interest Income and Net Interest Margin (Average Balance Schedules)

The following tables present, for the periods indicated, information about (1) average balances, the total dollar amount of ~~decreasing rates, yields will continue to decline.~~interest income from interest earning assets and the resultant average yields; (2) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (3) the interest rate spread; (4) net interest income and margin; and (5) net interest income and margin (on a tax-equivalent basis). The ~~Company has some protection~~average balances presented are derived 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.daily average balances.

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~~Table of Contents~~

~~MVB Financial Corp. and Subsidiaries~~


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets
Interest-bearing deposits in banks	$	174,203	$	45	0.10	%	$	9,562	$	61	2.53	%
CDs with other banks	12,641		61		1.91		14,143		71		1.99
Investment securities:
Taxable	103,497		411		1.58		122,648		689		2.23
Tax-exempt 2	142,301		1,344		3.75		109,324		1,113		4.04
Loans and loans held for sale: 1
Commercial	1,160,214		14,108		4.82		1,002,595		13,599		5.38
Tax exempt 2	7,752		91		4.66		11,229		127		4.47
Real estate	325,992		2,749		3.35		464,769		5,490		4.69
Consumer	6,613		119		7.14		8,612		149		6.86
Total loans	1,500,571		17,067		4.51		1,487,205		19,365		5.17
Total earning assets	1,933,213		18,928		3.88		1,742,882		21,298		4.85
Less: Allowance for loan losses	(18,906)						(11,232)
Cash and due from banks	28,299						18,366
Other assets	205,038						134,871
Total assets	$	2,147,644					$	1,884,887

Liabilities
Deposits:
NOW	$	381,375	$	496	0.52	%	$	384,977	$	942	0.97	%
Money market checking	479,418		380		0.31		333,849		1,391		1.65
Savings	49,698		7		0.06		37,335		1		0.01
IRAs	12,389		44		1.41		17,342		84		1.92
CDs	334,828		967		1.15		366,749		2,035		2.20
Repurchase agreements and federal funds sold	10,145		4		0.16		9,493		12		0.50
FHLB and other borrowings	34,138		699		8.12		212,102		1,383		2.59
Subordinated debt	4,124		20		1.92		9,535		156		6.49
Total interest-bearing liabilities	1,306,115		2,617		0.79		1,371,382		6,004		1.74
Noninterest bearing demand deposits	542,467						271,294
Other liabilities	68,223						38,618
Total liabilities	1,916,805						1,681,294

Stockholders’ equity
Preferred stock	7,334						7,644
Common stock	12,066						11,773
Paid-in capital	124,003						119,166
Treasury stock	(2,022)						(1,084)
Retained earnings	90,113						67,312
Accumulated other comprehensive (loss)	(655)						(1,218)
Total stockholders’ equity	230,839						203,593
Total liabilities and stockholders’ equity	$	2,147,644					$	1,884,887

Net interest spread (tax-equivalent)					3.09	%					3.11	%
Net interest income and margin (tax-equivalent) 2			$	16,311	3.35	%			$	15,294	3.48	%
Less: Tax-equivalent adjustments			$	(301)					$	(260)
Net interest spread					3.03	%					3.05	%
Net interest income and margin			$	16,010	3.29	%			$	15,034	3.42	%

~~Average Balances and Interest Rates~~

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

Three Months Ended March 31, 2020 Three Months Ended March 31, 2019
(Dollars in thousands) Average Balance Interest Income/Expense Yield/Cost Average Balance Interest Income/Expense Yield/Cost
Assets
Interest-bearing deposits in banks $ 13,643 $ 49 1.44 % $ 7,546 $ 49 2.63 %
CDs with other banks 12,549 62 1.98 14,778 73 2.00
Investment securities:
     Taxable 127,327 666 2.10 139,692 879 2.55
     Tax-exempt 110,188 877 3.19 92,417 837 3.67
Loans and loans held for sale: ¹
     Commercial 1,089,212 13,863 5.11 951,836 12,594 5.37
     Tax exempt 11,760 106 3.62 14,251 123 3.50
     Real estate 429,720 4,953 4.62 411,639 4,941 4.87
     Consumer 7,473 123 6.60 9,654 127 5.34
Total loans 1,538,165 19,045 4.97 1,387,380 17,785 5.20
Total earning assets 1,801,872 20,699 4.61 1,641,813 19,623 4.85
Less: Allowance for loan losses (11,366) (11,071)
Cash and due from banks 20,766 16,088
Other assets 136,744 112,301
     Total assets $ 1,948,016 $ 1,759,131
Liabilities
Deposits:
     NOW $ 407,462 $ 798 0.79 % $ 357,005 $ 729 0.83 %
     Money market checking 432,175 1,451 1.35 297,607 1,044 1.42
     Savings 36,867 1 0.01 40,235 1 0.01
     IRAs 16,573 78 1.89 17,826 79 1.80
     CDs 334,810 1,582 1.90 428,610 2,270 2.15
Repurchase agreements and federal funds sold 9,520 10 0.42 14,206 14 0.40
FHLB and other borrowings 115,930 573 1.98 175,222 1,229 2.84
Subordinated debt 4,124 35 3.40 17,524 285 6.60
     Total interest-bearing liabilities 1,357,461 4,528 1.34 1,348,235 5,651 1.70
Noninterest bearing demand deposits 331,962 214,541
Other liabilities 43,463 18,450
     Total liabilities 1,732,886 1,581,226
Stockholders’ equity
Preferred stock 7,334 7,834
Common stock 11,997 11,659
Paid-in capital 122,663 116,925
Treasury stock (1,135) (1,084)
Retained earnings 74,401 49,161
Accumulated other comprehensive (loss) (130) (6,590)
     Total stockholders’ equity 215,130 177,905
     Total liabilities and stockholders’ equity $ 1,948,016 $ 1,759,131
Net interest spread 3.27 3.15
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.

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the three months ended September 30, 2020 and 2019, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.


	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets
Interest-bearing deposits in banks	$	77,667	$	110	0.19	%	$	8,904	$	163	2.45	%
CDs with other banks	12,667		187		1.97		14,498		216		1.99
Investment securities:
Taxable	104,450		1,554		1.98		127,631		2,336		2.45
Tax-exempt 2	125,493		3,703		3.93		100,530		3,304		4.39
Loans and loans held for sale: 1
Commercial	1,138,438		42,292		4.95		973,547		39,258		5.39
Tax exempt 2	9,457		329		4.64		12,831		427		4.45
Real estate	428,989		13,402		4.16		441,238		15,794		4.79
Consumer	6,805		370		7.24		9,217		417		6.05
Total loans	1,583,689		56,393		4.74		1,436,833		55,896		5.20
Total earning assets	1,903,966		61,947		4.33		1,688,396		61,914		4.90
Less: Allowance for loan losses	(14,857)						(11,174)
Cash and due from banks	27,781						16,820
Other assets	178,701						129,594
Total assets	$	2,095,591					$	1,823,636

Liabilities
Deposits:
NOW	$	385,413	$	2,070	0.72	%	$	368,709	$	2,510	0.91	%
Money market checking	447,219		2,397		0.71		319,919		3,721		1.56
Savings	43,606		16		0.05		39,066		3		0.01
IRAs	13,785		169		1.63		17,627		250		1.90
CDs	388,190		4,188		1.44		403,294		6,640		2.20
Repurchase agreements and federal funds sold	9,784		19		0.26		11,764		37		0.42
FHLB and other borrowings	75,451		1,524		2.69		180,552		3,707		2.75
Subordinated debt	4,124		78		2.52		14,821		728		6.57
Total interest-bearing liabilities	1,367,572		10,461		1.02		1,355,752		17,596		1.74
Noninterest bearing demand deposits	442,378						245,705
Other liabilities	63,853						31,305
Total liabilities	1,873,803						1,632,762

Stockholders’ equity
Preferred stock	7,334						7,770
Common stock	12,031						11,709
Paid-in capital	123,342						117,923
Treasury stock	(1,533)						(1,084)
Retained earnings	81,476						58,726
Accumulated other comprehensive (loss)	(862)						(4,170)
Total stockholders’ equity	221,788						190,874
Total liabilities and stockholders’ equity	$	2,095,591					$	1,823,636

Net interest spread (tax-equivalent)					3.31	%					3.16	%
Net interest income and margin (tax-equivalent) 2			$	51,486	3.60	%			$	44,318	3.51	%
Less: Tax-equivalent adjustments			$	(847)					$	(783)
Net interest spread					3.26	%					3.10	%
Net interest income and margin			$	50,639	3.54	%			$	43,535	3.45	%

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

2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the nine months ended September 30, 2020 and 2019, which is a non-U.S. GAAP financial measure. See the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure following this table.

4866

The following table reconciles, as of the dates set forth below, net interest margin on a fully tax-equivalent basis:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2020			2019			2020			2019
Net interest margin - U.S. GAAP basis
Net interest income	$	16,010		$	15,034		$	50,639		$	43,535
Average interest-earning assets	1,933,213			1,742,882			1,903,966			1,688,396
Net interest margin	3.29		%	3.42		%	3.54		%	3.45		%

Net interest margin - non-U.S. GAAP basis
Net interest income	$	16,010		$	15,034		$	50,639		$	43,535
Plus: Impact of fully tax-equivalent adjustment	301			260			847			783
Net interest income on a fully tax-equivalent basis	16,311			15,294			51,486			44,318
Average interest-earning assets	1,933,213			1,742,882			1,903,966			1,688,396
Net interest margin on a fully tax-equivalent basis	3.35		%	3.48		%	3.60		%	3.51		%

~~Table of Contents~~

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. The mortgage fee income and gain on derivatives will continue to taper off after the MVB Mortgage transaction and will be reflected in equity method investments 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 ~~March 31,~~September 30, 2020, noninterest income totaled ~~$10.8~~$19.4 million compared to ~~$8.8~~$14.7 million for the same time period in 2019. The ~~$2.1 million~~ increase in noninterest income of $4.7 million was primarily the result of an increase in equity method investment income of $13.6 million, a gain on mortgage combination transaction of $3.3 million, and an increase in compliance consulting income of $1.1 million. This increase was offset by a decrease in mortgage fee income of ~~$4.5~~$4.2 million and a decrease in the gain on derivatives of $8.6 million.

The increase in equity method investment income of $13.6 million and the increase in gain on mortgage combination transaction of $3.3 million was driven by the MVB Mortgage transaction. Given the MVB Mortgage transaction, the income from mortgage operations is now recognized through the equity method investment and the gain on the transaction is recognized through the gain on mortgage combination transaction. The increase in compliance consulting income of $1.1 million was driven by the 2019 Chartwell acquisition. The decrease in both the gain on derivatives and mortgage fee income is directly related to the MVB Mortgage transaction. Also due to the MVB Mortgage transaction, the locked pipeline as of September 30, 2020 was $0 compared to $210.0 million as of September 30, 2019.

For the nine months ended September 30, 2020, noninterest income totaled $75.8 million compared to $49.8 million for the same time period in 2019. The increase in noninterest income of $25.9 million was primarily the result of an increase in equity method investment income of $13.6 million, a gain on sale of banking centers of $9.6 million, an increase in mortgage fee income of $5.4 million, a bargain purchase gain of $4.7 million, a gain on mortgage combination transaction of $3.3 million, an increase in compliance consulting income of ~~$1.0~~$3.0 million, and an increase in gain on sale of securities of ~~$394 thousand, and an~~$1.0 million. This increase ~~in commercial swap fee income of $240 thousand. These increases were partially~~was offset by a decrease in ~~the~~holding gain on ~~derivatives~~equity securities of ~~$4.0~~$13.7 million ~~and a decrease in income on bank owned life insurance of $302 thousand.~~

The increase in equity method investment income of $13.6 million and the gain on mortgage combination transaction of $3.3 million was driven by the MVB Mortgage transaction. Given the MVB Mortgage transaction, the income from mortgage operations is now recognized through the equity method investment. The increase in gain on sale of banking centers of $9.6 million was due to the Purchase and Assumption Agreement with Summit Community Bank that the Company closed in the second quarter of 2020. The increase in mortgage fee income of ~~$4.5~~$5.4 million is driven by an increase of ~~$171.7~~$304.4 million in mortgage loans sold for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2019. The bargain purchase gain of $4.7 million was due to the First State acquisition. The increase in compliance consulting income of $3.0 million was driven by the 2019 Chartwell acquisition. The increase in gain on sale of securities of $1.0 million is ~~due to~~mostly driven by the ~~addition~~decreased rate environment driving opportunities for gains on the sale of ~~the Chartwell team during 2019.~~investments. The ~~increase~~$13.7 million decrease in commercial swap fee income of $240 thousand is due to swap volume of $12.3 million for the first quarter of 2020 compared to $3.0 million for the first quarter of 2019. The increase of $153 thousand in other operating incomeholding gain on equity securities was ~~primarily~~ due to an increase ~~of $60 thousand in dividends on FHLB stock and an increase of $32 thousand in wire transfer fees. The decrease~~ in the ~~gain on derivatives of $4.0 million was largely the result~~valuation of the ~~volatility~~Company’s Fintech investment portfolio during the second quarter 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.2019.

Noninterest Expense

The Company had ~~459~~338 full-time equivalent personnel at ~~March 31,~~September 30, 2020, as noted, compared to ~~389~~420 full-time equivalent personnel as of ~~March 31,~~September 30, 2019. The decrease in full-time equivalent personnel is a direct result of the MVB Mortgage transaction. Company and Bank management will continue to strive to find new ways of increasing efficiencies and leveraging its resources, while effectively optimizing ~~customer~~client 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 ~~91.25%~~51.58% for the ~~first~~third quarter of 2020 compared to ~~81.14%~~78.64% for the ~~first~~third quarter of 2019. This ratio measures the efficiency of noninterest expenses incurred in relationship to net interest income plus noninterest income. The ~~increased~~decreased efficiency ratio for the three months ended ~~March 31,~~September 30, 2020 is the result of the growth in ~~noninterest expense outpacing the growth in~~ net interest income and noninterest ~~income.~~income outpacing the growth in noninterest expense.

The Company had 5 separate deals take place during the second and third quarter of 2020. The deals included The First State Bank acquisition, the Paladin, LLC acquisition, the sale of the Eastern Panhandle banking centers, the MVB Mortgage transaction and the Invest Forward, Inc. acquisition. Due to these deals, the Company incurred the following deal related costs in noninterest expense:


	For the three months ended September 30, 2020		For the nine months ended September 30, 2020
Professional fees	$	145	$	1,296
Data processing & communications	281		780
Total deal-related costs	$	426	$	2,076

For the three months ended ~~March 31,~~September 30, 2020, noninterest expense totaled ~~$24.7~~$18.3 million compared to ~~$18.4~~$23.4 million for the same time period in 2019. The ~~$6.2~~$5.1 million decrease in noninterest expense was primarily the result of the following:

Salaries and employee benefits expense decreased by $4.9 million. The decrease is primarily driven by the MVB Mortgage transaction, which removed MVB Mortgage salaries and employee benefits expenses from being expensed through the Company.

Mortgage processing decreased by $725 thousand. The decrease in mortgage processing is mainly driven by the MVB Mortgage transaction, which removed mortgage processing from being expensed through the Company.

Travel, entertainment, dues, and subscriptions decreased by $501 thousand. The decrease in travel expense is primarily driven by the decrease in travel related to the COVID-19 pandemic.

Other operating expenses increased by $534 thousand. The increase was mainly driven by increased loan expense and OREO expense related to the First State acquisition.

Data processing and communications increased by $304 thousand. The increase in data processing and communications expense of $281 thousand was deal and conversion costs related to the First State acquisition.

Professional fees expense increased by $290 thousand. This increase in professional fees expense of $145 thousand was deal and conversion costs related to the First State acquisition.

For the nine months ended September 30, 2020, noninterest expense totaled $76.3 million compared to $62.2 million for the same time period in 2019. The $14.0 million increase in noninterest expense was primarily the result of the following:

Salaries and employee benefits expense increased by ~~$4.4~~$8.9 million. The increase was primarily the result of increased mortgage production, the build-out of other Company administration, the build-out of the Fintech team, increased incentive and stock-based compensation, and the additional team members acquired as a result of the ~~Chartwell~~First State acquisition, ~~during~~ the ~~third quarter of 2019.~~

~~Travel, entertainment, dues, and subscriptions expense increased by $528 thousand. This increase was mainly driven by travel for deposit~~Paladin, LLC acquisition, and ~~on-boarding costs, including due diligence, related to Fintech opportunities. Travel, entertainment, dues, and subscriptions for~~ the ~~compliance consulting team added during 2019 have also driven the increase.~~Chartwell acquisition.

Professional fees expense increased by ~~$503 thousand.~~$2.9 million. This increase in professional fees expense of $1.3 million was ~~primarily due to increased legal fees~~deal and conversion costs related to the ~~new entity Intercoastal~~First State acquisition, the Paladin, LLC acquisition, the sale of the Eastern Panhandle banking centers, and the MVB Mortgage ~~LLC and increases due to special projects, Fintech products, and technology development.~~transaction.

Other operating expense increased by ~~$331 thousand.~~$1.3 million. This increase was largely due to amortization of intangibles related to the

2019 Chartwell acquisition and OREO expense related to the First State acquisition.

Data processing and ~~communications~~communication expense increased by ~~$175 thousand.~~$1.2 million. The increase ~~was primarily driven by~~in data processing and communications expense of $780 thousand was deal and conversion costs related to the ~~Purchase~~First State acquisition, the Paladin, LLC acquisition, the sale of the Eastern Panhandle banking centers, and ~~Assumption Agreement with Summit Community Bank that~~ the ~~Company expects to close~~MVB Mortgage transaction.

Mortgage processing decreased by $509 thousand. The decrease in inmortgage processing is mainly driven by the ~~second~~

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~~quarter of 2020.~~MVB Mortgage transaction, which removed mortgage processing from being expensed through the Company.

Return on Average Assets (Annualized)

~~The~~Excluding discontinued operations, the Company’s return on average assets was ~~0.22%~~1.21% for the ~~first~~third quarter of 2020, compared to ~~0.73%~~0.92% for the ~~first~~third quarter of 2019. The ~~decreased~~increased return for the ~~first~~third quarter of 2020 is a direct result of a $2.1 million ~~decrease~~increase in earnings, while average total assets increased by ~~$188.9~~$262.8 million, primarily the result of a ~~$150.8~~$164.6 million increase in interest-bearing deposits in banks, a $70.2 million increase in average other assets, and a $13.4 million increase in average total loans and loans held for sale.

Excluding discontinued operations, the Company’s return on average assets was 1.63% for the nine months ended September 30, 2020, compared to 1.64% for the nine months ended September 30, 2019. The decreased return for the nine months ended September 30, 2020 is a direct result of a $3.1 million increase in earnings being outpaced by an increase in average total assets of $272.0 million, primarily the result of a $146.9 million increase in average total loans and loans held for sale, a $68.8 million increase in interest-bearing deposits in banks, and a ~~$24.4~~$49.1 million increase in average other assets.

Return on Average Equity (Annualized)

~~The~~Excluding discontinued operations, the Company’s return on average stockholders’ equity was ~~1.95%~~11.25% for the ~~first~~third quarter of 2020, compared to ~~7.18%~~8.54% for the ~~first~~third quarter of 2019. The ~~decreased~~increased return for the ~~first~~third quarter of 2020 is a direct result of a $2.1 million ~~decrease~~increase in earnings, while average stockholders’ equity increased by ~~$37.2~~$27.2 million. The increase in average stockholders’ equity was primarily due to a ~~$25.2~~$22.8 million increase in retained earnings and a $4.8 million increase in paid-in capital.

Excluding discontinued operations, the Company’s return on average stockholders’ equity was 15.37% for the nine months ended September 30, 2020, compared to 15.69% for the nine months ended September 30, 2019. The decreased return for the nine months ended September 30, 2020 is a direct result of a $3.1 million increase in earnings, while average stockholders’ equity increased by $30.9 million. The increase in average stockholders’ equity was primarily due to a $22.8 million increase in retained earnings, a ~~$6.5~~$5.4 million increase in paid-in capital, and a $3.3 million decrease in accumulated other comprehensive ~~loss and a $5.7 million increase in paid-in capital.~~loss.

Overview of the Consolidated Balance Sheets

The greatest balance changes since December 31, 2019 were as follows: total assets increased by ~~$155.6~~$270.3 million, to ~~$2.1~~$2.21 billion, loans increased ~~$22.0~~$54.1 million, to ~~$1.4~~$1.43 billion, available-for-sale investment securities ~~decreased $12.7~~increased $62.1 million, to ~~$223.1~~$298.0 million, deposits increased ~~$333.2~~$633.9 million, to ~~$1.6~~$1.90 billion, borrowings decreased ~~$192.1~~$197.1 million, to ~~$30.8~~$25.8 million, and stockholders’ equity ~~decreased~~increased by ~~$783 thousand,~~$22.2 million, to ~~$211.2~~$234.1 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled ~~$88.9~~$295.8 million at ~~March 31,~~September 30, 2020, compared to $28.0 million at December 31, 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, including equity securities, totaled ~~$242.1~~$322.1 million at ~~March 31,~~September 30, 2020, compared to $254.3 million at December 31, 2019. As of ~~March 31,~~September 30, 2020, the investment portfolio is comprised of the following mix of securities:

•~~48.2%~~47.6% – Municipal securities

•~~15.4%~~16.6% – U.S. Agency securities

•~~23.7%~~21.2% – U.S. Sponsored Mortgage-backed securities

•2.3% – Other debt securities

•4.9% – Other securities

•~~7.8%~~7.4% – 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.~~clients. 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,~~year, 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~~$1.43 billion as of ~~March 31,~~September 30, 2020 and totaled ~~$1.4~~$1.37 billion as of December 31, 2019. The Bank’s lending is primarily focused in the Marion, Harrison, Monongalia, Kanawha, Putnam and ~~Kanawha~~Cabell counties of West Virginia, and Fairfax and Loudoun counties of Virginia, with a secondary focus on the adjacent counties. Its extended 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. As of September 30, 2020 and included in the amount above, the Bank held PPP loans totaling $87.9 million and loans acquired from First State totaling $31.5 million in PCI loans and $9.8 million in performing loans.

Loan Concentration

At ~~March 31,~~September 30, 2020 and December 31, 2019, ~~$1.1~~$1.14 billion, or ~~78.4%~~79.6% and ~~$1.1~~$1.06 billion, or 77.4%, respectively, of ~~our~~the Company's loan portfolio consisted of commercial ~~loans.~~loans and PCI commercial loans acquired from First State. 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 ~~$11.2~~$25.9 million or ~~0.80%~~1.81% of total loans at ~~March 31,~~September 30, 2020 compared to $11.8 million or 0.86% of total loans at December 31, 2019. The ~~decrease~~increase in this ratio was the direct result of the net impact of adjustments to the portfolio segmentation, changes in the qualitative adjustment factors, changes in the level of recognized ~~charge offs,~~charge-offs, changes in historical loss rates, changes in outstanding loan portfolios, and changes in the level of specific loan loss allocations. Most notably, throughout 2020, management has continued to evaluate the breadth of the current allowance methodology, in order to assess how well structured the methodology is to appropriately respond to the unprecedented risk presented by the COVID-19 pandemic. As a result, throughout the second and third quarters of the year, management has made significant enhancements to the qualitative factor framework within the methodology that have better positioned the Bank to adequately assess the risk to the loan portfolio and allocate loan loss provision accordingly.

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 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 ~~$1.6~~$1.90 billion at ~~March 31,~~September 30, 2020.

Noninterest-bearing deposits remain a core funding source for the Bank and thus, the Company. At ~~March 31,~~September 30, 2020, noninterest-bearing balances totaled ~~$387.5~~$642.8 million compared to $278.5 million at December 31, 2019. Of the ~~$387.5~~$642.8 million, noninterest-bearing balances of ~~$156.2~~$304.0 million are related to Fintech opportunities and noninterest-bearing balances of ~~$96.0~~$127.7 million are related to title business funds. The Company and Bank management intend to continue to focus on finding ways of continuing to increase the base of noninterest-bearing sources.

Interest-bearing deposits totaled ~~$1.2~~$1.26 billion at ~~March 31,~~September 30, 2020 compared to ~~$1.0 billion~~$986.5 million at December 31, 2019.

At ~~March 31,~~September 30, 2020, the Bank had brokered deposits of ~~$181.2~~$15.3 million and CDs with other banks of ~~$125.7~~$86.4 million. At December 31, 2019, brokered deposits totaled $63.9 million and CDs with other banks totaled $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. As of September 30, 2020, commercial loans totaling $41.1 million and mortgage loans totaling $15.7 million were approved for modifications such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings.

Average interest-bearing deposits totaled ~~$1.2~~$1.26 billion during the ~~first~~third quarter of 2020 compared to ~~$1.1~~$1.14 billion during the ~~first~~third quarter of 2019, an increase of ~~$86.6~~$117.5 million.

Average noninterest bearing deposits totaled ~~$332.0~~$542.5 million during the ~~first~~third quarter of 2020 compared to ~~$214.5~~$271.3 million during the ~~first~~third quarter of 2019, an increase of ~~$117.4~~$271.2 million.

Management will continue to emphasize deposit growth opportunities from the network of current ~~customers~~clients 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 ~~March 31,~~September 30, 2020, repurchase agreements totaled ~~$9.3~~$10.0 million compared to $10.2 million at December 31, 2019. In addition to the aforementioned funds alternatives, the Bank has access to more than ~~$295.6~~$488.3 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.

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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, cash provided by financing activities totaled ~~$138.4~~$331.2 million, while ~~inflows~~outflows from investing activity totaled ~~$1.1~~$154.7 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,~~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 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, Kanawha, Putnam, and ~~Kanawha~~Cabell 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~~thirteen full-service banking branches: ~~twelve~~ten 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~~and unemployment rates have ~~begun to escalate.~~increased significantly. Unemployment in the United States was ~~4.5%~~7.7% and ~~3.9%~~3.3% in ~~March~~September 2020 and 2019, respectively.

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


		February 2020		February 2019			August 2020		August 2019
Berkeley County, WV		3.3	%	4.4	%
Harrison County, WV	Harrison County, WV	5.1		5.4		Harrison County, WV	8.2	%	4.3	%
Jefferson County, WV		2.8		3.6
Marion County, WV	Marion County, WV	5.1		6.1		Marion County, WV	9.0		5.0
Monongalia County, WV	Monongalia County, WV	3.4		4.4		Monongalia County, WV	6.6		3.7
Kanawha County, WV	Kanawha County, WV	4.8		5.7		Kanawha County, WV	9.6		4.6
Putnam County, WV						Putnam County, WV	7.3		4.2
Cabell County, WV						Cabell County, WV	8.3		4.3
Fairfax County, VA	Fairfax County, VA	2.1		2.6		Fairfax County, VA	6.0		2.4
Loudoun County, VA	Loudoun County, VA	2.1		2.6		Loudoun County, VA	5.4		2.4

Capital/Stockholders' Equity

For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, stockholders’ equity ~~decreased~~increased approximately ~~$783 thousand~~$22.2 million to ~~$211.2~~$234.1 million. This ~~decrease~~increase consists of year-to-date net income of ~~$1.0~~$25.6 million, ~~and stock-based compensation of $498 thousand,~~ offset by dividends paid totaling ~~$1.2~~$3.6 million, stock-based compensation of $1.7 million, and ~~an increase~~a decrease in other comprehensive loss of ~~$917~~$69 thousand. As stockholders’ equity ~~decreased,~~increased, the equity to assets ratio decreased ~~0.84%~~0.33% to ~~10.06%~~10.57%. The Company paid dividends to common shareholders of ~~$1.1 million in the three months ended March 31, 2020 and $408 thousand in the three months ended March 31, 2019, and earned $1.0 million in the three months ended March 31, 2020 versus~~ $3.2 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and $1.5 million in the nine months ended September 30, 2019, and earned $25.6 million in the nine months ended September 30, 2020 versus $22.9 million in the nine months ended September 30, 2019, resulting in the dividend payout ratio increasing from ~~13.29%~~6.47% in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~115.20%~~12.80% in the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

At ~~March 31,~~September 30, 2020, accumulated other comprehensive loss totaled ~~$2.2~~$1.3 million, ~~an increase~~a decrease in the loss of ~~$917~~$69 thousand from December 31, 2019. ~~Total~~This change was driven by a decrease of $531 thousand in the unrealized gain on TIF bonds, a decrease of

$1.1 million in the other comprehensive loss related to the pension plan, an increase of $2.2 million in the unrealized gain on available-for-sale investment securities, ~~available-for-sale~~and a decrease of $539 thousand in ~~an unrealized loss position decreased by $505 thousand~~the other comprehensive income related to ~~$432 thousand at 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.~~investment hedge.

Treasury stock totaled ~~67,377~~179,626 shares, up ~~16,300~~128,549 shares from December 31, 2019 primarily due to 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~~increased from 12.84% at December 31, 2019 to ~~12.04%~~15.89% at ~~March 31,~~September 30, 2020. The ~~decrease~~increase in this ratio was largely due to an increase in total capital of $45.5 million, driven primarily by earnings, and a decrease in risk-weighted assets of ~~$93.6 million and a $1.2 million decrease in total capital.~~$15.2 million.

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 increased by 0.625% on each subsequent January 1, until it 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 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. In July 2019, the bank regulatory agencies finalized the rule which applies to banking organizations with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. The rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. The rule also allows bank holding companies to redeem common stock without prior approval unless otherwise required. Generally, the final rule iswas effective as of April 1, 2020, however banking organizations were permitted to use this simpler regulatory capital requirements as of January 1, 2020.

In June 2016, the 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 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 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 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 CBLR test based on the institution’s risk profile. In November 2019, the federal bank regulators issued a final rule on the CBLR, setting the minimum required CBLR at 9%. Depository institutions and depository institution holding companies that 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 in 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 was effective on January 1, 2020 and the CBLR framework will be available for banks to use in 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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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 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 eliminated these requirements for banks with less than $10.0 billion in assets who elect to follow the 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 ~~March 31,~~September 30, 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, 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.~~clients. 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~~client 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~~client’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.~~client.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a ~~customer~~client 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.~~client. 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~~clients throughout the Marion, Harrison, Monongalia, Kanawha, Putnam, and ~~Kanawha~~Cabell 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~~clients 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 ~~March 31,~~September 30, 2020 and December 31, 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

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 our market risk 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 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.

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~~client 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. In addition, the Company continues its expansion of deposit acquisition and fee income strategies through the fintech vertical. During the third quarter of 2020, the Company entered into agreements for card acquiring sponsorships and debit card program sponsorship to further enhance fee income and noninterest income.

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~~clients 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~~clients may be eligible to defer loan payments to a later date. The Company is actively ~~participating~~participated in the Paycheck Protection Program, is evaluating other programs available to assist our clients, and is 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~~was 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~~implementation. The second tranche of PPP funding of $310 billion still had funds available as of June 30, 2020, the ~~U.S. Government plans~~program's original closure date. On July 2, 2020, additional legislation was passed that allowed small businesses to ~~provide additional funding.~~apply for loans through August 8, 2020. The deadline to apply for PPP loans has passed as of September 30, 2020.

As of September 30, 2020, commercial loans totaling $41.1 million and mortgage loans totaling $15.7 million were approved for modifications such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings. The Company originated 455 PPP loans with original balances of $92.8 million and balances of $87.9 million as of September 30, 2020.

Additionally, management has ~~taken~~continued to take 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 ~~December 31, 2019.~~June 30, 2020. 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 ~~December 31, 2019,~~June 30, 2020, over a twelve-month period, an immediate 100-basis point increase in interest rates would result in an increase in net interest income by ~~0.3%~~6.4%. An immediate 200-basis point increase in interest rates would result in an increase in net interest income by ~~1.3%~~12.3%. A 100-basis point decrease in interest rates would result in a decrease in net interest income of ~~6.9%~~5.9%. 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.

Management expects that some ~~customers~~clients 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~~clients 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~~its management, including ~~the Company’s~~its President and Chief Executive Officer, along with the ~~Company’s~~ Chief Financial Officer (the Principal Financial Officer), has evaluated the effectiveness as of ~~March 31,~~September 30, 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~~its Principal ~~Accounting~~Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2020.

There have been no material changes in the Company’s internal control over financial reporting during the ~~first~~third quarter of 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, including the risk factors that are described in ~~our Annual Report to Shareholders on~~the Form ~~10-K for the year ended December 31, 2019.~~10-K. 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~~clients 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,~~clients, providers, and third parties. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in overall business activity and financial transactions, supply chain disruptions, and overall economic and financial market instability. In response to the pandemic, many states, including those where the Company primarily operates, have taken preventative and protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego time outside of homes, and ordering temporary closures of businesses that have been deemed to be non-essential. 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 ultimate effects of COVID-19 on the broader economy and the markets that the Company serves are not known nor is the ultimate length of the restrictions described above and any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect interest income, and therefore, earnings, financial condition, and results of operations. The Company is currently evaluating and quantifying the impact on its consolidated financial statements.

In March 2020, the Company announced programs to support our Trusted Partners during the COVID-19 pandemic. A number of borrowers have enrolled in programs to defer all loan payments for periods up to six months. These programs may negatively impact revenue and other results of operations in the near term, and, if not effective in mitigating the effect of COVID-19 to clients, may adversely affect the business and results of operations more substantially over a longer period of time.

The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for many other securities. The further spread of the COVID-19 pandemic, as well as ongoing or new governmental, regulatory, and private sector responses to the pandemic, may materially disrupt banking and other economic activity generally and in the areas in which the Company operates. This could result in further decline in demand for banking products and services, and could negatively impact, among other things, liquidity, regulatory capital, and future growth. Any one or more of these developments could have a material adverse effect on the business, financial condition, and results of operations.

The Company is taking precautions to protect the safety and well-being of our Trusted Partners. However, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our employee's ability to provide the expected level of client support and service. If the Company is unable to recover from a business disruption on a timely basis, the business, financial condition, and results of operations could be materially and adversely affected. The Company may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect the business, financial condition and results of operations.

The extent to which COVID-19 impacts the Company's business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after COVID-19 has subsided, the Company may continue to experience materially adverse impacts to our business as a result of the virus’ global economic impact, including the availability of credit, adverse impacts on liquidity and any recession that has occurred or may occur in the future.

A commitment to extend credit is a formal agreement to lend funds to a client as long as there is no violation of any condition established under the agreement. The actual borrowing needs of clients under these credit commitments have historically been lower than the contractual amount of the commitments. A significant portion of these commitments expire without being drawn upon. Because of the credit profile of current clients, there is typically a substantial amount of total unfunded credit commitments, which is not reflected on the balance sheet. Actual borrowing needs of clients may exceed expectations, including due to the COVID-19 pandemic, as clients’ companies may be more dependent on our credit commitments due, among other things, business challenges, a lack of available credit elsewhere, the increasing costs of credit, or the limited availability of financings from private investment firms. This could adversely affect the Company's credit quality and liquidity, which could adversely affect the Company's ability to fund operations and meet obligations as they become due and could have a material adverse effect on the business, financial condition, and results of operations.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. The full extent is not yet known and the Company cannot predict the full extent of the impacts on the business, the operations, or the global economy as a whole.

The Company may be adversely affected by the emergency actions taken by the U.S. government to mitigate the impact of the COVID-19 pandemic on the U.S. economy.

The United States government has taken a number of actions to mitigate the impact of the COVID-19 pandemic on the U.S. economy. Among other steps taken, the Federal Reserve cut the federal funds rate in March 2020, and also lowered the interest rate on emergency lending at the Discount Window and lengthened the term of loans to 90 days. On March 27, 2020, the CARES Act was signed into law. Key provisions of the CARES Act include one-time payments to individuals, strengthened unemployment insurance, additional health-care funding, loans and grants to certain businesses, and temporary amendments to the Internal Revenue Code. The SBA was tapped to lead the effort to loan funds to small businesses, in conjunction with banks. The Federal Reserve and the U.S. Treasury have also responded with lending programs under the CARES Act. Further, the Federal Reserve has intervened with a number of credit facilities intended to keep the capital markets liquid.

There can be no assurance that these interventions by the U.S. government will be successful in mitigating the impact of the COVID-19 pandemic and it is unclear what the cumulative effect of these extraordinary actions by the U.S. government will be on the economy as a whole and upon the financial condition and results of operations of the Company and its clients, both in the short-term and the long-term.

As a participating lender in the SBA Paycheck Protection Program (“PPP”), the Company is subject to additional risks of litigation from clients or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guarantees.

On March 27, 2020, President Trump signed the CARES Act which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. On April 24, 2020, an additional $310 billion of PPP loan funding was authorized. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company may be exposed to the risk of litigation, from both clients and non-clients that contacted the Bank regarding PPP loans, regarding the process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company and is not resolved in a favorable manner, it may result in significant financial liability or adversely affect the Company's reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or

reputational damage caused by PPP-related litigation could have a material adverse impact on the Company's business, financial condition, and results of operations.

The Company also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced, the SBA may deny the Bank's liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency.

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

(a) Not applicable.

(b) Not applicable.

~~In March~~ During the third quarter of 2020, the Company repurchased ~~16,300~~82,424 shares totaling $1.3 million. A total of ~~its outstanding common stock at an average price of $16.00 per share.~~128,024 shares totaling $1.9 million have been repurchased in 2020.


Period	Total Number of Shares Purchased	Average Price Paid per Share
March 1 - March 31, 2020	16,300	$16.00
April 1 - April 30, 2020	—	$—
May 1 - May 31, 2020	100	$14.18
June 1 - June 30, 2020	29,200	$13.53
July 1 - July 31, 2020	3,500	$12.89
August 1 - August 31, 2020	20,532	$13.99
September 1 - September 30, 2020	58,392	$15.63

The following table reflects share repurchase activity during the three months ended ~~March 31,~~September 30, 2020:


Period	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		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

July 1 - July 31, 2020								July 1 - July 31, 2020	3,500	12.89	3,500	4,297,456
August 1 - August 31, 2020								August 1 - August 31, 2020	20,532	13.99	20,532	4,712,759
September 1 - September 30, 2020								September 1 - September 30, 2020	58,392	15.63	58,392	3,799,967
									82,424		82,424

~~Table of Contents~~

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

6183

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:

~~April 28,~~November 2, 2020

By:

/s/ Larry F. Mazza

Larry F. Mazza

President, CEO and Director

(Principal Executive Officer)

Date:

~~April 28,~~November 2, 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	56
	Consolidated Statements of Changes in Stockholders’ Equity	67
	Consolidated Statements of Cash Flows	79
	Notes to the Consolidated Financial Statements	811

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4055

Item 3	Quantitative and Qualitative Disclosures About Market Risk	5878

Item 4	Controls and Procedures	5979

PART II	OTHER INFORMATION	6080

Item 1	Legal Proceedings	6080

Item 1A	Risk Factors	6080

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6082

Item 3	Defaults Upon Senior Securities	6182

Item 4	Mine Safety Disclosures	6182

Item 5	Other Information	6183

Item 6	Exhibits	6183

	SIGNATURES	6284


(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


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