
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September 30, 2020~~March 31, 2021
or
☐ 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~~
001-38314


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:

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

As of ~~October~~April 30, ~~2020,~~2021, the Registrant had ~~11,785,332~~11,622,335 shares of common stock outstanding with a par value of $1.00 per share.

TABLE OF CONTENTS

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,” “will,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or the negative of those terms or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing the Company's 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 the Management’s Discussion and Analysis section. Factors that might cause such differences include, but are not limited to:


l			the length, severity, magnitude and duration of the Coronavirus Disease (“COVID-19”) pandemic and the direct and indirect impacts of the COVID-19 pandemic, including its impact on the Company’s financial condition and business operations;
l			changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of recovery following the COVID-19 pandemic;
l			ability to successfully execute business plans, manage risks and achieve objectives, including strategies related to recent investments in financial technology (“Fintech”);
l			market, economic, operational, liquidity, credit and interest rate risks associated with the Company's business;
l			changes in local, national and international political and economic conditions, including without limitation, changes in the political and economic climate, economic conditions and other major developments, including wars, natural disasters, epidemics and pandemics, military actions and terrorist attacks;
l			changes in financial market conditions, either internationally, nationally or locally in areas in which the Company conducts operations, including without limitation, reduced rates of business formation and growth, commercial and residential real estate development and real estate prices;
l			unanticipated changes in the Company's liquidity position, including but not limited to changes in access to sources of liquidity and capital to address its liquidity needs;
l			changes in interest rates;
l			the quality and composition of the loan and securities portfolios;
l			ability to successfully conduct acquisitions and integrate acquired businesses and potential difficulties in expanding businesses in existing and new markets;
l			ability to successfully manage credit risk and the sufficiency of allowance for credit losses;
l			increases in the levels of losses, customer bankruptcies, bank failures, claims and assessments;
l			changes in government legislation and accounting policies, including the Dodd-Frank Act and Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”);
l			uncertainty about the discontinued use of the London Inter-bank Offered Rate (“LIBOR”) and the transition to an alternative rate;
l			competition and consolidation in the financial services industry;
l			new legal claims against us, including litigation, arbitration and proceedings brought by governmental or self-regulatory agencies or changes in existing legal matters;
l			success in gaining regulatory approvals, when required, including for proposed mergers or acquisitions;
l			changes in consumer spending and savings habits, including demand for loan products and deposit flow;
l			increased competitive challenges and expanding product and pricing pressures among financial institutions and non-bank financial companies;
l			operational risks or risk management failures by us or critical third parties, including without limitation, with respect to data processing, information systems, cyber-security, technological changes, vendor problems, business interruptions and fraud risk;
l			failure or circumvention of internal controls;
l			legislation or regulatory changes which adversely affect operations or business, including changes to address the impact of COVID-19 through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and other legislative and regulatory responses to the COVID-19 pandemic; and


l			ability to comply with applicable laws and regulations; changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board (“FASB”) or regulatory agencies, including the impact of future adoption of new Current Expected Credit Losses (“CECL”) standard; and
l			costs of deposit insurance and changes with respect to Federal Deposit Insurance Corporation (“FDIC”) insurance coverage levels.
l			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, 2020 (the “2020 Form 10-K”).

Certain risk factors that might cause actual results to differ materially from those presented are more fully described in the 2020 Form 10-K, filed with the SEC on March 9, 2021, within Part I, Item 1A, Risk Factors, and from time to time, in other filings with the Securities and Exchange Commission (“SEC”). Actual results may differ materially from those expressed in or implied by any forward-looking statement. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except to the extent required by law, the Company specifically disclaims 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.

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets

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


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Unaudited)		(Note 1)			(Unaudited)		(Audited)
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	$	21,262	$	18,430	Cash and due from banks	$	19,603	$	19,110
Interest bearing balances with banks		274,561		9,572
Interest-bearing balances with banks						Interest-bearing balances with banks	320,013		244,783
Total cash and cash equivalents	Total cash and cash equivalents	295,823		28,002		Total cash and cash equivalents	339,616		263,893
Certificates of deposit with other banks		12,301		12,549
Investment securities available-for-sale, at fair value		297,964		235,821
Certificates of deposit with banks						Certificates of deposit with banks	11,803		11,803
Investment securities available-for-sale						Investment securities available-for-sale	423,122		410,624
Equity securities	Equity securities	24,164		18,514		Equity securities	28,200		27,585
Loans held for sale		2,271		109,788
Loans:		1,428,593		1,374,541
Less: Allowance for loan losses		(25,913)		(11,775)
Net Loans		1,402,680		1,362,766
Loans held-for-sale						Loans held-for-sale	0		1,062
Loans receivable						Loans receivable	1,694,385		1,453,744
Allowance for loan losses						Allowance for loan losses	(26,214)		(25,844)
Loans receivable, net						Loans receivable, net	1,668,171		1,427,900
Premises and equipment, net	Premises and equipment, net	26,176		21,974		Premises and equipment, net	27,290		26,203
Bank owned life insurance		36,037		35,374
Bank-owned life insurance						Bank-owned life insurance	41,512		41,262
Equity method investment	Equity method investment	39,340		0		Equity method investment	39,883		46,494
Accrued interest receivable and other assets	Accrued interest receivable and other assets	75,353		53,142		Accrued interest receivable and other assets	64,142		72,300
Assets of branches held for sale (See Note 1)		0		46,554

Goodwill	Goodwill	2,350		19,630		Goodwill	2,350		2,350
TOTAL ASSETS	TOTAL ASSETS	$	2,214,459	$	1,944,114	TOTAL ASSETS	$	2,646,089	$	2,331,476

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:	Deposits:					Deposits:
Noninterest bearing		$	642,835	$	278,547
Interest bearing		1,256,122		986,495
Noninterest-bearing						Noninterest-bearing	$	837,221	$	715,791
Interest-bearing						Interest-bearing	1,379,332		1,266,598
Total deposits	Total deposits	1,898,957		1,265,042		Total deposits	2,216,553		1,982,389

Deposits of branches held for sale (See Note 1)		0		188,270
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	41,417		41,685		Accrued interest payable and other liabilities	36,612		55,931
Repurchase agreements	Repurchase agreements	10,045		10,172		Repurchase agreements	10,613		10,266
FHLB and other borrowings	FHLB and other borrowings	25,800		222,885		FHLB and other borrowings	102,185		0
Subordinated debt	Subordinated debt	4,124		4,124		Subordinated debt	43,443		43,407
Total liabilities	Total liabilities	1,980,343		1,732,178		Total liabilities	2,409,406		2,091,993

STOCKHOLDERS’ EQUITY	STOCKHOLDERS’ EQUITY					STOCKHOLDERS’ EQUITY
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		12,069		11,995
Preferred stock - par value $1,000; 20,000 shares authorized; 0 shares issued and outstanding as of March 31, 2021 and 733 shares issued and outstanding as December 31, 2020						Preferred stock - par value $1,000; 20,000 shares authorized; 0 shares issued and outstanding as of March 31, 2021 and 733 shares issued and outstanding as December 31, 2020	0		7,334
Common stock - par value $1; 20,000,000 shares authorized; 12,438,061 and 11,590,045 shares issued and outstanding, respectively, as of March 31, 2021 and 12,374,322 and 11,526,306 shares issued and outstanding, respectively, as of December 31, 2020						Common stock - par value $1; 20,000,000 shares authorized; 12,438,061 and 11,590,045 shares issued and outstanding, respectively, as of March 31, 2021 and 12,374,322 and 11,526,306 shares issued and outstanding, respectively, as of December 31, 2020	12,438		12,374
Additional paid-in capital	Additional paid-in capital	124,474		122,516		Additional paid-in capital	130,337		129,119
Retained earnings	Retained earnings	94,496		72,496		Retained earnings	112,068		105,171
Accumulated other comprehensive loss		(1,252)		(1,321)
Treasury stock; 179,626 shares in 2020 and 51,077 shares in 2019, at cost		(3,005)		(1,084)
Total stockholders’ equity		234,116		211,936
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(1,892)		2,226
Treasury stock - 848,016 shares as of March 31, 2021 and December 31, 2020, at cost						Treasury stock - 848,016 shares as of March 31, 2021 and December 31, 2020, at cost	(16,741)		(16,741)
Total equity attributable to parent						Total equity attributable to parent	236,210		239,483
Noncontrolling interest						Noncontrolling interest	473		0
Total stockholders' equity						Total stockholders' equity	236,683		239,483
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,214,459	$	1,944,114	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,646,089	$	2,331,476

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

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

Nine Months Ended September 30 Three Months Ended September 30
2020 2019 2020 2019
INTEREST INCOME
     Interest and fees on loans $ 56,064 $ 55,469 $ 16,976 $ 19,238
     Interest on deposits with other banks 297 379 106 132
     Interest on investment securities - taxable 1,554 2,336 411 689
     Interest on tax exempt loans and securities 3,185 2,947 1,134 979
     Total interest income 61,100 61,131 18,627 21,038
INTEREST EXPENSE
     Interest on deposits 8,840 13,124 1,894 4,453
     Interest on repurchase agreements 19 37 4 12
     Interest on FHLB and other borrowings 1,524 3,707 699 1,383
     Interest on subordinated debt 78 728 20 156
     Total interest expense 10,461 17,596 2,617 6,004
NET INTEREST INCOME 50,639 43,535 16,010 15,034
     Provision for loan losses 16,365 1,557 8,631 657
     Net interest income after provision for loan losses 34,274 41,978 7,379 14,377
NONINTEREST INCOME
     Service charges on deposit accounts 1,206 985 470 337
     Income on bank owned life insurance 663 973 219 224
     Interchange and debit card transaction fees 510 472 168 150
     Mortgage fee income 33,427 28,030 7,264 11,496
     Gain on sale of portfolio loans 302 228 172 50
     Insurance and investment services income 620 502 224 179
     Gain (loss) on sale of available-for-sale securities, net 865 (179) 35 (11)
     Gain (loss) on sale of equity securities, net 48 (7) 18 0
     Gain (loss) on derivatives, net 2,365 2,689 (7,508) 1,108
     Commercial swap fee income 352 1,146 12 628
     Holding gain on equity securities 111 13,767 94 0
     Compliance consulting income 3,035 25 1,085 25
     Bargain purchase gain 4,671 0 0 0
     Gain on sale of banking centers 9,631 0 0 0
     Equity method investment income 13,620 0 13,620 0
     Gain on mortgage combination transaction 3,338 0 3,338 0
     Other operating income 997 1,217 187 510
     Total noninterest income 75,761 49,848 19,398 14,696
NONINTEREST EXPENSES
     Salary and employee benefits 49,360 40,452 10,519 15,438
     Occupancy expense 3,508 3,454 1,101 1,103
     Equipment depreciation and maintenance 2,636 2,689 845 931
     Data processing and communications 4,268 3,025 1,372 1,068
     Mortgage processing 1,744 2,253 3 728
     Marketing, contributions, and sponsorships 891 945 227 437
     Professional fees 5,931 3,025 1,606 1,316
     Printing, postage, and supplies 595 481 215 174
     Insurance, tax, and assessment expense 1,607 1,410 577 418
     Travel, entertainment, dues, and subscriptions 2,683 2,719 624 1,125
     Other operating expenses 3,031 1,765 1,176 642
     Total noninterest expense 76,254 62,218 18,265 23,380
Income from continuing operations, before income taxes 33,781 29,608 8,512 5,693
Income tax expense - continuing operations 8,208 7,139 2,021 1,347
Net income from continuing operations $ 25,573 $ 22,469 6,491 4,346
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)
Net income 25,573 22,896 6,491 4,327
Preferred dividends 345 364 $ 116 $ 121
Net income available to common shareholders $ 25,228 $ 22,532 6,375 4,206


	Three Months Ended March 31
		2021		2020
INTEREST INCOME
Interest and fees on loans		$	16,892	$	18,939
Interest on deposits with banks		122		111
Interest on investment securities		631		666
Interest on tax-exempt loans and securities		1,418		983
Total interest income		19,063		20,699

INTEREST EXPENSE
Interest on deposits		1,048		3,910
Interest on short-term borrowings		44		583
Interest on subordinated debt		466		35
Total interest expense		1,558		4,528

NET INTEREST INCOME		17,505		16,171
Provision for loan losses		618		1,138
Net interest income after provision for loan losses		16,887		15,033

NONINTEREST INCOME
Payment card and service charge income		1,493		550
Mortgage fee income		0		11,219
Insurance and investment services income		224		207
Gain on sale of available-for-sale securities, net		1,143		276

Loss on derivatives, net		0		(3,562)
Holding gain on equity securities, net		515		14
Compliance consulting income		1,281		1,009
Equity method investment income		6,469		0

Other operating income		1,333		1,137
Total noninterest income		12,458		10,850

NONINTEREST EXPENSES
Salaries and employee benefits		11,911		16,182
Occupancy expense		1,158		1,220
Equipment depreciation and maintenance		1,041		877
Data processing and communications		909		1,163
Mortgage processing		0		851
Marketing, contributions and sponsorships		65		336
Professional fees		1,742		1,331
Insurance, tax and assessment expense		538		464
Travel, entertainment, dues and subscriptions		884		1,218
Other operating expenses		870		1,014
Total noninterest expense		19,118		24,656
Income before income taxes		10,227		1,227
Income tax expense		2,169		179
Net income before noncontrolling interest		8,058		1,048



Net loss attributable to noncontrolling interest		27		0
Net income attributable to parent		8,085		1,048
Preferred dividends		35		114
Net income available to common shareholders		$	8,050	$	934



Earnings per common shareholder - basic		$	0.70	$	0.08


Earnings per common shareholder - diluted		$	0.66	$	0.08
Weighted-average shares outstanding - basic		11,530,279		11,942,767
Weighted-average shares outstanding - diluted		12,286,731		12,298,092

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)


		Nine Months Ended September 30				Three Months Ended September 30					Three Months Ended March 31
		2020		2019		2020		2019				2021		2020
Net income	Net income	$	25,573	$	22,896	$	6,491	$	4,327	Net income		$	8,058	$	1,048

Other comprehensive income:
Other comprehensive loss:										Other comprehensive loss:

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

Unrealized holding gain (loss) on securities available-for-sale										Unrealized holding gain (loss) on securities available-for-sale		(6,331)		1,414
Income tax effect	Income tax effect	(862)		(2,137)		(331)		(368)		Income tax effect		1,483		(382)

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

Reclassification adjustment for gain recognized in income										Reclassification adjustment for gain recognized in income		(1,143)		(276)
Income tax effect	Income tax effect	234		(48)		9		(2)		Income tax effect		268		75

Change in defined benefit pension plan	Change in defined benefit pension plan	(1,809)		(1,744)		(102)		(897)		Change in defined benefit pension plan		1,705		(706)

Income tax effect	Income tax effect	489		470		28		242		Income tax effect		(399)		190

Reclassification adjustment for amortization of net actuarial loss recognized in income	Reclassification adjustment for amortization of net actuarial loss recognized in income	315		204		105		68		Reclassification adjustment for amortization of net actuarial loss recognized in income		127		105

Income tax effect	Income tax effect	(85)		(55)		(28)		(18)		Income tax effect		(30)		(28)

Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	Reclassification adjustment for carrying value adjustment - investment hedge recognized in income	(738)		(162)		95		(36)		Reclassification adjustment for carrying value adjustment - investment hedge recognized in income		264		(1,793)

Income tax effect	Income tax effect	199		44		(26)		10		Income tax effect		(62)		484

Total other comprehensive income		69		4,664		941		372
Total other comprehensive loss										Total other comprehensive loss		(4,118)		(917)

Comprehensive loss attributable to noncontrolling interest										Comprehensive loss attributable to noncontrolling interest		27		0

Comprehensive income	Comprehensive income	$	25,642	$	27,560	$	7,432	$	4,699	Comprehensive income		$	3,967	$	131

See accompanying notes to unaudited consolidated financial statements.

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

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

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Balance at December 31, 2018 7,834 11,658 116,897 48,274 (6,806) (1,084) 176,773
Net income — — — 3,192 — — 3,192
Other comprehensive income — — — — 917 — 917
Cash dividends paid ($0.035 per common share) — — — (408) — — (408)
Dividends on preferred stock — — — (121) — — (121)
Stock based compensation — — 425 — — — 425
Common stock options exercised — 8 86 — — — 94
Balance at March 31, 2019 $ 7,834 $ 11,666 $ 117,408 $ 50,937 $ (5,889) $ (1,084) $ 180,872
Net income — — — 15,377 — — 15,377
Other comprehensive income — — — — 3,375 — 3,375
Cash dividends paid ($0.04 per common share) — — — (464) — — (464)
Dividends on preferred stock — — — (122) — — (122)
Stock based compensation — — 401 — — — 401
Common stock options exercised — 26 211 — — — 237
Restricted stock units vested — 10 (10) — — — 0
Common stock issued from subordinated debt conversion, net of costs — 62 938 — — — 1,000
Balance at June 30, 2019 $ 7,834 $ 11,764 $ 118,948 $ 65,728 $ (2,514) $ (1,084) $ 200,676
Net income — — — 4,327 — — 4,327
Other comprehensive income — — — — 372 — 372
Cash dividends paid ($0.05 per common share) — — — (585) — — (585)
Dividends on preferred stock — — — (121) — — (121)
Stock based compensation — — 493 — — — 493
Common stock options exercised — 46 499 — — — 545
Common stock issued related to Chartwell acquisition — 55 978 — — — 1,033
Preferred stock redemption (500) — — — — — (500)
Balance at September 30, 2019 $ 7,334 $ 11,865 $ 120,918 $ 69,349 $ (2,142) $ (1,084) $ 206,240


	Preferred stock					Common stock					Additional paid-in capital				Retained earnings				Accumulated other comprehensive income (loss)				Treasury stock			Total stockholders' equity attributable to parent		Noncontrolling interest			Total stockholders' equity
	Shares	Amount				Shares	Amount																Shares	Amount
Balance at December 31, 2020	733	$	7,334			12,374,322	$	12,374			$	129,119			$	105,171			$	2,226			848,016	$	(16,741)	$	239,483	$	0		$	239,483

Net income	—	—				—	—				—				8,085				—				—	—		8,085		(27)			8,058
Other comprehensive loss	—	—				—	—				—				—				(4,118)				—	—		(4,118)		—			(4,118)
Dividends on common stock ($0.10 per share)	—	—				—	—				—				(1,153)				—				—	—		(1,153)		—			(1,153)
Dividends on preferred stock	—	—				—	—				—				(35)				—				—	—		(35)		—			(35)
Stock-based compensation	—	—				—	—				592				—				—				—	—		592		—			592
Redemption of preferred stock	(733)	(7,334)				—	—				—				—				—				—	—		(7,334)		—			(7,334)
Common stock options exercised	—	—				52,584	53				637				—				—				—	—		690		—			690
Restricted stock units issued	—	—				11,155	11				(11)				—				—				—	—		—		—			0
Noncontrolling interests due to acquisition	—	—				—	—				—				—				—				—	—		—		500			500


Balance at March 31, 2021	0	$	0			12,438,061	$	12,438			$	130,337			$	112,068			$	(1,892)			848,016	$	(16,741)	$	236,210	$	473		$	236,683


Balance at December 31, 2019	733	$	7,334			11,995,366	$	11,995			$	122,516			$	72,496			$	(1,321)			51,077	$	(1,084)	$	211,936	$	0		$	211,936

Net income	—	—				—	—				—				1,048				—				—	—		1,048		—			1,048
Other comprehensive loss	—	—				—	—				—				—				(917)				—	—		(917)		—			(917)
Dividends on common stock ($0.09 per share)	—	—				—	—				—				(1,076)				—				—	—		(1,076)		—			(1,076)
Dividends on preferred stock	—	—				—	—				—				(114)				—				—	—		(114)		—			(114)
Stock-based compensation	—	—				—	—				498				—				—				—	—		498		—			498
Common stock options exercised	—	—				2,500	3				35				—				—				—	—		38		—			38
Common stock repurchased	—	—				—	—				—				—				—				16,300	(260)		(260)		—			(260)

Balance at March 31, 2020	733	$	7,334	$	—	11,997,866	$	11,998	$	—	$	123,049	$	—	$	72,354	$	—	$	(2,238)	$	—	67,377	$	(1,344)	$	211,153	$	0	$0	$	211,153

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)

Nine Months Ended September 30,
2020 2019
OPERATING ACTIVITIES
Net income $ 25,573 $ 22,896
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
     Net amortization and accretion of investments 1,112 917
     Net amortization of deferred loan costs 779 190
     Provision for loan losses 16,365 1,557
     Depreciation and amortization 761 2,346
     Stock based compensation 1,717 1,319
     Loans originated for sale (1,334,910) (1,151,918)
     Proceeds of loans sold 1,475,854 1,095,794
     Mortgage fee income (33,427) (28,030)
     Gain on sale of available-for-sale securities (899) (80)
     Loss on sale of available-for-sale securities 34 259
     Gain on sale of equity securities (48) 0
     Loss on sale of equity securities 0 7
     Gain on sale of portfolio loans (302) (228)
     Income on bank owned life insurance (663) (973)
     Deferred taxes 3,958 (4,214)
     Amortization of operating lease right-of-use asset 73 56
     Holding gain on equity securities (111) (13,767)
     Bargain purchase gain (4,671) 0
     Gain on sale of banking centers (9,631) 0
     Gain on mortgage combination transaction (3,338) 0
     Equity method investment income (13,620) 0
     Changes in other assets (36,742) (19,120)
     Changes in other liabilities 3,444 27,208
     Net cash provided by (used in) operating activities 91,308 (65,781)
INVESTING ACTIVITIES
     Purchases of investment securities available-for-sale (132,896) (52,892)
     Maturities/paydowns of investment securities available-for-sale 42,770 29,287
     Sales of investment securities available-for-sale 48,579 26,996
     Purchases of premises & equipment (4,211) (1,134)
     Disposals of premises & equipment 1,687 0
     Net increase in loans (43,869) (78,593)
     Purchases of restricted bank stock (24,013) (34,507)
     Redemptions of restricted bank stock 33,578 31,604
     Proceeds from sale of certificates of deposit with banks 1,241 1,237
     Purchases of certificates of deposit with banks (993) 0
     Proceeds from sale of other real estate owned 7,700 731
     Proceeds from death benefit of bank owned life insurance policies 0 688
     Purchase of equity securities (6,260) (1,300)
     Sales of equity securities 669 5,968
     Net cash paid for branch divestiture (136,005) 0
     Net cash provided by (used in) business combinations and divestitures 57,306 (2,651)
     Net cash used in investing activities (154,717) (74,566)
FINANCING ACTIVITIES
     Net increase in deposits 491,259 147,250
     Net decrease in repurchase agreements (127) (5,465)
     Net change in FHLB and other borrowings (154,483) 26,754
     Subordinated debt redemption 0 (12,400)
     Preferred stock redemption 0 (500)
     Common stock options exercised 75 876
     Common stock repurchased (1,921) 0
     Cash dividends paid on common stock (3,228) (1,457)
     Cash dividends paid on preferred stock (345) (364)
     Net cash provided by financing activities 331,230 154,694
Increase in cash and cash equivalents 267,821 14,347
Cash and cash equivalents at beginning of period 28,002 22,221
Cash and cash equivalents at end of period $ 295,823 $ 36,568

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


	Three Months Ended March 31,
	2021		2020
OPERATING ACTIVITIES
Net income	$	8,058	$	1,048
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization and accretion of investments	898		302
Net amortization of deferred loan costs	669		114
Provision for loan losses	618		1,138
Depreciation and amortization	1,003		908
Stock-based compensation	592		498
Loans originated for sale	0		(484,989)
Proceeds of loans sold	1,062		419,868
Holding gain on equity securities	(515)		(14)
Mortgage fee income	0		(11,219)
Gain on sale of available-for-sale securities	(1,156)		(276)
Loss on sale of available-for-sale securities	13		0


Gain on sale of portfolio loans	0		(130)

Income on bank-owned life insurance	(249)		(223)
Deferred income taxes	(1,036)		(929)


Equity method investment income	(6,469)		0
Return on equity method investment	13,080		0
Other assets	10,768		(18,831)
Other liabilities	(17,120)		14,116
Net cash from operating activities	10,216		(78,619)
INVESTING ACTIVITIES
Purchases of available-for-sale investment securities	(74,714)		(16,325)
Maturities/paydowns of available-for-sale investment securities	13,674		18,990
Sales of available-for-sale investment securities	41,037		10,318
Purchases of premises and equipment	(1,436)		(1,384)

Loans, net	(241,558)		(16,063)
Purchases of restricted bank stock	(295)		(7,439)
Redemptions of restricted bank stock	0		13,414


Proceeds from sale of other real estate owned	0		52
Purchase of bank-owned life insurance	(1)		0

Purchase of equity securities	(100)		(498)


Net cash from investing activities	(263,393)		1,065
FINANCING ACTIVITIES
Deposits, net	234,164		332,734
Repurchase agreements, net	347		(826)
FHLB and other borrowings, net	102,185		(192,070)


Payment of subordinated debt issuance costs	36		0

Preferred stock redemption	(7,334)		0
Common stock repurchased	0		(260)
Common stock options exercised	690		38

Cash dividends paid on common stock	(1,153)		(1,076)
Cash dividends paid on preferred stock	(35)		(114)
Net cash from financing activities	328,900		138,426
Increase in cash and cash equivalents	75,723		60,872
Cash and cash equivalents, beginning of period	263,893		28,002
Cash and cash equivalents, end of period	$	339,616	$	88,874


Cash payments for:
Interest on deposits, repurchase agreements and borrowings	$	1,261	$	5,511






Supplemental disclosure of cash flow information:
Fair value of noncontrolling interest at acquisition date	$	500	$	0
Loans transferred to other real estate owned	0		23
Employee stock-based compensation tax withholding obligations	0		35

See accompanying notes to unaudited consolidated financial statements.

109

Notes to the Consolidated Financial Statements

Note 1 – ~~Summary~~Nature of ~~Significant Accounting Policies~~Operations and Basis of Presentation

~~Nature of Operations~~Business and Organization

MVB Financial Corp. ~~(the "Company”~~(“MVB” or the “Company”) is a financial holding company organized ~~in 2003. MVB~~as a West Virginia corporation that operates principally through its wholly owned subsidiary, MVB Bank, Inc. ~~(“MVB Bank” or the~~(the “Bank”). ~~MVB~~The Bank’s subsidiaries include ~~Potomac Mortgage Group (“PMG” which began doing business under the registered trade name “MVB Mortgage”),~~ MVB Insurance, LLC, a title insurance company (“MVB Insurance”), MVB Community Development Corporation (“MVB CDC”), ProCo Global, Inc. (“~~ProCo”~~Chartwell”, which began doing business under the registered trade name Chartwell ~~Compliance “Chartwell”)~~Compliance), Paladin Fraud, LLC (“~~Paladin”~~Paladin Fraud”), and MVB Technology, LLC (“MVB Technology”). The Company also owns a minority interest in Intercoastal Mortgage Company, LLC (“ICM”) and the Bank owns a majority interest in Flexia Payments, LLC (“Flexia”)

~~On March 2,~~The Company conducts a wide range of business activities, primarily commercial and retail (“CoRe”) banking. The Company also continues to be involved in new innovative strategies to provide independent banking to corporate clients throughout the United States by leveraging recent investments in Fintech related companies. The Company considers Fintech companies as those entities that use technology to electronically move funds.

COVID-19 Pandemic

Throughout 2020 and into 2021, economies throughout the ~~Bank and PMG, entered into an Agreement by and among the Bank, PMG, Intercoastal Mortgage Company,~~world have been severely disrupted as a ~~Virginia corporation (“Intercoastal”), and each of H. Edward Dean, III, Tom Pyne and Peter Cameron, providing for the combination~~result of the ~~mortgage origination services businesses~~outbreak of ~~PMG~~COVID-19. The outbreak and ~~Intercoastal. Pursuant to~~any preventative or protective actions that the ~~terms of the Agreement, on the closing date, Intercoastal converted into a Virginia limited liability company and PMG contributed substantially all of~~Company or its ~~assets and liabilities associated with its mortgage operations to Intercoastal as a capital contribution,~~clients may take 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,respect of this ~~Quarterly Report~~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 clients, providers and third parties. The extent to which the COVID-19 pandemic impacts the Company’s future operating results will depend on ~~Form 10-Q.~~future developments, which are highly uncertain and cannot be predicted.

Principles of Consolidation and Basis of Presentation

The financial statements are consolidated to include the accounts of the Company, its subsidiary, the Bank and the Bank’s subsidiaries. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, practices in the banking industry and with instructions to Form 10-Q. ~~Accordingly, they do not include all~~All significant inter-company accounts and transactions have been eliminated in the ~~information and footnotes required by U.S. GAAP for annual year-end~~consolidated 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~~2020 has been derived from audited financial statements included in the ~~Company’s 2019 filing~~Company's Annual Report on Form 10-K for the 2020 Form 10-K. Operating results for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.

~~The accounting~~In February 2021, the Bank entered into an agreement to acquire an 80% interest in Flexia. Flexia owns a license for technology which allows users to access a reloadable account that combines a debit card account and ~~reporting policies of the Company conform to accounting principles generally accepted~~casino gaming accounts into one card, allowing them for non-cash transactions at participating casinos in the United States and ~~practices~~Canada. Although the Company owns, through its subsidiary, the Bank, an 80% interest in Flexia, the ~~banking industry.~~Company is required to consolidate 100% of Flexia within the consolidated financial statements. The ~~preparation~~remaining 20% is accounted for separately as noncontrolling interests within the consolidated financial statements. Noncontrolling interest represents the portion of ownership and profit or loss that is attributable to the minority owners of Flexia.

In preparing the consolidated financial statements, ~~in conformity with accounting principles generally accepted in the United States requires~~ management ~~to make~~makes estimates and assumptions that affect the reported amounts ~~reported in~~of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and ~~accompanying notes.~~the reported amounts of revenues and expenses for the period. Estimates ~~such as~~are based on known facts and circumstances and actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to determination of the allowance for loan losses ~~are based upon known facts~~(“ALL”), purchased credit impaired loans (“PCI loans”), derivative instruments, goodwill and ~~circumstances. Estimates are revised by management in the period such facts~~deferred tax assets and ~~circumstances change. Actual results could differ from those estimates. All significant inter-company accounts and transactions have been eliminated in consolidation.~~liabilities.

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,~~March 31, 2021, the Company holds 1 equity method investment.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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 ~~Annual Report on~~2020 Form ~~10-K for the year ended December 31, 2019 (the "Form 10-K"), filed with the Securities and Exchange Commission (the “SEC”).~~10-K.

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

~~Information is presented in~~The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these ~~notes with dollars expressed in thousands, unless otherwise noted or specified.~~consolidated financial statements were issued.

~~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 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 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 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 continues to evolve. The outbreak and any preventative or protective actions that the Company or its 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 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. 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 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 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 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. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the 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. 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. 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. The Company expects to recognize a one-time cumulative effect adjustment to the ~~allowance for loan losses~~ALL 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~~the Company has formed a 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~~The Company is also in the process of implementing a third-party vendor solution to assist usit in the application of this standard. The adoption of ~~the~~ this standard could result in an increase in the ~~allowance for loan losses~~ALL as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While ~~we are~~the Company is currently unable to reasonably estimate the impact of adopting ASU 2016-13, ~~, we expect~~it expects that the impact of adoption will be significantly influenced by the composition, characteristics and quality of ~~our~~its loan portfolio, as well as the prevailing economic conditions and forecasts as of the adoption date.

In August 2018, the FASB issued 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 Accounting Standards Codification (“ASC”) 715-20 for employers that sponsor defined benefit pension or other postretirement plans. Those modifications include the removal and addition 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 is effective for public business entities for fiscal years ending after December 15, 2020. As ASU 2018-14 revises disclosure requirements. As ASU 2018-04 only revises disclosure requirements, the adoption did not have a material impact on the Company's interim consolidated financial statements. The Company's year-end disclosures will be revised to comply with the new requirements.

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments and certain derivatives, including accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments were effective for the Company beginning January 1, 2021 and did not have a material effect on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional expedients and exceptions for certain contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of rate reform. The guidance is effective from the date of issuance until December 31, 2022. The guidance permits entities to not apply modification accounting or remeasure lease payments in lease contracts if the changes to the contract are related to the discontinuation of the reference rate. If certain criteria are met, the amendments also allow exceptions to the de-designation criteria of the hedging relationship and the assessment of hedge effectiveness during the transition period. In January 2021, ASU 2021-01 was issued by the FASB and clarifies that certain exceptions in reference rate reform apply to derivatives that are affected by the discounting transition. The Company will continue to assess the impact as the reference rate transition occurs over the next two years.

Note 32 – Investment Securities

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

~~Amortized~~The following tables present amortized cost and fair values of investment securities available-for-sale ~~at September 30, 2020 are summarized~~ as ~~follows:~~of the periods indicated:


											March 31, 2021
(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		$	52,602	$	994	$	(214)	$	53,382
U.S. sponsored mortgage-backed securities		67,931		382		(216)		68,097
United States government agency securities										United States government agency securities	$	48,483	$	446	$	(825)	$	48,104
United States sponsored mortgage-backed securities										United States sponsored mortgage-backed securities	90,076		428		(1,297)		89,207
United States treasury securities										United States treasury securities	56,953		97		(80)		56,970
Municipal securities	Municipal securities	148,019		5,503		(178)		153,344		Municipal securities	206,135		4,607		(1,008)		209,734
Other debt securities	Other debt securities	7,500		0		0		7,500		Other debt securities	7,500		0		0		7,500
Total debt securities	Total debt securities	276,052		6,879		(608)		282,323		Total debt securities	409,147		5,578		(3,210)		411,515
Other securities	Other securities	15,556		171		(86)		15,641		Other securities	11,543		109		(45)		11,607
Total investment securities available-for-sale	Total investment securities available-for-sale	$	291,608	7,050		$	(694)	$	297,964	Total investment securities available-for-sale	$	420,690	$	5,687	$	(3,255)	$	423,122

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


											December 31, 2020
(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
United States government agency securities										United States government agency securities	$	56,207	$	995	$	(210)	$	56,992
United States sponsored mortgage-backed securities										United States sponsored mortgage-backed securities	94,968		972		(171)		95,769
Municipal securities	Municipal securities	108,750		4,399		(57)		113,092		Municipal securities	223,642		8,327		(82)		231,887
Other debt securities										Other debt securities	7,500		0		0		7,500
Total debt securities	Total debt securities	219,544		4,786		(930)		223,400		Total debt securities	382,317		10,294		(463)		392,148
Other securities	Other securities	12,247		181		(7)		12,421		Other securities	18,401		146		(71)		18,476
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	$	400,718	$	10,440	$	(534)	$	410,624

The following table ~~summarizes~~presents amortized cost and fair values of available-for-sale debt securities by contractual ~~maturity:~~maturity as of the period indicated:


		September 30, 2020
						March 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value			(Dollars in thousands)	Amortized Cost		Fair Value
Within one year	Within one year	$	0	$	0		Within one year	$	0	$	0
After one year, but within five years	After one year, but within five years	8,524		8,892			After one year, but within five years	62,819		63,045
After five years, but within ten years	After five years, but within ten years	40,339		41,084			After five years, but within ten years	37,397		37,427
After ten years	After ten years	227,189		232,347			After ten years	308,931		311,043
Total	Total	$	276,052	$	282,323		Total	$	409,147	$	411,515

The table above reflects contractual maturities. Actual results will differ as the loans underlying the mortgage-backed securities may repay sooner than scheduled.

Investment securities with a carrying value of ~~$260.4~~$239.4 million and $229.4 million at ~~September 30,~~March 31, 2021 and December 31, 2020, respectively, were pledged to secure public funds, repurchase agreements and potential borrowings at the Federal Reserve Discount Window.

The Company’s investment portfolio includes securities that are in an unrealized loss position as of ~~September 30, 2020,~~March 31, 2021, the details of which are included in the following table. Although these securities, if sold at ~~September 30, 2020~~March 31, 2021, would result in a pretax loss of ~~$694 thousand,~~$3.3 million, 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. It is more likely than not that the Company will not, for liquidity purposes, sell any securities at a loss. Declines in the fair values of these securities can be traced to general market conditions, which reflect the prospect for the economy as a whole. When determining other-than-temporary impairment on securities, the Company considers such factors as adverse conditions specifically related to a certain security or to specific conditions in an industry or geographic area, the time frame securities have been in an unrealized loss position, the Company’s ability to hold the security for a period of time sufficient to allow for anticipated recovery in value, whether or not the security has been downgraded by a rating agency and whether or not the financial condition of the security issuer has severely deteriorated. As of ~~September 30, 2020,~~March 31, 2021, 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 tables presents investments in an unrealized loss position as of the periods indicated:


	March 31, 2021
(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (28)	$	23,502	$	(705)	$	11,617	$	(120)
United States sponsored mortgage-backed securities (21)	68,695		(1,287)		2,005		(10)
United States treasury securities (9)	35,568		(80)		0		0
Municipal securities (86)	73,445		(952)		2,049		(56)
Other securities (3)	1,957		(43)		1,013		(2)
	$	203,167	$	(3,067)	$	16,684	$	(188)


	December 31, 2020
(Dollars in thousands)	Less than 12 months				12 months or more
Description and number of positions	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
United States government agency securities (27)	$	19,021	$	(68)	$	12,574	$	(142)
United States sponsored mortgage-backed securities (9)	15,331		(155)		3,349		(16)
Municipal securities (14)	11,856		(82)		0		0
Other securities (5)	3,947		(71)		0		0
	$	50,155	$	(376)	$	15,923	$	(158)

The following table ~~discloses investments in an unrealized loss position at September 30, 2020:~~summarizes investment sales and related gains and losses for the periods shown:

(Dollars in thousands) Less than 12 months 12 months or more
Description and number of positions Fair Value Unrealized Loss Fair Value Unrealized Loss
U.S. agency securities (25) $ 11,520 $ (62) $ 13,166 $ (152)
U.S. sponsored mortgage-backed securities (8) 14,701 (201) 1,996 (15)
Municipal securities (20) 18,566 (178) 292 0
Other securities (4) 3,937 (86) 0 0
$ 48,724 $ (527) $ 15,454 $ (167)

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

(Dollars in thousands) Less than 12 months 12 months or more
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)
Municipal securities (13) 6,018 (40) 828 (17)
Other securities (2) 1,093 (7) 0 0
$ 31,931 $ (276) $ 43,725 $ (661)


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Sales of available-for-sale investments	$	41,037	$	10,318
Gains, gross	1,156		276

Losses, gross	13		0

For the ~~three-month periods~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company sold investments available-for-sale of $7.4 million and $380 thousand, respectively. These sales resulted in gross gains of $69 thousand and $0 and gross losses of $34 thousand and $11 thousand, respectively.0 equity investments.

For the ~~nine-month periods~~three months 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 $899 thousand and $80 thousand and gross losses of $34 thousand and $259 thousand, respectively.

For the three-month periods ended September 30, 2020 and 2019, the Company sold equity 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 September 30, 2020 and 2019,~~March 31, 2021, the Company recognized unrealized holding gains on equity securities of ~~$94 thousand and $0, respectively. For the nine-month periods ended September 30, 2020 and 2019, the Company recognized unrealized~~$0.5 million which are included in noninterest income. Unrealized holding gains on equity securities ~~of $111 thousand and $13.8 million, respectively. These~~for the three months ended March 31, 2020 were ~~recorded in noninterest income in the consolidated statements of income.~~not material.

~~MVB~~Qualified Affordable Housing Projects

The Company has invested, as a limited partner, in 3 Section 42 affordable housing investment funds. In exchange for these investments, ~~MVB~~the Company 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~~March 31, 2021 and December 31, ~~2019, MVB~~2020, the Company has recognized, as an investment, ~~$2.8~~$2.7 million and ~~$3.1~~$2.8 million in the aggregate between the 3 affordable housing investment ~~funds. In addition, MVB~~funds and has recognized ~~0 gains or~~cumulative losses of $1.3 million and $1.2 million from ~~the 3 affordable housing investment funds.~~these funds as of March 31, 2021 and December 31, 2020, respectively.

Note 43 – Loans and Allowance for Loan Losses

Prior to the ICM transaction, the Company routinely generated one to four family mortgages for sale into the secondary market. During the three months ended March 31, 2020, the Company received sales proceeds of $419.9 million, resulting in mortgage fee income of $11.2 million.

The following table presents the components of loans as of the periods indicated:


(Dollars in thousands)	March 31, 2021		December 31, 2020
Commercial and non-residential real estate	$	1,353,339	$	1,141,114
Residential real estate	275,710		240,264
Home equity	28,843		30,828
Consumer	3,149		3,156
Total	1,661,041		1,415,362
Purchased credit impaired loans:
Commercial and non-residential real estate	19,834		21,008
Residential real estate	14,306		16,943

Consumer	1,284		1,488
Total purchased credit impaired loans	35,424		39,439
Total Loans	$	1,696,465	$	1,454,801
Deferred loan origination costs and (fees), net	(2,080)		(1,057)
Loans receivable	$	1,694,385	$	1,453,744

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 ~~September 30, 2020~~which the Company develops and ~~December 31, 2019, were~~documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows:

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

~~Performing~~Commercial business loans ~~acquired~~ – Commercial loans are made to provide funds for equipment and general corporate needs, as ~~a result~~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 ~~FDIC-assisted acquisition~~borrower’s business. Commercial loans also include lines of ~~First State~~credit that are ~~included~~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 ~~Company's legacy loan portfolio within this Note. The PCI loans acquired from First State are discussed~~risk of adverse changes in the local economy and a ~~separate section,~~ ~~Purchased Credit Impaired Loans, at the end of this Note~~tenant’s deteriorating credit strength, lease expirations in soft markets and ~~are not included, unless otherwise indicated.~~sustained vacancies which can adversely impact cash flow.

~~For~~Commercial acquisition, development and construction loans ~~with maturities over one year,~~ – 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 ~~origination fees and direct~~commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan ~~origination costs are deferred and recognized over~~funds to pay interest charges on the ~~life~~outstanding balance of the loan. ~~For~~

Commercial Small Business Administration (“SBA”) Paycheck Protection Program (“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 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.

The following table presents impaired loans by class, excluding PCI loans, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary as of the periods indicated:


	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2021
Commercial
Commercial business	$	3,504	$	741	$	3,824	$	7,328	$	8,770
Commercial real estate	767		267		956		1,723		1,877
Acquisition and development	0		0		2,035		2,035		3,441

Total commercial	4,271		1,008		6,815		11,086		14,088
Residential	0		0		1,927		1,927		2,160
Home equity	0		0		95		95		95
Consumer	0		0		3		3		3
Total impaired loans	$	4,271	$	1,008	$	8,840	$	13,111	$	16,346


December 31, 2020
Commercial
Commercial business	$	3,431	$	1,032	$	5,653	$	9,084	$	10,440
Commercial real estate	772		264		944		1,716		1,864
Acquisition and development	0		0		2,534		2,534		3,939

Total commercial	4,203		1,296		9,131		13,334		16,243
Residential	0		0		1,960		1,960		2,232
Home equity	0		0		95		95		95
Consumer	0		0		5		5		5
Total impaired loans	$	4,203	$	1,296	$	11,191	$	15,394	$	18,575

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


		Three Months Ended March 31,
	2021			2020
(Dollars in thousands)		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial
Commercial business		$	6,521	$	0	$	0	$	3,261	$	0	$	0
Commercial real estate		2,278		11		10		2,898		26		23
Acquisition and development		357		0		0		2,048		29		19
SBA PPP		0		0		0		0		0		0
Total commercial		9,156		11		10		8,207		55		42
Residential		1,944		3		4		2,382		5		5
Home equity		69		0		0		101		0		0
Consumer		3		0		0		19		0		0
Total		$	11,172	$	14	$	14	$	10,709	$	60	$	47

As of March 31, 2021, the Bank’s other real estate owned balance totaled $5.2 million, of which $4.1 million was related to the acquisition of The First State Bank (“First State”) in 2020. The Bank held 37 foreclosed residential real estate properties representing $3.5 million, or 67.3%, of the total balance of other real estate owned. The remaining $1.7 million, or 32.7%, of other real estate owned is the result of the foreclosure of 7 unrelated commercial loans. There are 9 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure, with a total recorded investment of

$0.7 million as of March 31, 2021. These include five MVB loans totaling $0.2 million and four First State loans totaling $0.5 million. 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.

Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that bank will sustain some loss if the deficiencies are not corrected.

Loans categorized as “Doubtful” rated have all the weakness inherent in those classified substandard with the added characteristic that the weakness make collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an ~~original maturity~~undue and unwarranted credit risk, but not to the point of ~~less than one year,~~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 ~~fees~~ and ~~direct~~on an ongoing basis. The Credit Department ensures that a review of all commercial relationships of $1.0 million or greater is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan ~~origination costs~~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 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 ~~recognized~~collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The following table represents the classes of the loan portfolio, excluding PCI loans, summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the periods indicated:


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2021
Commercial
Commercial business	$	523,254	$	14,114	$	14,081	$	962	$	552,411
Commercial real estate	425,841		31,503		33,774		533		491,651
Acquisition and development	87,603		25,064		4,366		1,683		118,716
SBA PPP	190,561		0		0		0		190,561
Total commercial	1,227,259		70,681		52,221		3,178		1,353,339
Residential	271,772		933		2,834		171		275,710
Home equity	28,295		380		142		26		28,843
Consumer	3,120		24		5		0		3,149
Total Loans	$	1,530,446	$	72,018	$	55,202	$	3,375	$	1,661,041

December 31, 2020
Commercial
Commercial business	$	496,222	$	9,529	$	17,045	$	1,095	$	523,891
Commercial real estate	356,544		32,044		34,001		533		423,122
Acquisition and development	80,771		25,001		4,184		2,170		112,126
SBA PPP	81,975		0		0		0		81,975
Total commercial	1,015,512		66,574		55,230		3,798		1,141,114
Residential	236,250		948		2,896		170		240,264
Home equity	30,277		381		144		26		30,828
Consumer	3,124		32		0		0		3,156
Total Loans	$	1,285,163	$	67,935	$	58,270	$	3,994	$	1,415,362

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 SARC, 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 ~~incurred.~~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 the Company 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 the receipt of six consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.

The following table presents the classes of the loan portfolio, excluding PCI loans, summarized by aging categories of performing loans and non-accrual loans as of the periods indicated:


(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, 2021
Commercial
Commercial business	$	551,150	$	23	$	244	$	994	$	1,261	$	552,411	$	6,938	$	0
Commercial real estate	490,992		69		42		548		659		491,651		956		0
Acquisition and development	116,190		578		0		1,948		2,526		118,716		2,036		0
SBA PPP	190,561		0		0		0		0		190,561		0		0
Total commercial	1,348,893		670		286		3,490		4,446		1,353,339		9,930		0
Residential	267,500		1,740		5,767		703		8,210		275,710		1,549		0
Home equity	28,657		75		16		95		186		28,843		95		0
Consumer	3,145		0		0		4		4		3,149		3		0
Total Loans	$	1,648,195	$	2,485	$	6,069	$	4,292	$	12,846	$	1,661,041	$	11,577	$	0

December 31, 2020
Commercial
Commercial business	$	521,799	$	1,040	$	33	$	1,019	$	2,092	$	523,891	$	8,601	$	0
Commercial real estate	422,343		34		212		533		779		423,122		944		0
Acquisition and development	109,686		0		0		2,440		2,440		112,126		2534		0
SBA PPP	81,975		0		0		0		0		81,975		0		0
Total commercial	1,135,803		1,074		245		3,992		5,311		1,141,114		12,079		0
Residential	235,420		2,058		1,969		817		4,844		240,264		1,534		0
Home equity	30,369		289		75		95		459		30,828		95		0
Consumer	3,156		0		0		0		0		3,156		5		0
Total Loans	$	1,404,748	$	3,421	$	2,289	$	4,904	$	10,614	$	1,415,362	$	13,713	$	0

An ~~allowance for loan losses (“ALL”)~~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~~$2.0 million and $2.0 million, while the related reserves were ~~$78 thousand~~$0.1 million and ~~$139 thousand~~$0.1 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. 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 ~~qualitative~~qualified factors.

The segments described ~~below in the impaired loans by class table,~~above, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and Bank management 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, quality of the loan 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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was ~~$332 thousand.~~$0.6 million.

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 following table presents the primary segments of the ALL, excluding PCI loans, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of the periods indicated:


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at December 31, 2020	$	24,033	$	1,378	$	298	$	51	$	25,760
Charge-offs	(265)		0		0		0		(265)
Recoveries	10		0		4		3		17
Provision	501		135		(19)		(5)		612

ALL balance at March 31, 2021	$	24,279	$	1,513	$	283	$	49	$	26,124
Individually evaluated for impairment	$	1,008	$	0	$	0	$	0	$	1,008
Collectively evaluated for impairment	$	23,271	$	1,513	$	283	$	49	$	25,116

The following table presents the primary segments of the Company's loan portfolio, excluding PCI loans, as of the periods indicated:


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
March 31, 2021
Individually evaluated for impairment	$	11,086	$	1,927	$	95	$	3	$	13,111
Collectively evaluated for impairment	1,342,253		273,783		28,748		3,146		1,647,930
Total Loans	$	1,353,339	$	275,710	$	28,843	$	3,149	$	1,661,041


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Charge-offs	(1,756)		0		0		0		(1,756)
Recoveries	0		0		2		2		4
Provision	1,255		0		(93)		(24)		1,138
ALL balance at March 31, 2020	$	9,597	$	1,272	$	236	$	56	$	11,161
Individually evaluated for impairment	$	532	$	0	$	0	$	0	$	532
Collectively evaluated for impairment	$	9,065	$	1,272	$	236	$	56	$	10,629

The following table presents the primary segments of the Company's loan portfolio, excluding PCI loans, as of the periods indicated:


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
March 31, 2020
Individually evaluated for impairment	$	7,737	$	2,385	$	104	$	0	$	10,226
Collectively evaluated for impairment	1,086,757		259,108		36,752		3,763		1,386,380
Total Loans	$	1,094,494	$	261,493	$	36,856	$	3,763	$	1,396,606

The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

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

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
December 31, 2019 $ 10,098 $ 1,272 $ 327 $ 78 $ 11,775
     Charge-offs (1,856) 0 (23) 0 (1,879)
     Recoveries 9 0 6 2 17
     Provision 15,893 356 38 (30) 16,257
     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
Individually evaluated for impairment $ 1,984 $ 0 $ 0 $ 0 $ 1,984
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's loan portfolio as of September 30, 2020:~~

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
Individually evaluated for impairment $ 14,350 $ 3,051 $ 95 $ 6 $ 17,502
Collectively evaluated for impairment 1,102,976 231,707 34,689 3,980 1,373,352
Total Loans 1,117,326 234,758 34,784 3,986 1,390,854

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
December 31, 2018 $ 8,605 $ 1,405 $ 684 $ 245 $ 10,939
     Charge-offs (666) 0 0 (10) (676)
     Recoveries 1 1 2 50 54
     Provision 1,721 (98) 60 (126) 1,557
ALL balance at September 30, 2019 $ 9,661 $ 1,308 $ 746 $ 159 $ 11,874
Individually evaluated for impairment $ 1,515 $ 0 $ 0 $ 0 $ 1,515
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's loan portfolio as of September 30, 2019:~~

(Dollars in thousands) Commercial Residential Home Equity Consumer Total
Individually evaluated for impairment $ 7,694 $ 2,351 $ 150 $ 36 $ 10,231
Collectively evaluated for impairment 1,016,172 288,627 59,324 7,936 1,372,059
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 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.

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

Impaired Loans with Specific Allowance Impaired Loans with No Specific Allowance Total Impaired Loans
(Dollars in thousands) Recorded Investment Related Allowance Recorded Investment Recorded Investment Unpaid Principal Balance
September 30, 2020
Commercial
     Commercial Business $ 7,838 $ 1,574 $ 585 $ 8,423 $ 9,655
     Commercial Real Estate 1,922 410 947 2,869 2,985
     Acquisition & Development 0 0 3,058 3,058 4,460
     SBA Paycheck Protection Program 0 0 0 0 0
          Total Commercial 9,760 1,984 4,590 14,350 17,100
Residential 749 0 2,302 3,051 3,161
Home Equity 0 0 95 95 95
Consumer 0 0 6 6 6
          Total Impaired Loans $ 10,509 $ 1,984 $ 6,993 $ 17,502 $ 20,362
December 31, 2019
Commercial
     Commercial Business $ 2,606 $ 249 $ 644 $ 3,250 $ 4,308
     Commercial Real Estate 1,786 325 295 2,081 2,171
     Acquisition & Development 0 0 2,070 2,070 3,467
     SBA Paycheck Protection Program 0 0 0 0 0
          Total Commercial 4,392 574 3,009 7,401 9,946
Residential 0 0 1,953 1,953 2,045
Home Equity 0 0 95 95 100
Consumer 0 0 34 34 35
          Total Impaired Loans $ 4,392 $ 574 $ 5,091 $ 9,483 $ 12,126

Impaired loans have increased by $8.0 million, or 84.6%, during the nine months ended 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 $7.5 million of impaired loans, curtailments of $2.0 million, the foreclosure of 1 consumer loan which required the reclassification of $23 thousand to other real estate owned, the reclassification of $26 thousand to performing loans based on improved repayment performance, and normal loan amortization of $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:~~

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

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

As of September 30, 2020, the Bank’s other real estate owned balance totaled $6.4 million, of which $5.2 million was related to the acquisition of First State. The Bank held 41 foreclosed residential real estate property representing $3.8 million, or 59.4%, of the total balance of other real estate owned. The remaining $2.6 million, or 40.6%, of other real estate owned is the result of the foreclosure of 14 unrelated commercial 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 $206 thousand as of September 30, 2020. These loans are included in the table above and have 0 specific allowance allocated to them.

As of September 30, 2019, the Bank’s other real estate owned balance totaled $1.4 million. The Bank held 11 foreclosed residential real estate properties representing $535 thousand, or 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 $163 thousand. The 2 remaining residential real estate properties, totaling $79 thousand, were the result of the foreclosure of 2 unrelated borrowers. The remaining $825 thousand, or 61%, of other real estate owned is the result of the foreclosure of 2 unrelated commercial development loans. There are 8 additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was $768 thousand as of 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 $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 September 30, 2020 and December 31, 2019:

(Dollars in thousands) Pass Special Mention Substandard Doubtful Total
September 30, 2020
Commercial
     Commercial Business $ 450,202 $ 12,546 $ 17,345 $ 0 $ 480,093
     Commercial Real Estate 362,973 15,647 39,743 0 418,363
     Acquisition & Development 107,347 18,744 4,870 0 130,961
     SBA Paycheck Protection Program 87,909 0 0 0 87,909
          Total Commercial 1,008,431 46,937 61,958 0 1,117,326
Residential 229,621 1,249 3,778 110 234,758
Home Equity 34,333 382 69 0 34,784
Consumer 3,951 35 0 0 3,986
          Total Loans $ 1,276,336 $ 48,603 $ 65,805 $ 110 $ 1,390,854
December 31, 2019
Commercial
     Commercial Business $ 511,590 $ 17,398 $ 11,894 $ 0 $ 540,882
     Commercial Real Estate 406,712 3,564 1,494 0 411,770
     Acquisition & Development 106,428 1,869 2,879 0 111,176
          Total Commercial 1,024,730 22,831 16,267 0 1,063,828
Residential 267,367 1,946 2,177 114 271,604
Home Equity 34,641 383 82 0 35,106
Consumer 3,613 56 28 0 3,697
          Total Loans $ 1,330,351 $ 25,216 $ 18,554 $ 114 $ 1,374,235

Loans classified as Special Mention totaled $48.6 million and $25.2 million as of September 30, 2020 and December 31, 2019, respectively. The increase of $23.4 million, or 92.9%, was concentrated in the commercial loan portfolio. This increase is primarily the result of the risk grade downgrade of 8 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. Offsetting these additions to the total of Special Mention loans were 5 unrelated commercial loans which were paid in full since December 31, 2019, for a total of $12.1 million. Additionally, the total was impacted by charge-offs of $1.9 million, which included a $1.8 million 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 $65.8 million and $18.6 million as of September 30, 2020 and December 31, 2019, respectively. The increase of $47.2 million, or 254%, was concentrated in the commercial loan portfolio. The increase is primarily the result of the risk grade downgrade of 6 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 commercial relationships with loans totaling $751 thousand, 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. In addition, the total increase of Substandard commercial loans was offset by the $2.4 million decrease in the outstanding balance of 2 performing Substandard loans, which are classified due to identified operational 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 September 30, 2020 and December 31, 2019:~~

(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 $ 473,803 $ 5,155 $ 986 $ 149 $ 6,290 $ 480,093 $ 8,027 $ 0
     Commercial Real Estate 417,464 200 0 699 899 418,363 1,125 0
     Acquisition & Development 127,766 235 0 2,960 3,195 130,961 3,059 0
     SBA Paycheck Protection Program 87,909 0 0 0 0 87,909 0 0
          Total Commercial 1,106,942 5,590 986 3,808 10,384 1,117,326 12,211 0
Residential 232,758 0 246 1,754 2,000 234,758 2,581 0
Home Equity 34,565 29 95 95 219 34,784 95 0
Consumer 3,986 0 0 0 0 3,986 6 0
          Total Loans $ 1,378,251 $ 5,619 $ 1,327 $ 5,657 $ 12,603 $ 1,390,854 $ 14,893 $ 0
December 31, 2019
Commercial
     Commercial Business $ 537,602 $ 3,189 $ 47 $ 44 $ 3,280 $ 540,882 $ 2,848 $ 0
     Commercial Real Estate 411,070 522 178 0 700 411,770 295 0
     Acquisition & Development 110,717 180 0 279 459 111,176 390 0
          Total Commercial 1,059,389 3,891 225 323 4,439 1,063,828 3,533 0
Residential 267,515 3,003 549 537 4,089 271,604 1,461 0
Home Equity 34,382 545 84 95 724 35,106 95 0
Consumer 3,610 1 58 28 87 3,697 34 0
          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~~At both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. At September 30, 2020March 31, 2021 and December 31, ~~2019,~~2020, the Bank had specific reserve allocations for ~~TDR’s~~troubled debt restructurings (“TDRs”) of ~~$1.2 million and $527 thousand, respectively.~~

$0.6 million. Loans considered to be troubled debt restructured loans totaled ~~$11.4~~$8.3 million and ~~$7.7~~$10.2 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Of these totals, ~~$2.6~~$1.5 million and ~~$4.4~~$1.6 million, respectively, represent accruing troubled debt restructured loans and represent ~~15%~~11% and ~~46%~~10%, respectively, of total impaired loans. Meanwhile, as of ~~September 30, 2020, $2.9~~March 31, 2021, $2.8 million represent 4 loans to 2 borrowers that have defaulted under the restructured terms. The largest of these loans, at $2.2 million, is a commercial loan and the other three of these loans, totaling ~~$647 thousand,~~$0.6 million, are commercial acquisition and development loans that were considered ~~TDR’s~~TDRs 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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

During the quarter ended ~~September 30, 2020,~~March 31, 2021, no additional loans were classified as ~~TDR's,~~TDRs 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. The following table presents the new TDRs as of the period indicated:



	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


Total commercial	4	313		308



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.

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

1The 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.PCI loans. The ~~Company did not hold any PCI loans as of September 30, 2019 or December 31, 2019.~~

~~The~~following table presents the carrying amount of the PCI loan portfolio is as ~~follows:~~of the periods indicated:

~~(Dollars in thousands)~~

~~As of September 30, 2020~~

~~Commercial~~

~~21,233~~

~~Residential~~

~~16,549~~

~~Home Equity~~

~~Consumer~~

~~1,688~~

~~Outstanding balance~~

~~39,470~~

~~Carrying amount, net of allowance~~

~~39,373~~


(Dollars in thousands)	March 31, 2021		December 31, 2020
Commercial	$	19,834	$	21,008
Residential	14,306		16,943

Consumer	1,284		1,488
Outstanding balance	$	35,424	$	39,439
Carrying amount, net of allowance	$	35,334	$	39,355

~~Accretable~~The following table presents the accretable yield, or income expected to be collected, is as ~~follows:~~of the periods indicated:

~~(Dollars in thousands)~~

~~As of September 30, 2020~~

~~Beginning balance~~

~~New loans purchased~~

~~11,746~~

~~Accretion of income~~

~~(1,593)~~

~~Reclassification from non-accretable difference~~

~~1,017~~

~~Disposals~~

~~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.


(Dollars in thousands)	March 31, 2021		December 31, 2020
Beginning balance	$	8,313	$	0
New loans purchased	0		11,746
Accretion of income	(1,021)		(2,945)
Other changes in expected cash flows	955		(488)

Ending balance	$	8,247	$	8,313

There were no PCI loans purchased during the three ~~month period~~months 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~~

March 31, 2021. 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,~~March 31, 2021, the Company held no such loans.

The following ~~tables summarize~~table summarizes the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment ~~as of September 30, 2020~~ for the PCI loan ~~portfolio:~~portfolio as of the periods indicated:

(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		Total
December 31, 2020	$	0	$	84	$	84


Provision	90		(84)		6
ALL balance at March 31, 2021	$	90	$	0	$	90

Collectively evaluated for impairment	$	90	$	0	$	90

For the PCI loan portfolio disclosed above, the Company increased the ALL by $0.01 million during the three months ended March 31, 2021.

There were no PCI as of March 31, 2020 and, accordingly, there was no ALL related to PCI loans for the three months ended March 31, 2020.

As of March 31, 2021, the loans in the Company's PCI portfolio were all collectively evaluated for impairment and are segmented into three categories: commercial loans totaling $19.8 million, residential loans totaling $14.3 million, and consumer loans totaling $1.3 million, for a portfolio total of $35.4 million.

2722

(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~~presents 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:~~the periods indicated:


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2020
March 31, 2021												March 31, 2021
Commercial	Commercial											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
Commercial business												Commercial business	$	14,678	$	35	$	466	$	2,411	$	17,590
Commercial real estate												Commercial real estate	1,220		2		0		0		1,222
Acquisition and development												Acquisition and development	1,022		0		0		0		1,022

Total Commercial		19,497		0		1,736		0		21,233
Total commercial												Total commercial	16,920		37		466		2,411		19,834
Residential	Residential	14,698		0		1,844		7		16,549		Residential	11,864		327		861		1,254		14,306

Consumer	Consumer	1,402		3		0		283		1,688		Consumer	1,278		0		0		6		1,284
Total Loans	Total Loans	$	35,597	$	3	$	3,580	$	290	$	39,470	Total Loans	$	30,062	$	364	$	1,327	$	3,671	$	35,424

December 31, 2020												December 31, 2020
Commercial												Commercial
Commercial business												Commercial business	$	12,263	$	136	$	345	$	4,860	$	17,604
Commercial real estate												Commercial real estate	982		3		263		21		1,269
Acquisition and development												Acquisition and development	1,900		0		0		235		2,135

Total commercial												Total commercial	15,145		139		608		5,116		21,008
Residential												Residential	15,157		0		1,665		121		16,943

Consumer												Consumer	1,256		0		0		232		1,488
Total Loans												Total Loans	$	31,558	$	139	$	2,273	$	5,469	$	39,439

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:~~the periods indicated:


(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
September 30, 2020
March 31, 2021																		March 31, 2021
Commercial	Commercial																	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
Commercial business																		Commercial business	$	15,907	$	296	$	111	$	1,276	$	1,683	$	17,590
Commercial real estate																		Commercial real estate	1,197		0		23		2		25		1,222
Acquisition and development																		Acquisition and development	784		238		0		0		238		1,022

Total Commercial		17,837		891		714		1,791		3,396		21,233		1,731		0
Total commercial																		Total commercial	17,888		534		134		1,278		1,946		19,834
Residential	Residential	12,588		500		418		3,043		3,961		16,549		3,360		0		Residential	11,806		204		493		1,803		2,500		14,306

Consumer	Consumer	1,393		2		10		283		295		1,688		283		0		Consumer	1,278		0		0		6		6		1,284
Total Loans	Total Loans	$	31,818	$	1,393	$	1,142	$	5,117	$	7,652	$	39,470	$	5,374	$	0	Total Loans	$	30,972	$	738	$	627	$	3,087	$	4,452	$	35,424

December 31, 2020																		December 31, 2020
Commercial																		Commercial
Commercial business																		Commercial business	$	16,264	$	71	$	65	$	1,204	$	1,340	$	17,604
Commercial real estate																		Commercial real estate	1,157		0		0		112		112		1,269
Acquisition and development																		Acquisition and development	2,135		0		0		0		0		2,135

Total commercial																		Total commercial	19,556		71		65		1,316		1,452		21,008
Residential																		Residential	13,714		710		145		2,374		3,229		16,943

Consumer																		Consumer	1,245		3		1		239		243		1,488
Total Loans																		Total Loans	$	34,515	$	784	$	211	$	3,929	$	4,924	$	39,439

None of the PCI loans are considered non-accrual as they are all currently accreting interest income under PCI accounting.

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.

28PPP Loans and CARES Act Deferrals

The Company is actively participating in the PPP as a lender, evaluating other programs available to assist its clients and providing deferrals consistent with GSE guidelines. The Company originated 634 PPP loans with outstanding balances of $88.5 million through our internal commercial team and originated PPP loans totaling $102.1 million through our partnership with a Fintech company as of March 31, 2021.

As of March 31, 2021, commercial loans totaling $34.7 million and mortgage loans totaling $9.0 million were approved for modifications, such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings in reliance on guidance issued by banking regulators titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus.”

Note 54 – Premises and Equipment

~~Premises~~The following table presents the components of premises and equipment ~~were~~ as ~~follows:~~of the periods indicated:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2020		December 31, 2019		(Dollars in thousands)	March 31, 2021		December 31, 2020
Land	Land	$	3,936	$	3,105	Land	$	3,936	$	3,936
Buildings and improvements	Buildings and improvements	14,350		13,352		Buildings and improvements	14,350		14,350
Furniture, fixtures and equipment	Furniture, fixtures and equipment	16,638		15,553		Furniture, fixtures and equipment	17,705		17,451

Software						Software	3,191		1,548
Construction in progress	Construction in progress	1,814		1,019		Construction in progress	53		28
Leasehold improvements	Leasehold improvements	2,832		1,985		Leasehold improvements	3,079		3,079
		39,570		35,014			42,314		40,392
Accumulated depreciation	Accumulated depreciation	(13,394)		(13,040)		Accumulated depreciation	(15,024)		(14,189)
Net premises and equipment	Net premises and equipment	$	26,176	$	21,974	Net premises and equipment	$	27,290	$	26,203

The Company leases certain premises and equipment under operating and finance leases. At ~~September 30, 2020,~~March 31, 2021, the Company had lease liabilities totaling ~~$18.6~~$18.2 million, of which $18.1 million was related to operating leases and $0.1 million was related to finance leases, and right-of-use assets totaling ~~$17.9~~$17.5 million, of which $17.3 million was related to operating leases and $0.2 million was related to finance leases, related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. At ~~September 30, 2020,~~March 31, 2021, the ~~weighted average~~weighted-average remaining lease term for finance leases was ~~1.9~~2.1 years and the ~~weighted average~~weighted-average discount rate used in the measurement of finance lease liabilities was ~~2.78%~~2.3%. At ~~September 30, 2020,~~March 31, 2021, the ~~weighted average~~weighted-average remaining lease term for operating leases was ~~13.2~~12.7 years and the ~~weighted average~~weighted-average discount rate used in the measurement of operating lease liabilities was ~~2.93%~~2.9%.

At December 31, 2020, the Company had lease liabilities totaling $18.4 million, of which $18.3 million was related to operating leases and $0.2 million was related to finance leases, and right-of-use assets totaling $17.7 million, of which $17.5 million was related to operating leases and $0.2 million was related to finance leases, related to these leases. Lease ~~costs were as follows:~~

(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 $ 49 $ 13 $ 58 $ 18
Interest on lease liabilities, finance leases 3 1 6 2
Operating lease cost 1,594 473 1,489 482
Short-term lease cost 26 0 57 16
Variable lease cost 30 10 30 10
Total lease cost $ 1,702 $ 497 $ 1,640 $ 528
liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. For the year ended December 31, 2020, the weighted-average remaining lease term for finance leases was 2.3 years and the weighted-average discount rate used in the measurement of finance lease liabilities was 2.4%. At December 31, 2020, the weighted-average remaining lease term for operating leases was 12.9 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 2.9%.

~~There were no sale and leaseback transactions, leveraged leases, or~~

The following table presents lease ~~transactions with related parties during~~costs for the ~~nine months ended September 30, 2020.~~periods indicated:


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Amortization of right-of-use assets, finance leases	$	14	$	18
Interest on lease liabilities, finance leases	1		1
Operating lease cost	477		544
Short-term lease cost	1		14
Variable lease cost	10		10
Total lease cost	$	503	$	587

~~Future~~

The following table presents future minimum payments for finance leases and operating leases with initial or remaining terms of one year or more ~~are~~ as ~~follows:~~of March 31, 2021:


		September 30, 2020
(Dollars in thousands)	(Dollars in thousands)	Finance Leases		Operating Leases		(Dollars in thousands)	Finance Leases		Operating Leases
2020		$	54	$	1,374
2021	2021	54		1,786		2021	$	44	$	1,285
2022	2022	9		1,813		2022	41		1,825
2023	2023	0		1,724		2023	5		1,779
2024	2024	0		1,705		2024	5		1,709
2025 and thereafter		0		14,492
2025						2025	4		1,708
2026 and thereafter						2026 and thereafter	0		13,863
Total future minimum lease payments	Total future minimum lease payments	$	117	$	22,894	Total future minimum lease payments	$	99	$	22,169
Less: Amounts representing interest	Less: Amounts representing interest	(3)		(4,426)		Less: Amounts representing interest	(2)		(4,045)
Present value of net future minimum lease payments	Present value of net future minimum lease payments	$	114	$	18,468	Present value of net future minimum lease payments	$	97	$	18,124

Note 65 – Equity Method Investment

In the third quarter of 2020, the Company acquired a portion of ~~Intercoastal Mortgage, LLC (“ICM”)~~ICM and recognizes its ownership as an equity method investment initially recorded at fair ~~value.~~value and subsequently adjusted for the Company's share of ICM's earnings. 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~~required to provide summarized income statement information for this investee for all periods presented. The Company's share of net income from its equity method investment totaled $6.5 million for the three months ended March 31, 2021.

The following table ~~provides~~presents summarized income statement information for the Company's equity method investment for the ~~three and nine months ended September 30, 2020.~~period indicated. 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


	Three Months Ended March 31,
(Dollars in thousands)	2021
Total revenues	$	50,797
Net income	$	15,864

Gain on sale of loans	$	47,594
Volume of loans sold	$	1,778,090

~~For more information, please see~~ As of March 31, 2021 and December 31, 2021, the locked mortgage pipeline was $1.43 billion and $1.54 billion, respectively.

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.~~6 – Deposits

The following table presents the components of deposits as of the periods indicated:

~~Note 7 – Deposits~~


(Dollars in thousands)	March 31, 2021		December 31, 2020
Noninterest-bearing demand	$	837,221	$	715,791
Interest-bearing demand	698,218		496,502
Savings and money markets	520,998		545,501
Time deposits, including CDs and IRAs	160,116		224,595
Total deposits	$	2,216,553	$	1,982,389

Time deposits that meet or exceed the FDIC insurance limit	$	14,829	$	16,955

~~Deposits were~~The following table presents the maturities of time deposits as ~~follows:~~of the period indicated:

(Dollars in thousands) September 30, 2020 December 31, 2019
Noninterest-bearing demand $ 642,835 $ 278,547
Interest-bearing demand 453,024 351,435
Savings and money markets 533,637 363,026
Time deposits, including CDs and IRAs 269,461 272,034
Total deposits $ 1,898,957 $ 1,265,042
Time deposits that meet or exceed the FDIC insurance limit $ 15,890 $ 8,955


(Dollars in thousands)	March 31, 2021
2021	$	56,037
2022	66,154
2023	22,254
2024	12,479
2025	3,192
Total	$	160,116

~~Maturities~~As of ~~time deposits~~March 31, 2021, overdrawn deposit accounts totaling $0.01 million were reclassified as ~~follows:~~

(Dollars in thousands) September 30, 2020
2020 $ 66,657
2021 108,547
2022 61,757
2023 20,578
2024 11,922
Total $ 269,461

loan balances.

Note 87 – Borrowed Funds

The Bank is a member of the FHLB of Pittsburgh, Pennsylvania. As of March 31, 2021, the Bank's maximum borrowing capacity with the FHLB was $451.7 million and the remaining borrowing capacity was $440.4 million, with the difference being deposit letters of credit.

The Bank also maintains borrowing capacity with the Federal Reserve Bank under the discount window program and with the Federal Reserve Board under the Federal Reserve's Paycheck Protection Program Liquidity Facility (“PPPLF”) program in the amount of the outstanding pledged PPP loans. As of March 31, 2021 the Bank had borrowed $102.2 million under the PPPLF. As of December 31, 2020, 0 amounts were outstanding.

Short-term borrowings

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

~~Information~~The following table presents information related to short-term borrowings ~~is summarized~~ as ~~follows:~~of and for the periods indicated:


(Dollars in thousands)	(Dollars in thousands)	As of and for the three months ended September 30, 2020			As of and for the year ended December 31, 2019			(Dollars in thousands)	Three Months Ended March 31, 2021			Year Ended December 31, 2020
Balance at end of period	Balance at end of period	$	0		$	192,063		Balance at end of period	$	102,185		$	0
Average balance during the period	Average balance during the period	0			187,226			Average balance during the period	46,349			68,407
Maximum month-end balance	Maximum month-end balance	0			240,811			Maximum month-end balance	102,185			154,248
Weighted-average rate during the period	Weighted-average rate during the period	0		%	2.24		%	Weighted-average rate during the period	0.35		%	0.58		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.39		%	1.81		%	Weighted-average rate at end of period	0.28		%	0		%

Long-term borrowings

AsofMarch 31, 2021 and December 31, 2020, the Bank had 0 long-term borrowings with the FHLB or the Federal Reserve.

Repurchase agreements

Along with traditional deposits, the Bank has access to securities sold under agreements to repurchase (“repurchase agreements”) with clients representing funds deposited by clients, on an overnight basis, that are collateralized by investment securities owned by the Company. Repurchase agreements with 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 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. The primary risk with the Company’s repurchase agreements is market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

All of the Company’s repurchase agreements were overnight agreements at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. These borrowings were collateralized with investment securities with a carrying value of $11.0 million and $10.7 million ~~and $10.5 million~~ at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, and were comprised of ~~U.S.~~United States government agency securities and ~~U.S.~~United States 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 $10.0 million at September 30, 2020, compared to $10.2 million at December 31, 2019.~~

~~Information~~The following table presents information related to repurchase agreements ~~is summarized~~ as ~~follows:~~of and for the periods shown:


(Dollars in thousands)	(Dollars in thousands)	As of and for the three months ended September 30, 2020			As of and for the year ended December 31, 2019			(Dollars in thousands)	Three Months Ended March 31, 2021			Year Ended December 31, 2020
Balance at end of period	Balance at end of period	$	10,045		$	10,172		Balance at end of period	$	10,613		$	10,266
Average balance during the period	Average balance during the period	10,145			11,252			Average balance during the period	10,249			9,856
Maximum month-end balance	Maximum month-end balance	10,505			14,655			Maximum month-end balance	10,613			10,505
Weighted-average rate during the period	Weighted-average rate during the period	0.17		%	0.43		%	Weighted-average rate during the period	0.13		%	0.23		%
Weighted-average rate at end of period	Weighted-average rate at end of period	0.06		%	0.44		%	Weighted-average rate at end of period	0.13		%	0.14		%

~~Long-term notes from the FHLB were as follows:~~

(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~~The following table presents information related to subordinated debt as of and for the periods shown:


(Dollars in thousands)	Three Months Ended March 31, 2021			Year Ended December 31, 2020
Balance at end of period	$	43,443		$	43,407
Average balance during the period	43,425			7,568
Maximum month-end balance	43,443			43,524
Weighted-average rate during the period	4.29		%	3.45		%
Weighted-average rate at end of period	4.02		%	4.02		%

In November 2020, the Company completed the private placement of $40 million fixed-to-floating rate subordinated notes to certain qualified institutional investors. These notes are unsecured and have a ten-year term, maturing December 1, 2030 and will bear interest at a fixed rate of 4.25%, payable semi-annually in arrears, for the first five years of the term. Thereafter, the interest rate will reset quarterly to an interest rate per annum equal to a benchmark rate, which is ~~summarized~~expected to be Three-Month Term SOFR, plus 401 basis points, payable quarterly in arrears. These notes have been structured to qualify as ~~follows:~~

(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 $ 4,124 $ 4,124
Average balance during the period 4,124 12,125
Maximum month-end balance 4,124 17,524
Weighted-average rate during the period 1.94 % 6.35 %
Weighted-average rate at end of period 1.87 % 3.51 %
Tier 2 capital for regulatory capital purposes.

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%~~1.6% 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.

The Company reflects subordinated debt in the amount of $4.1 million as of September 30, 2020 and $4.1 million as of December 31, 2019 and interest expense of $78 thousand and $728 thousand for the nine months ended 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~~All borrowings and subordinated debt ~~over the next five years is as follows (dollars in thousands):~~

Year Amount
2020 $ 5,800
2021 0
2022 0
2023 10,000
2024 10,000
Thereafter 4,124
$ 29,924

~~Note 9 – 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:mature after 2025.


~~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 September 30, 2020. Valuation techniques are consistent with techniques used in prior periods. 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 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 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.

September 30, 2020
(Dollars in thousands) Level I Level II Level III Total
Assets:
     U.S. agency securities $ 0 $ 53,382 $ 0 $ 53,382
     U.S. sponsored mortgage-backed securities 0 68,097 0 68,097
     Municipal securities 0 111,236 42,108 153,344
     Other debt securities 0 0 7,500 7,500
     Other securities 0 15,641 0 15,641
     Equity securities 144 0 0 144
     Loans held for sale 0 2,271 0 2,271
     Interest rate swap 0 15,735 0 15,735
     Fair value hedge 0 2,272 0 2,272
     Bank-owned life insurance 0 36,037 0 36,037
Liabilities:
     Interest rate swap 0 15,735 0 15,735
     Fair value hedge 0 2,441 0 2,441

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

~~The following table represents recurring level III assets:~~

(Dollars in thousands) Interest Rate Lock Commitments Municipal Securities Equity Securities Total
Balance at December 31, 2019 $ 1,660 $ 37,259 $ 0 $ 38,919
Realized and unrealized gains included in earnings (1,660) 3 0 (1,657)
Purchase of securities 0 21,147 0 21,147
Maturities/calls 0 (15,574) 0 (15,574)
Unrealized gain included in other comprehensive income (loss) 0 5,872 0 5,872
Unrealized loss included in other comprehensive income (loss) 0 (6,599) 0 (6,599)
Balance at September 30, 2020 $ 0 $ 42,108 $ 0 $ 42,108
Balance at June 30, 2020 $ 7,338 $ 40,457 $ 0 $ 47,795
Realized and unrealized gains included in earnings (7,338) 0 0 (7,338)
Purchase of securities 0 368 0 368
Maturities/calls 0 (61) 0 (61)
Unrealized gain included in other comprehensive income (loss) 0 1,810 0 1,810
Unrealized loss included in other comprehensive income (loss) 0 (466) 0 (466)
Balance at September 30, 2020 $ 0 $ 42,108 $ 0 $ 42,108
Balance at December 31, 2018 $ 1,750 $ 33,122 $ 300 $ 35,172
Realized and unrealized gains included in earnings 565 0 0 565
Purchase of securities 0 682 1,300 1,982
Unrealized gain included in other comprehensive income (loss) 0 10,707 16,814 27,521
Unrealized loss included in other comprehensive income (loss) 0 (9,062) 0 (9,062)
Balance at September 30, 2019 $ 2,315 $ 35,449 $ 18,414 $ 56,178
Balance at June 30, 2019 $ 2,541 $ 30,537 $ 1,550 $ 34,628
Realized and unrealized losses included in earnings (226) 0 0 (226)
Purchase of securities 0 573 50 623
Unrealized gain included in other comprehensive income (loss) 0 4,339 16,814 21,153
Unrealized loss included in other comprehensive income (loss) 0 0 0 0
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.

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 September 30, 2020 and December 31, 2019 are included in the table below:

September 30, 2020
(Dollars in thousands) Level I Level II Level III Total
Impaired loans $ 0 $ 0 $ 15,518 $ 15,518
Other real estate owned 0 0 6,409 6,409
Other debt securities 0 0 7,500 7,500
Equity securities 0 0 24,020 24,020

December 31, 2019
(Dollars in thousands) Level I Level II Level III Total
Impaired loans $ 0 $ 0 $ 8,909 $ 8,909
Other real estate owned 0 0 1,397 1,397
Equity securities 0 0 18,514 18,514

The following tables presents quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value at 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
September 30, 2020
Nonrecurring measurements:
Impaired loans $ 15,518
Appraisal of collateral 1
Appraisal adjustments 2
20% - 62%

Liquidation expense 2
5% - 10%
Other real estate owned $ 6,409
Appraisal of collateral 1
Appraisal adjustments 2
20% - 30%

Liquidation expense 2
5% - 10%
Other debt securities $ 7,500 Net asset value Cost minus impairment 0%
Equity securities $ 24,020 Net asset value Cost minus impairment 0%
Recurring measurements:
Municipal securities (Local TIF bonds) $ 42,108
Appraisal of bond 3
Bond appraisal adjustment 4
5% - 15%

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 0%
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.

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

~~Fair Value Measurements at:~~

(Dollars in thousands) Carrying Value Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level I) Significant Other Observable Inputs (Level II) Significant Unobservable Inputs (Level III)
September 30, 2020
Financial assets:
     Cash and cash equivalents $ 295,823 $ 295,823 $ 295,823 $ 0 $ 0
     Certificates of deposits with other banks 12,301 12,592 0 12,592 0
     Securities available-for-sale 297,964 297,964 0 248,356 49,608
     Equity securities 24,164 24,164 144 0 24,020
     Loans held for sale 2,271 2,271 0 2,271 0
     Loans, net 1,402,680 1,422,972 0 0 1,422,972
     Mortgage servicing rights 3,136 3,136 0 0 3,136
     Interest rate swap 15,735 15,735 0 15,735 0
     Accrued interest receivable 7,460 7,460 0 2,084 5,376
     Bank-owned life insurance 36,037 36,037 0 36,037 0
Financial liabilities:
     Deposits $ 1,898,957 $ 1,972,480 $ 0 $ 1,972,480 $ 0
     Repurchase agreements 10,045 10,045 0 10,045 0
     FHLB and other borrowings 25,800 26,523 0 26,523 0
     Interest rate swap 15,735 15,735 0 15,735 0
     Fair value hedge 2,441 2,441 0 2,441 0
     Accrued interest payable 417 417 0 417 0
     Subordinated debt 4,124 4,124 0 4,124 0
December 31, 2019
Financial assets:
     Cash and cash equivalents $ 28,002 $ 28,002 $ 28,002 $ 0 $ 0
     Certificates of deposits with other banks 12,549 12,586 0 12,586 0
     Securities available-for-sale 235,821 235,821 0 198,562 37,259
     Equity securities 18,514 18,514 0 0 18,514
     Loans held for sale 109,788 109,788 0 109,788 0
     Loans, net 1,362,766 1,364,706 0 0 1,364,706
     Mortgage servicing rights 348 348 0 0 348
     Interest rate lock commitment 1,660 1,660 0 0 1,660
     Interest rate swap 5,722 5,722 0 5,722 0
     Fair value hedge 1,770 1,770 0 1,770
     Accrued interest receivable 7,909 7,909 0 1,591 6,317
     Bank-owned life insurance 35,374 35,374 0 35,374 0
Financial liabilities:
     Deposits $ 1,265,042 $ 1,249,135 $ 0 $ 1,249,135 $ 0
     Repurchase agreements 10,172 10,172 0 10,172 0
     FHLB and other borrowings 222,885 222,891 0 222,891 0
     Mortgage-backed security hedges 186 186 0 186 0
     Interest rate swap 5,722 5,722 0 5,722 0
     Fair value hedge 1,418 1,418 0 1,418 0
     Accrued interest payable 1,060 1,060 0 1,060 0
     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 10 – 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 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 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. During the third quarter of 2020, the Company repurchased 82,424 shares totaling $1.3 million. A total of 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

3927

Note 118 – ~~Net Income Per Common Share~~Pension and Supplemental Executive Retirement Plans

The Company ~~determines basic earnings per share by dividing net income less preferred stock dividends by~~participates in a trusteed pension plan known as the ~~weighted average number~~Allegheny Group Retirement Plan covering virtually all full-time employees. Benefits are based on years of ~~common shares outstanding during~~service and 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 awardsemployee’s compensation. Accruals under the ~~Company’s 2003~~Plan were frozen as of May 31, 2014. Freezing the plan resulted in a re-measurement of the pension obligations and ~~2013 Stock Incentive Plans and~~plan assets as of the ~~conversion~~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 ~~preferred stock and subordinated debt if dilutive.~~

Nine Months Ended September 30 Three Months Ended September 30
(Dollars in thousands except shares and per share data) 2020 2019 2020 2019
Numerator for basic earnings per share:
Net income from continuing operations $ 25,573 $ 22,469 $ 6,491 $ 4,346
Less: Dividends on preferred stock 345 364 116 121
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 0 427 0 (19)
Net income available to common shareholders - basic $ 25,228 $ 22,532 $ 6,375 $ 4,206
Numerator for diluted earnings per share:
Net income from continuing operations available to common shareholders - diluted $ 25,228 $ 22,105 $ 6,375 $ 4,225
Denominator:
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 236,280 295,804 167,429 366,561
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 $ 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
4.5%.

~~For~~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. As the executive completed 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 $1.2 million as of both March 31, 2021 and December 31, 2020. Service cost was $0.01 million and $0.1 million for each of the three months ended ~~September 30, 2020~~March 31, 2021 and 2019, approximately 850 thousand and 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.2020.

~~For~~The following table presents information pertaining to 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~~activity in the ~~computation~~Company’s defined benefit plan, using the latest available actuarial valuations with a measurement date of ~~diluted earnings per share because~~March 31, 2021 and 2020 for the ~~effect would be antidilutive.~~periods indicated:

For the three months ended September 30, 2020 and 2019, approximately 188 thousand and 113 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.


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Service cost	$	0	$	0
Interest cost	78		91
Expected return on plan assets	(118)		(109)
Amortization of net actuarial loss	127		105
Amortization of prior service cost	0		0
Net periodic benefit cost	$	87	$	87
Contributions paid	$	3,835	$	349

Note 9 – Stock Offerings

In December 2020, the Company issued a notice of redemption to redeem all of the Company’s outstanding shares of Convertible Noncumulative Perpetual Preferred Stock, Series B, par value $1.00 per share, with a liquidation preference of $1,000 per share (the “Series B Preferred Stock”) and all of the Company’s outstanding shares of Convertible Noncumulative Perpetual Preferred Stock, Series C, par value $1.00 per share, with a liquidation preference of $1,000 per share (the “Series C Preferred Stock, together with the Series B Preferred Stock, referred to herein as the “Preferred Stock”), at a redemption price per share equal to $10,000, plus declared and unpaid dividends of $46.03 per share of Series B Preferred Stock, and $49.86 per share of Series C Preferred Stock, for the period from and including December 31, 2020, to but excluding January 28, 2021 (the “Preferred Stock Redemption”). The Preferred Stock Redemption is in accordance with the terms of the Company’s Articles of Incorporation, as amended. All outstanding shares of the Company's preferred stock were redeemed in January 2021.

Note 1210 – ~~Segment Reporting~~Fair Value of Financial Instruments

The ~~Company has identified 3 reportable segments: commercial~~following table presents the carrying values and ~~retail banking; mortgage banking; and~~estimated fair values of the Company’s financial ~~holding company. Revenue~~instruments are summarized as follows as of the periods indicated:


(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, 2021
Financial Assets:
Cash and cash equivalents	$	339,616	$	339,616	$	339,616	$	0	$	0
Certificates of deposit with banks	11,803		11,986		0		11,986		0
Securities available-for-sale	423,122		423,122		0		382,850		40,272
Equity securities	28,200		28,200		543		0		27,657

Loans receivable, net	1,668,171		1,675,631		0		0		1,675,631
Mortgage servicing rights	2,886		2,886		0		0		2,886
Interest rate swap	8,367		8,367		0		8,367		0
Fair value hedge	1,750		1,750		0		1,750		0
Accrued interest receivable	8,513		8,513		0		2,819		5,694
Bank-owned life insurance	41,512		41,512		0		41,512		0

Financial Liabilities:
Deposits	$	2,216,553	$	2,196,951	$	0	$	2,196,951	$	0
Repurchase agreements	10,613		10,613		0		10,613		0
FHLB and other borrowings	102,185		102,185		0		102,185		0
Interest rate swap	8,367		8,367		0		8,367		0
Fair value hedge	1,427		1,427		0		1,427		0
Accrued interest payable	869		869		0		869		0
Subordinated debt	43,443		45,798		0		45,798		0

December 31, 2020
Financial assets:
Cash and cash equivalents	$	263,893	$	263,893	$	263,893	$	0	$	0
Certificates of deposits with banks	11,803		11,986		0		11,986		0
Securities available-for-sale	410,624		410,624		0		366,945		43,679
Equity securities	27,585		27,585		472		0		27,113
Loans held-for-sale	1,062		1,062		0		1,062		0
Loans receivable, net	1,427,900		1,434,275		0		0		1,434,275
Mortgage servicing rights	2,942		2,942		0		0		2,942
Interest rate swap	13,822		13,822		0		13,822		0
Fair value hedge	2,215		2,215		0		2,215		0
Accrued interest receivable	7,793		7,793		0		2,770		5,023
Bank-owned life insurance	41,262		41,262		0		41,262		0

Financial liabilities:
Deposits	$	1,982,389	$	1,964,860	$	0	$	1,964,860	$	0
Repurchase agreements	10,266		10,266		0		10,266		0
Interest rate swap	13,822		13,822		0		13,822		0
Fair value hedge	2,141		2,141		0		2,141		0
Accrued interest payable	572		572		0		572		0
Subordinated debt	43,407		45,536		0		45,536		0

Note 11 – Fair Value Measurements

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 ~~commercial and retail banking activities consists primarily~~offering for sale at one time the Company’s entire holdings of ~~interest earned~~a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on ~~loans and investment securities and service charges on deposit accounts. The Fintech division, Chartwell, and Paladin reside in the commercial and~~judgments regarding future expected loss experience, current economic conditions,

4029

~~retail banking segment. Revenue from~~risk characteristics of various financial ~~holding company activities is mainly comprised~~instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of ~~intercompany service income~~significant judgment and ~~dividends.~~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.

~~Revenue from~~The methods of determining the ~~mortgage banking activities is comprised~~fair value of ~~interest earned on loans~~assets and ~~fees received as a result~~ liabilities presented in this footnote are consistent with our methodologies disclosed in Note 1 - Summary of Significant Accounting Policies of the ~~mortgage origination process. The mortgage banking services are conducted by MVB Mortgage. On July 1, 2020,~~Notes to the ~~Company announced the completion of MVB Mortgage’s combination with Intercoastal Mortgage Company, to become one~~Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of the ~~largest independently-owned residential mortgage lending operations~~Company’s 2020 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 ~~Mid-Atlantic region: ICM.~~lowest level of input that is significant to the fair value measurement. The Company ~~has recognized its ownership~~classified investments in government securities as ~~an equity method~~Level II instruments and valued them using the market approach. The following measurements are made on a recurring basis.

Available-for-sale investment ~~initially~~securities –Available-for-sale investment securities are recorded at fair ~~value. Income~~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, United States 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 months ended March 31, 2021. Valuation techniques are consistent with techniques used in prior periods. Certain local municipal securities related to ~~this equity method investment is included~~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 ~~Mortgage Banking segment.~~market approach.

~~Information about~~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 ~~reportable segments~~present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and ~~reconciliation to the consolidated financial statements~~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-month periods~~months ended ~~September 30, 2020 and September 30, 2019~~March 31, 2021. Valuation techniques are ~~as follows:~~consistent with techniques used in prior periods.

Three Months Ended September 30, 2020 Commercial & Retail Banking Mortgage Banking Financial Holding Company Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 18,737 $ 78 $ 0 $ (188) $ 18,627
Interest expense 2,553 232 20 (188) 2,617
Net interest income 16,184 (154) (20) 0 16,010
Provision for loan losses 8,631 0 0 0 8,631
Net interest income after provision for loan losses 7,553 (154) (20) 0 7,379
Noninterest Income:
Mortgage fee income 26 7,238 0 0 7,264
Other income 3,080 9,555 1,481 (1,982) 12,134
Total noninterest income 3,106 16,793 1,481 (1,982) 19,398
Noninterest Expenses:
Salaries and employee benefits 7,526 82 2,911 0 10,519
Other expense 8,389 68 1,271 (1,982) 7,746
Total noninterest expenses 15,915 150 4,182 (1,982) 18,265
Income (loss) before income taxes (5,256) 16,489 (2,721) 0 8,512
Income tax expense (benefit) (1,556) 4,245 (668) 0 2,021
Net income (loss) $ (3,700) $ 12,244 $ (2,053) $ 0 $ 6,491
Preferred stock dividends 0 0 116 0 116
Net income (loss) available to common shareholders $ (3,700) $ 12,244 $ (2,169) $ 0 $ 6,375
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 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
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 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.

4130

Three Months Ended September 30, 2019 Commercial & Retail Banking Mortgage Banking Financial Holding Company Intercompany Eliminations Consolidated
(Dollars in thousands)
Interest income $ 19,299 $ 2,288 $ 9 $ (558) $ 21,038
Interest expense 4,806 1,811 156 (769) 6,004
Net interest income 14,493 477 (147) 211 15,034
Provision for loan losses 625 32 0 0 657
Net interest income after provision for loan losses 13,868 445 (147) 211 14,377
Noninterest income:
Mortgage fee income 121 11,587 0 (212) 11,496
Other income 2,138 1,112 1,516 (1,566) 3,200
Total noninterest income 2,259 12,699 1,516 (1,778) 14,696
Noninterest Expense:
Salaries and employee benefits 4,820 8,318 2,300 0 15,438
Other expense 6,113 2,142 1,254 (1,567) 7,942
Total noninterest expenses 10,933 10,460 3,554 (1,567) 23,380
Income (loss) before income taxes 5,194 2,684 (2,185) 0 5,693
Income tax expense (benefit) 1,130 725 (508) 0 1,347
Net income (loss) from continuing operations 4,064 1,959 (1,677) 0 4,346
Income from discontinued operations, before income taxes 0 0 (25) 0 (25)
Income tax expense - discontinued operations 0 0 (6) 0 (6)
Net income from discontinued operations 0 0 (19) 0 (19)
Net income (loss) $ 4,064 $ 1,959 $ (1,696) $ 0 $ 4,327
Preferred stock dividends 0 0 121 0 121
Net income (loss) available to common shareholders $ 4,064 $ 1,959 $ (1,817) $ 0 $ 4,206
Capital Expenditures for the three-month period ended September 30, 2019 $ 414 $ 23 $ 77 $ 0 $ 514
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
The following tables present assets and liabilities reported on the consolidated statements of financial condition at their fair value on a recurring basis as of the periods indicated by level within the fair value hierarchy.


	March 31, 2021
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	0	$	48,104	$	0	$	48,104
United States sponsored mortgage-backed securities	0		89,207		0		89,207
United States treasury securities	56,970		0		0		56,970
Municipal securities	0		169,462		40,272		209,734

Other securities	0		11,607		0		11,607
Equity securities	543		0		0		543

Interest rate swap	0		8,367		0		8,367
Fair value hedge	0		1,750		0		1,750
Liabilities:
Interest rate swap	0		8,367		0		8,367
Fair value hedge	0		1,427		0		1,427


	December 31, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets:
United States government agency securities	$	0	$	56,992	$	0	$	56,992
United States sponsored mortgage-backed securities	0		95,769		0		95,769
Municipal securities	0		188,208		43,679		231,887

Other securities	0		18,476		0		18,476
Equity securities	472		0		0		472
Loans held-for-sale	0		1,062		0		1,062

Interest rate swap	0		13,822		0		13,822
Fair value hedge	0		2,215		0		2,215

Liabilities:
Interest rate swap	0		13,822		0		13,822
Fair value hedge	0		2,141		0		2,141

The following table represents recurring level III assets as of the periods indicated:


(Dollars in thousands)	Interest Rate Lock Commitments		Municipal Securities		Total








Balance at December 31, 2020	$	0	$	43,679	$	43,679
Realized and unrealized gains included in earnings	0		19		19
Purchase of securities	0		1,191		1,191
Maturities/calls	0		(3,933)		(3,933)
Unrealized gain included in other comprehensive income (loss)	0		1,127		1,127
Unrealized loss included in other comprehensive income (loss)	$	0	$	(1,811)	$	(1,811)
Balance at March 31, 2021	$	0	$	40,272	$	40,272








Balance at December 31, 2019	$	1,660	$	37,259	$	38,919
Realized and unrealized losses included in earnings	4,131		0		4,131
Purchase of securities	0		522		522
Unrealized gain included in other comprehensive income (loss)	0		(1,155)		(1,155)

Balance at March 31, 2020	$	5,791	$	36,626	$	42,417

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

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. GAAP. 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 2021 and 2020 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.

The following table presents the fair value of these assets as of the periods indicated:


	March 31, 2021
(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	$	0	$	0	$	12,103	$	12,103
Other real estate owned	0		0		5,183		5,183


	December 31, 2020
(Dollars in thousands)	Level I		Level II		Level III		Total
Impaired loans	$	0	$	0	$	14,098	$	14,098
Other real estate owned	0		0		5,730		5,730
Other debt securities	0		0		7,500		7,500
Equity securities	0		0		27,113		27,113

There were no changes to the fair value of other debt securities or equity securities measured on a non-recurring basis as of March 31, 2021.

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
The following tables present quantitative information about the Level III significant unobservable inputs for assets and liabilities measured at fair value as of the periods indicated:


	Quantitative Information about Level III Fair Value Measurements
(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range
March 31, 2021
Nonrecurring measurements:
Impaired loans	$	12,103	Appraisal of collateral 1	Appraisal adjustments 2	20% - 62%
				Liquidation expense 2	5% - 10%

Other real estate owned	$	5,183	Appraisal of collateral 1	Appraisal adjustments 2	20% - 30%
				Liquidation expense 2	5% - 10%

Other debt securities	$	7,500	Net asset value	Cost minus impairment	0%

Equity securities	$	27,657	Net asset value	Cost minus impairment	0%

Recurring measurements:
Municipal securities 5	$	40,272	Appraisal of bond 3	Bond appraisal adjustment 4	5% - 15%

December 31, 2020
Nonrecurring measurements:
Impaired loans	$	14,098	Appraisal of collateral 1	Appraisal adjustments 2	20% - 62%
				Liquidation expense 2	5% - 10%

Other real estate owned	$	5,730	Appraisal of collateral 1	Appraisal adjustments 2	20% - 30%
				Liquidation expense 2	5% - 10%

Other debt securities	$	7,500	Net asset value	Cost minus impairment	0%

Equity securities	$	27,113	Net asset value	Cost minus impairment	0%

Recurring measurements:
Municipal securities 5	$	43,679	Appraisal of bond 3	Bond appraisal adjustment 4	5% - 15%

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

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.

5 Municipal securities classified as Level III instruments are comprised of TIF bonds related to certain local municipal securities.

Note 12 – Earnings per Share

The Company determines basic earnings per share (“EPS”) by dividing net income less preferred stock dividends by the weighted-average number of common shares outstanding during the period. Diluted EPS 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 under the Company’s 2003 and 2013 Stock Incentive Plans and the conversion of preferred stock and subordinated debt, if dilutive.

The following table presents the Company's calculation of EPS for the periods indicated:


	Three Months Ended March 31,
(Dollars in thousands except shares and per share data)		2021		2020
Numerator for basic earnings per share:
Net income		$	8,085	$	1,048
Less: Dividends on preferred stock		35		114


Net income available to common shareholders - basic		$	8,050	$	934

Numerator for diluted earnings per share:



Net income available to common shareholders - diluted		$	8,050	$	934

Denominator:
Total weighted-average shares outstanding		11,530,279		11,942,767


Effect of dilutive stock options and restricted stock units		756,452		355,325
Total diluted weighted-average shares outstanding		12,286,731		12,298,092



Earnings per share - basic		$	0.70	$	0.08


Earnings per share - diluted		$	0.66	$	0.08

For the three months ended ~~September 30,~~March 31, 2021 and 2020, approximately 12 thousand and 366 thousand, respectively, options to purchase shares of common stock were not included in the ~~Commercial & Retail Banking segment lost $3.7 million compared to earning $4.1 million in 2019.~~computation of diluted EPS because the effect would be antidilutive.

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 $1.7 million, primarily the result of a decrease of $421 thousand in interest and fees on loans offset by a decrease of $2.6 million in interest on deposits. The 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 $157.6 million in the average loan balances of commercial loans. The decrease in interest on deposits was the result of a decrease of 95 basis points in the cost of interest-bearing liabilities, despite an increase of $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 $847 thousand, primarily the result of an increase of $1.1 million in compliance consulting income, which was partially offset by a decrease of $616 thousand in commercial swap fee income.

Noninterest expense increased by $5.0 million, primarily the result of an increase of $2.7 million in salaries and employee benefits expense, an increase of $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 $176 thousand in insurance, tax, and assessment 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.

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

Net 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 September 30, 2020, the Mortgage Banking segment earned $12.2 million compared to $2.0 million in 2019.~~

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 interest and fees on loans was due to a decrease of $145.5 million in average real estate loans. The decrease in interest on FHLB and other borrowings was

~~due to a decrease in short-term borrowing rates.~~

Noninterest income increased by $4.1 million, primarily the 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 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 mortgage transaction that occurred on July 1, 2020.

For the nine months ended September 30, 2020, the Mortgage Banking segment earned $22.0 million compared to $4.2 million in 2019. As noted above, many of the differences noted below are also affected by the mortgage transaction that occurred on July 1, 2020.

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

Noninterest income increased by $22.3 million, primarily the result of an increase of $13.6 million in equity method investment income, an increase of $5.7 million in mortgage fee income, and an increase of $3.3 million in the gain on mortgage combination transaction. The increase in mortgage fee income was driven by an increase of $304.4 million in mortgage loans sold for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Noninterest expense decreased by $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 $1.0 million in salaries and employees benefits expense, due to an increase in mortgage production volume, and an increase of $365 thousand in professional fees.

~~Financial Holding Company~~

For the three months ended September 30, 2020, the Financial Holding Company segment lost $2.1 million compared to a loss of $1.7 million from continuing operations in 2019. Interest expense decreased $136 thousand, noninterest income decreased $35 thousand, and noninterest expense increased $628 thousand. In addition, the income tax benefit increased $160 thousand. The decrease in interest expense was due to a $136 thousand decrease in interest on subordinated debt. The decrease in noninterest income was primarily the result of a decrease of $69 thousand in 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 $611 thousand in salaries and employee benefits 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 13 – ~~Pension and Supplemental Executive Retirement Plans~~Comprehensive Income

The ~~Company participates in a trusteed pension plan known as~~following tables present the ~~Allegheny Group Retirement Plan covering virtually all full-time employees. Benefits are based on years~~components of ~~service and the employee’s compensation. Accruals under the Plan were frozen~~accumulated other comprehensive income (“AOCI”) as of ~~May 31, 2014. Freezing~~and for the ~~plan resulted in a re-measurement of the pension obligations and plan assets as of the freeze date.~~periods indicated:

~~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%.~~


	Three Months Ended March 31,
(Dollars in thousands)	2021		2020
Details about AOCI components	Amount reclassified from AOCI		Amount reclassified from AOCI		Affected income statement line item
Available-for-sale securities
Unrealized holding gains	$	1,143	$	276	Gain (loss) on sale of available-for-sale securities
	1,143		276		Total before tax
	(268)		(75)		Income tax expense
	875		201		Net of tax
Defined benefit pension plan items
Amortization of net actuarial loss	(127)		(105)		Salaries and benefits
	(127)		(105)		Total before tax
	30		28		Income tax expense
	(97)		(77)		Net of tax
Investment hedge
Carrying value adjustment	(264)		1,793		Interest on investment securities
	(264)		1,793		Total before tax
	62		(484)		Income tax expense
	(202)		1,309		Net of tax

Total reclassifications	$	576	$	1,433

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

(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 $ 0 $ 0 $ 0 $ 0
Interest cost 273 294 91 98
Expected Return on Plan Assets (327) (306) (109) (102)
Amortization of Net Actuarial Loss 315 204 105 68
Amortization of Prior Service Cost 0 0 0 0
Net Periodic Benefit Cost $ 261 $ 192 $ 87 $ 64
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 $1.0 million and $783 thousand as of September 30, 2020 and December 31, 2019, respectively. Service cost was $0 thousand and $102 thousand for the three-month periods ended 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.


(Dollars in thousands)	Unrealized gains (losses) on available for-sale securities		Defined benefit pension plan items		Investment hedge		Total






Balance at January 1, 2021	$	7,586	$	(5,047)	$	(313)	$	2,226
Other comprehensive income (loss) before reclassification	(4,848)		1,306		0		(3,542)
Amounts reclassified from AOCI	(875)		97		202		(576)
Net current period OCI	(5,723)		1,403		202		(4,118)
Balance at March 31, 2021	$	1,863	$	(3,644)	$	(111)	$	(1,892)









Balance at January 1, 2020	$	2,942	$	(4,295)	$	32	$	(1,321)
Other comprehensive income (loss) before reclassification	1,032		(516)		0		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)

Note 14 – ~~Comprehensive Income~~

~~The following tables present the components of accumulated other comprehensive income (“AOCI”) nine months ended September 30, 2020 and 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 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
Unrealized holding gains (losses) $ 865 $ (179) $ 35 $ (11) Gain (loss) on sale of securities
865 (179) 35 (11) Total before tax
(234) 48 (9) 2 Income tax expense
631 (131) 26 (9) Net of tax
Defined benefit pension plan items
Amortization of net actuarial loss (315) (204) (105) (68) Salaries and benefits
(315) (204) (105) (68) Total before tax
85 55 28 18 Income tax expense
(230) (149) (77) (50) Net of tax
Investment hedge
Carrying value adjustment 738 162 (95) 36 Interest on investment securities - taxable
738 162 (95) 36 Total before tax
(199) (44) 26 (10) Income tax expense
539 118 (69) 26 Net of tax
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 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 15 – Revenue Recognition~~

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

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

The Company ~~also completed~~has identified 3 reportable segments: CoRe banking; mortgage banking; and financial holding company. Revenue from CoRe banking activities consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. The Fintech division, Chartwell and Paladin Fraud reside in the CoRe banking segment. Revenue from the mortgage banking activities is comprised of interest earned on loans and fees received as a result of the mortgage loan origination process. Prior to July 1, 2020, the mortgage banking services were conducted by PMG. In July 2020, the Company announced the completion of PMG’s combination with Intercoastal to form ICM. The Company has recognized its ~~evaluation of certain costs~~ownership as an equity method investment, initially recorded at fair value. Income 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~~this equity method investment is included in the ~~evaluation, the Company determined that the classification~~Mortgage Banking segment. Revenue from financial holding company activities is mainly comprised of ~~certain debit~~intercompany service income 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.dividends.

~~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 Transaction Fees~~

Interchange and debit card 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~~

Compliance consulting income is comprised of consulting revenue generated by 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 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. 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. Both Chartwell and Paladin's services included in its contracts are distinct from one another. The transaction price for each contract is determined based upon the consideration expected to be received for the distinct services being provided under the contract. 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, factors 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.

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The following ~~presents noninterest income, segregated by revenue streams in scope~~tables present information about the reportable segments and ~~out of scope of Topic 606,~~reconciliation to the consolidated financial statements for the periods indicated:

(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 $ 1,206 $ 985 $ 470 $ 337
Interchange and debit card transaction fees 510 472 168 150
Compliance consulting income 3,035 25 1,084 25
Other 453 379 70 108
Noninterest income in scope of Topic 606 5,204 1,861 1,792 620
Noninterest income out of scope of Topic 606 70,557 47,987 17,606 14,076
Total noninterest income $ 75,761 $ 49,848 $ 19,398 $ 14,696


Three Months Ended March 31, 2021	CoRe Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	18,959	$	104	$	1	$	(1)	$	19,063
Interest expense	1,092		0		466		0		1,558
Net interest income	17,867		104		(465)		(1)		17,505
Provision for loan losses	620		(2)		0		0		618
Net interest income after provision for loan losses	17,247		106		(465)		(1)		16,887




Total noninterest income	6,437		6,407		1,581		(1,967)		12,458

Noninterest Expenses:
Salaries and employee benefits	8,842		0		3,069		0		11,911
Other expense	8,029		63		1,083		(1,968)		7,207
Total noninterest expenses	16,871		63		4,152		(1,968)		19,118

Income (loss) before income taxes	6,813		6,450		(3,036)		0		10,227
Income tax expense (benefit)	1,149		1,564		(544)		0		2,169




Net income before noncontrolling interest	5,664		4,886		(2,492)		0		8,058
Net loss attributable to noncontrolling interest	27		0		0		0		27
Net income attributable to parent	$	5,691	$	4,886	$	(2,492)	$	0	$	8,085
Preferred stock dividends	—		0		35		0		35
Net income (loss) available to common shareholders	$	5,691	$	4,886	$	(2,527)	$	0	$	8,050

Capital expenditures for the three months ended March 31, 2021	$	1,936	$	0	$	0	$	0	$	1,936
Total assets as of March 31, 2021	2,669,092		57,205		280,152		(360,360)		2,646,089
Total assets as of December 31, 2020	2,343,556		58,140		284,943		(355,163)		2,331,476
Goodwill as of March 31, 2021	2,350		0		0		0		2,350
Goodwill as of December 31, 2020	2,350		0		0		0		2,350

~~Note 16 – 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 September 30, 2020 or December 31, 2019.~~

~~Net income from discontinued operations, net of tax, for the three and nine months ended September 30, 2020 and 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 17 – Acquisitions and Divestitures~~

~~The First State Bank Acquisition~~

As previously disclosed, on April 3, 2020, the Bank entered into a Purchase and Assumption Agreement with the FDIC, as receiver for First State, Barboursville, 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 with no deposit premium. The Bank was notified that it was the winning

5036

bidder in the process, and the net asset discount accepted by the FDIC was $33.2 million. Immediately after the closing of this transaction, the FDIC remitted these funds to the Bank. As part of this transaction the Bank acquired 3 branch locations in Barboursville, Teays Valley, and Huntington, WV. for aggregate consideration of approximately $1.5 million. Also included was other real estate owned (“OREO”) at 46.5% of the book value, along with deposits with an aggregate value of approximately $140.0 million, cash and investment securities of $37.0 million and loans with a book value of $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.


Three Months Ended March 31, 2020	CoRe Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	18,774	$	2,418	$	1	$	(494)	$	20,699
Interest expense	3,838		1,387		35		(732)		4,528
Net interest income	14,936		1,031		(34)		238		16,171
Provision for loan losses	1,132		6		0		0		1,138
Net interest income after provision for loan losses	13,804		1,025		(34)		238		15,033

Noninterest income:
Mortgage fee income	110		11,347		0		(238)		11,219
Other income	3,346		(3,562)		1,504		(1,657)		(369)
Total noninterest income	3,456		7,785		1,504		(1,895)		10,850

Noninterest Expense:
Salaries and employee benefits	5,866		7,884		2,432		0		16,182
Other expense	6,659		2,397		1,075		(1,657)		8,474
Total noninterest expenses	12,525		10,281		3,507		(1,657)		24,656

Income (loss) before income taxes	4,735		(1,471)		(2,037)		0		1,227
Income tax expense (benefit)	1,012		(349)		(484)		0		179




Net income before noncontrolling interest	3,723		(1,122)		(1,553)		0		1,048
Preferred stock dividends	0		0		114		0		114
Net income (loss) available to common shareholders	$	3,723	$	(1,122)	$	(1,667)	$	0	$	934

Capital expenditures for the three months ended March 31, 2020	$	1,295	$	69	$	20	$	0	$	1,384

The 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.

Note 15 – Acquisition

(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 $4.7 million 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 receive, non-accretable credit adjustments, and the accretable yield for 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 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,~~Flexia Payments, LLC Acquisition

~~On April 17, 2020, Paladin Fraud, LLC, a newly-formed West Virginia limited liability company and wholly-owned subsidiary of MVB~~In February 2021, the Bank entered into an ~~Asset~~agreement to acquire an 80% interest in Flexia. The Bank invested approximately $2.5 million for the 80% interest. At the time of acquisition, Flexia had 0 assets or liabilities. Soon after the Bank's investment, Flexia purchased a license for technology which allows users to access a reloadable account that combines a debit card account and casino gaming accounts into one card, allowing them for non-cash transactions at participating casinos, for approximately $1 million for exclusive use in the United States and Canada. On the acquisition date, $0.5 million was recorded on the consolidated balance sheet for the 20% noncontrolling interest.

Note 16 – Subsequent Event

In April 2021, the Bank entered into a Stock Purchase Agreement ~~by and among Paladin Fraud, Paladin, LLC,~~with Trabian Technology, Inc. (“Trabian”), a ~~Washington limited liability company, James Houlihan, and Jamon Whitehead. Pursuant to~~leading software development firm servicing financial institutions. Per the ~~Purchase Agreement, Paladin Fraud~~agreement, the Bank acquired ~~substantially all of the assets and certain liabilities of Paladin and the purchase price of the transaction consisted of 19,278~~a majority interest in Trabian for 17,597 unregistered shares of MVB common stock and an undisclosed amount of cash. ~~Paladin 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~~

OnIn April ~~24, 2020,~~2021, the ~~Company completed the previously announced sale of~~Bank entered into a Purchase and Assumption Agreement with Summit Community Bank, Inc. (“Summit”) pursuant to which Summit will purchase certain assets and assume certain liabilities of 4 branch locations toin West Virginia. Per the agreement, Summit ~~Financial Group, Inc. Summit assumed $188.1~~will assume approximately $193 million in deposits and ~~acquired $36.8~~will acquire approximately $57 million in loans, as well as cash, real property, personal property and other fixed assets. The ~~Company recognized~~purchase price will be calculated at closing and includes a ~~gain of $9.6 million related~~6% premium on the deposits assumed. The Bank expects to ~~this transaction and was recorded in noninterest income for~~close 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 resultedpurchase early 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~~third quarter 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.2021.

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

The following presents management’s discussion and analysis of our consolidated financial condition at September 30, 2020 and December 31, 2019 and the results of our operations for the three and nine months ended 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 the Form 10-K.

~~Forward-Looking Statements:~~

•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,” “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, 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;~~

•~~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.

~~Summary of Results of Operations~~

Nine Months Ended September 30 Three Months Ended September 30
(Dollars in thousands, except per share data) 2020 2019 2020 2019
Earnings and Per Share Data:
     Net income from continuing operations $ 25,573 $ 22,469 $ 6,491 $ 4,346
     Net income (loss) from discontinued operations — 427 — (19)
     Net income 25,573 22,896 6,491 4,327
     Net income available to common shareholders 25,228 22,532 6,375 4,206
     Earnings per share from continuing operations - basic 2.11 1.89 0.53 0.36
     Earnings per share from discontinued operations - basic — 0.04 — —
     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 — 0.04 — —
     Earnings per share - diluted 2.07 1.88 0.53 0.35
     Cash dividends paid per common share 0.27 0.125 0.09 0.05
     Book value per common share 19.07 16.84 19.07 16.84
     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
Performance Ratios:
     Return on average assets - continuing operations 1
1.63 % 1.64 % 1.21 % 0.92 %
     Return on average assets - discontinued operations 1
— % 0.03 % — % — %
     Return on average assets 1
1.63 % 1.67 % 1.21 % 0.92 %
     Return on average equity - continuing operations 1
15.37 % 15.69 % 11.25 % 8.54 %
     Return on average equity - discontinued operations 1
— % 0.30 % — % (0.04) %
     Return on average equity 1
15.37 % 15.99 % 11.25 % 8.50 %
     Net interest margin 2 3
3.60 % 3.51 % 3.35 % 3.48 %
     Efficiency ratio 4
60.33 % 66.63 % 51.58 % 78.64 %
     Overhead ratio 1 5
4.85 % 4.55 % 3.40 % 4.96 %
Asset Quality Data and Ratios:
     Charge-offs $ 1,890 $ 676 $ 111 $ —
     Recoveries $ 17 $ 54 $ 5 $ 49
     Net loan charge-offs to total loans 1 6
0.17 % 0.06 % 0.03 % (0.01) %
     Allowance for loan losses $ 25,913 $ 11,874 $ 25,913 $ 11,874
     Allowance for loan losses to total loans 7
1.81 % 0.86 % 1.81 % 0.86 %
     Nonperforming loans $ 14,893 $ 5,627 $ 14,893 $ 5,627
     Nonperforming loans to total loans 1.04 % 0.41 % 1.04 % 0.41 %
Capital Ratios:
     Equity to assets 10.57 % 10.51 % 10.57 % 10.51 %
     Bank Leverage ratio 10.64 % 9.88 % 10.64 % 9.88 %
     Bank Common equity Tier 1 capital ratio 14.63 % 11.83 % 14.63 % 11.83 %
     Bank Tier 1 risk-based capital ratio 14.63 % 11.83 % 14.63 % 11.83 %
     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~~

5 ~~Noninterest expense as a percentage of average assets~~

6 ~~Charge-offs less recoveries~~

7 ~~Excludes loans held for sale~~

~~Introduction~~

~~Corporate Overview~~

MVB Financial Corp. is a financial holding company and was organized in 2003. MVB operates principally through its wholly owned subsidiaries, MVB Bank, Inc. MVB Bank’s operating subsidiaries include MVB Mortgage, MVB Insurance, MVB CDC, Chartwell, Paladin, and 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 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 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 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 completion of the Transaction was subject to certain regulatory approvals, conditions precedent and normal customary closing conditions. In the Agreement, the Bank, MVB Mortgage, and Intercoastal 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. The Company recognizes its ownership as an equity method investment, initially recorded at fair value. This transaction was closed on July 1, 2020, as 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 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

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, 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. 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.

~~Business Overview~~

The Company’s primary business activities, through its subsidiaries, are primarily community banking and mortgage banking. The Bank offers its 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 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 client support in Marion and Harrison counties in West Virginia, expansion into Monongalia, Kanawha, Putnam, and Cabell counties in West Virginia and 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~~Company's consolidated financial statements and ~~footnotes~~related notes 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 September 30, 2020, the Company had 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 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 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 areas that 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 Form 10-K, describes the methodology used to determine the allowance for loan losses and areport. A discussion of ~~the factors driving~~ changes in the ~~amount~~Company's results of ~~the allowance for loan losses is included~~operations from 2019 to 2020 has been omitted from this report but may be found in ~~the “Allowance for Loan Losses” section of~~ Item 2 ~~Management’s~~– Management's Discussion and Analysis of Financial Condition and Results of Operations, of ~~this~~its Quarterly Report on Form ~~10-Q.~~

~~Accounting~~10-Q for ~~business combinations involves~~ the ~~allocation of~~period ended March 31, 2020, filed with the ~~fair value of~~SEC on April 28, 2020. Further, the ~~purchase consideration of acquisitions~~Company encourages you to revisit 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 probableForward-Looking Statements 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,beginning of this ~~Quarterly Report on Form 10-Q. For more information on the Company's loan~~report.

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~~Executive Summary

~~Overview of the Statements of Income~~Financial Results

~~For~~Total assets increased $314.6 million to $2.65 billion at March 31, 2021 from $2.33 billion at December 31, 2020. Earning assets increased $327.9 million to $2.48 billion at March 31, 2021 from $2.15 billion at December 31, 2020. This increase of $327.9 million in earning assets was primarily driven by the $240.6 million increase in total loans to $1.69 billion during the three months ended ~~September 30, 2020, the Company earned $6.5~~March 31, 2021. Deposits increased $234.2 million ~~compared~~ to $4.3 million in the third quarter of 2019, excluding discontinued operations. Net interest income increased by $1.0 million, provision for loan losses increased by $8.0 million, noninterest income increased by $4.7 million, and noninterest expenses decreased by $5.1 million.

~~The increase in net interest income was driven by a decrease of $3.4 million in interest expense outpacing a decrease of $2.4 million in interest income.~~

The decrease in interest expense of $3.4 million was due to the cost of interest-bearing liabilities decreasing by 95 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 105 basis points, which was driven by a decrease in average interest-bearing liabilities of $65.3 million. The decrease in interest expense was mainly driven by a $1.1 million decrease in interest expense on certificates of deposit, through a decrease in the rates on certificates of deposits, and a $1.0 million decrease in interest expense on money market checking, as a result of a decrease in rates. Certificates of deposit decreased by $31.9 million while the cost of funds on certificates of deposit decreased by 105 basis points compared to the three months ended September 30, 2019. Money market checking increased by $145.6 million while the cost of funds on money market checking decreased by 134 basis points compared to the 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 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 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 $4.2 million and a decrease in the gain on derivatives of $8.6 million. The 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 decrease in salaries and benefits of $4.9 million and the decrease in mortgage processing of $725 thousand, largely driven by the MVB Mortgage transaction. The decrease in noninterest expense was also the result of a decrease in travel, entertainment, dues and subscriptions of $501 thousand, which is mainly the result of decreased travel during the COVID-19 pandemic.

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 $8.6 million and $657 thousand were made for the three months ended September 30, 2020 and 2019, respectively. The drastic increase in loan loss provision is mainly the result of changes to the qualitative adjustment 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.

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 need for $6.6 million in additional loan loss provision in the third quarter of$2.22 billion at March 31, 2021, from $1.98 billion at December 31, 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 $106 thousand, in comparison to net recoveries of $49 thousand in the third quarter of 2019. Additionally, provision was impacted by a $437 thousand increase in the specific loan loss allocations in the third quarter of 2020, 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 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 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 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 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 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.

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 on the qualitative adjustment factors, as described in more detail above. The historical loss rates were also uniquely impacted during the 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 a $1.8 million charge off of a government lease financing loan stemming from the non-renewal of the underlying government contract unrelated to the COVID-19 pandemic, which was reflected in the new government lease financing segment.

Meanwhile, total loan balances decreased $16.8 million in the nine months ended September 30, 2020 versus an increase of $77.7 million in the nine months ended September 30, 2019. More specifically, the commercial loan portfolio increased by $26.9 million in 2020, in comparison to $84.0 million in 2019, while the residential mortgage loan portfolio decreased by $37.5 million in 2020, while decreasing by $2.6 million in 2019. Included in the commercial and total loan volume increases are PPP loans totaling $87.9 million as of September 30, 2020. In addition, specific loan loss allocations increased by $1.4 million in the nine months ended September 30, 2020, in comparison to $472 thousand in the 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~~increased $1.3 million, noninterest income increased $1.6 million and noninterest expenses decreased by which interest income on earning assets exceeds interest expense on interest-bearing liabilities. Interest-earning assets include loans, investment securities, and certificates of deposits in other banks. Interest-bearing liabilities include interest-bearing deposits and repurchase agreements, subordinated debt, and Federal Home Loan Bank (“FHLB”) and other borrowings. Net interest income is a primary source of revenue for the bank. Changes in market interest rates, as well as changes in the mix and volume of interest-earning assets and interest-bearing liabilities impact net interest income.

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

~~Due to the ongoing COVID-19 pandemic, there has been a significant amount of downward movement in the Fed Funds rate~~$5.5 million during the period. To begin 2020, the Fed Funds rate was set at 1.50-1.75 due to the latest downward shift during the fourth quarter of 2019. With the economic volatility and increases in unemployment, the Federal Reserve shifted the Fed Funds rate down to 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 ~~September 30, 2020 versus 2019,~~March 31, 2021 compared to the three months ended March 31, 2020. The Company’s yield on earning assets (tax-equivalent) in the three months ended March 31, 2021 was 3.54% compared to 4.67% in the three months ended March 31, 2020. Total loans increased by $240.6 million to $1.69 billion during the three months ended March 31, 2021. The overall cost of interest-bearing liabilities for the Company was ~~able~~0.48% in the three months ended March 31, 2021 compared to ~~grow average loans and loans held for sale balances, including~~1.34% in the ~~related basis reduction from the acquired First State loans, by $13.4 million to $1.50 billion. Average investment securities increased $13.8 million to $245.8 million. Average~~three months ended March 31, 2020. This cost of interest-bearing liabilities, ~~decreased by $65.3 million, primarily~~combined with the ~~result of~~earning asset yield, resulted in a $178.0 million decrease in average FHLB and other borrowings, a $31.9 million decrease in average certificates of deposit, and a $5.4 million decrease in average subordinated debt, offset by a $145.6 million increase in average money market checking. An increase in the Company’s average non-interest balances of $271.2 million helped to maintain a 26-basis point favorable spread on the tax-equivalent net interest margin (tax-equivalent) of 3.26% in the three months ended March 31, 2021 compared to 3.66% in the three months ended March 31, 2020.

The ~~tax-equivalent net interest margin for~~Company earned $8.1 million in three months ended March 31, 2021 compared to $1.0 million in three months ended March 31, 2020. The three months ended March 31, 2021 earnings equated to a return on average assets of 1.3% and a return on average equity of 13.6%, compared to the three months ended ~~September 30,~~March 31, 2020 results of 0.2% and ~~2019 was 3.35% and 3.48%~~1.9%, respectively. ~~Excluding~~Basic earnings per share were $0.70 in three months ended March 31, 2021 compared to $0.08 in three months ended March 31, 2020. Diluted earnings per share were $0.66 in the three months ended March 31, 2021 compared to $0.08 in the three months ended March 31, 2020.

COVID-19 Pandemic

The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy, as well as financial markets. The full impact ~~from~~of COVID-19 is unknown and continues to evolve. Financial markets adjusted dramatically to the ~~FDIC-assisted acquisition~~reduced economic activity and the pace of ~~First State,~~recovery is uncertain. The financial market benchmark most relevant to the ~~fully-tax equivalent~~Company’s current and future profitability is the United States Government Treasury yield curve. The United States 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 United States Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset-sensitive position, management expects that net interest ~~margin~~income will decline. As the outlook for the ~~quarter ended September 30, 2020 would have decreased 21 basis points. For~~COVID-19 pandemic improves, management expects that the ~~quarter ended September 30, 2020,~~United States Government Treasury curve will experience some degree of an upward shift over time.

Management expects that some clients will be unable to meet their financial obligations in the ~~excess liquidity from increased cash balances accounted for 26 basis points~~near-term as a result of the ~~decrease,~~decreased economic activity brought on by the COVID-19 pandemic. However, management does not expect that these credit concerns will perpetuate indefinitely. Many clients may be eligible to defer loan payments to a later date. The Company actively participated in the PPP, ~~loans originated during~~is evaluating other programs available to assist its clients and is providing consumer deferrals consistent with government-sponsored enterprise (“GSE”) guidelines. Management is working to incorporate scenarios that reflect decreased loan cash flows in the ~~second quarter accounted~~short term into the Company’s interest rate risk models.

There was considerable demand for ~~15 basis points~~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 ~~decrease, and a $500 thousand prepayment penalty for paying off long term borrowings accounted for 10 basis points~~COVID-19 pandemic. The intended use of this funding is to pay employees who may be temporarily unable to work. The original tranche of PPP funding of $349 billion ran out 13 days after the ~~decrease.~~program's

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implementation. The ~~13-basis point decrease in the tax-equivalent net interest margin for the three months ended September 30, 2020 was mainly the result~~second tranche of PPP funding of $310 billion had funds available as of the ~~decrease in tax-equivalent yield~~program's closure date. On July 2, 2020, additional legislation was passed that allowed small businesses to apply for loans through August 8, 2020. On January 8, 2021, the SBA announced that the PPP program would reopen on ~~earnings assets~~January 11, 2021 for new borrowers and certain existing PPP borrowers. During the latest round, funds totaling $284 billion were authorized through March 31, 2021. As of ~~97 basis points outpacing~~March 31, 2021, the ~~decrease in the cost~~Company originated 634 PPP loans with outstanding balances of ~~interest-bearing liabilities of 95 basis points.~~$88.5 million through our internal commercial team and originated PPP loans totaling $102.1 million through our partnership with a Fintech company.

~~The 97-basis point decrease in the tax-equivalent yield on average earning assets for the three months ended September 30, 2020 versus 2019 was primarily the result~~As of a 66-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 the yield onMarch 31, 2021, commercial loans ~~of 56 basis points~~totaling $34.7 million and ~~a 134-basis point decrease~~mortgage loans totaling $9.0 million were approved for modifications, such as interest-only payments and payment deferrals. These modifications were not considered to be troubled debt restructurings in ~~yield~~reliance on ~~real estate loans.~~

~~The cost of interest-bearing liabilities decrease was mainly~~guidance issued by banking regulators titled the ~~result of a 457-basis point decrease in subordinated debt, a 34-basis point decrease in repurchase agreements~~“Interagency Statement on Loan Modifications and ~~federal funds sold, and a 95-basis point decrease in interest-bearing deposits. More specifically,~~Reporting for Financial Institutions Working with Customers Affected by 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 loans held for sale balances, including the 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 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 tax-equivalent net interest margin in 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.Coronavirus.”

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 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). as of and for the periods indicated. The average balances presented are derived from daily average balances.

6439


															Three Months Ended March 31,
		Three Months Ended September 30, 2020						Three Months Ended September 30, 2019							2021						2020
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost		(Dollars in thousands)	Average Balance		Interest Income/Expense		Yield/Cost		Average Balance		Interest Income/Expense		Yield/Cost
Assets	Assets													Assets
Interest-bearing deposits in banks	Interest-bearing deposits in banks	$	174,203	$	45	0.10	%	$	9,562	$	61	2.53	%	Interest-bearing deposits in banks	$	259,491	$	65	0.10	%	$	13,643	$	49	1.44	%
CDs with other banks	CDs with other banks	12,641		61		1.91		14,143		71		1.99		CDs with other banks	11,803		57		1.96		12,549		62		1.98
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	103,497		411		1.58		122,648		689		2.23		Taxable	172,902		631		1.48		127,327		666		2.10
Tax-exempt 2	Tax-exempt 2	142,301		1,344		3.75		109,324		1,113		4.04		Tax-exempt 2	212,488		1,714		3.27		110,188		1,110		4.04
Loans and loans held for sale: 1
Commercial		1,160,214		14,108		4.82		1,002,595		13,599		5.38
Loans and loans held-for-sale: 1														Loans and loans held-for-sale: 1
Commercial 3														Commercial 3	1,262,444		14,171		4.55		1,089,212		13,863		5.11
Tax exempt 2	Tax exempt 2	7,752		91		4.66		11,229		127		4.47		Tax exempt 2	7,205		81		4.56		11,760		134		4.58
Real estate	Real estate	325,992		2,749		3.35		464,769		5,490		4.69		Real estate	293,076		2,684		3.71		429,720		4,953		4.62
Consumer	Consumer	6,613		119		7.14		8,612		149		6.86		Consumer	7,696		37		1.95		7,473		123		6.60
Total loans	Total loans	1,500,571		17,067		4.51		1,487,205		19,365		5.17		Total loans	1,570,421		16,973		4.38		1,538,165		19,073		4.97
Total earning assets	Total earning assets	1,933,213		18,928		3.88		1,742,882		21,298		4.85		Total earning assets	2,227,105		19,440		3.54		1,801,872		20,960		4.67
Less: Allowance for loan losses	Less: Allowance for loan losses	(18,906)						(11,232)						Less: Allowance for loan losses	(26,170)						(11,366)
Cash and due from banks	Cash and due from banks	28,299						18,366						Cash and due from banks	20,951						20,766
Other assets	Other assets	205,038						134,871						Other assets	209,995						136,744
Total assets	Total assets	$	2,147,644					$	1,884,887					Total assets	$	2,431,881					$	1,948,016

Liabilities	Liabilities													Liabilities
Deposits:	Deposits:													Deposits:
NOW	NOW	$	381,375	$	496	0.52	%	$	384,977	$	942	0.97	%	NOW	$	518,937	$	344	0.27	%	$	407,462	$	798	0.79	%
Money market checking	Money market checking	479,418		380		0.31		333,849		1,391		1.65		Money market checking	487,281		231		0.19		432,175		1,451		1.35
Savings	Savings	49,698		7		0.06		37,335		1		0.01		Savings	39,668		6		0.06		36,867		1		0.01
IRAs	IRAs	12,389		44		1.41		17,342		84		1.92		IRAs	12,693		42		1.34		16,573		78		1.89
CDs	CDs	334,828		967		1.15		366,749		2,035		2.20		CDs	168,951		425		1.02		334,810		1,582		1.90
Repurchase agreements and federal funds sold	Repurchase agreements and federal funds sold	10,145		4		0.16		9,493		12		0.50		Repurchase agreements and federal funds sold	10,249		3		0.12		9,520		10		0.42
FHLB and other borrowings	FHLB and other borrowings	34,138		699		8.12		212,102		1,383		2.59		FHLB and other borrowings	46,349		41		0.36		115,930		573		1.98
Subordinated debt	Subordinated debt	4,124		20		1.92		9,535		156		6.49		Subordinated debt	43,425		466		4.35		4,124		35		3.40
Total interest-bearing liabilities	Total interest-bearing liabilities	1,306,115		2,617		0.79		1,371,382		6,004		1.74		Total interest-bearing liabilities	1,327,553		1,558		0.48		1,357,461		4,528		1.34
Noninterest bearing demand deposits	Noninterest bearing demand deposits	542,467						271,294						Noninterest bearing demand deposits	821,923						331,962
Other liabilities	Other liabilities	68,223						38,618						Other liabilities	45,311						43,463
Total liabilities	Total liabilities	1,916,805						1,681,294						Total liabilities	2,194,787						1,732,886

Stockholders’ equity	Stockholders’ equity													Stockholders’ equity
Preferred stock	Preferred stock	7,334						7,644						Preferred stock	2,349						7,334
Common stock	Common stock	12,066						11,773						Common stock	12,378						11,997
Paid-in capital	Paid-in capital	124,003						119,166						Paid-in capital	136,864						122,663
Treasury stock	Treasury stock	(2,022)						(1,084)						Treasury stock	(16,741)						(1,135)
Retained earnings	Retained earnings	90,113						67,312						Retained earnings	100,273						74,401
Accumulated other comprehensive (loss)	Accumulated other comprehensive (loss)	(655)						(1,218)						Accumulated other comprehensive (loss)	1,971						(130)
Total stockholders’ equity	Total stockholders’ equity	230,839						203,593						Total stockholders’ equity	237,094						215,130
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,147,644					$	1,884,887					Total liabilities and stockholders’ equity	$	2,431,881					$	1,948,016

Net interest spread (tax-equivalent)	Net interest spread (tax-equivalent)					3.09	%					3.11	%	Net interest spread (tax-equivalent)					3.06	%					3.33	%
Net interest income and margin (tax-equivalent) 2	Net interest income and margin (tax-equivalent) 2			$	16,311	3.35	%			$	15,294	3.48	%	Net interest income and margin (tax-equivalent) 2			$	17,882	3.26	%			$	16,432	3.66	%
Less: Tax-equivalent adjustments	Less: Tax-equivalent adjustments			$	(301)					$	(260)			Less: Tax-equivalent adjustments			$	(377)					$	(261)
Net interest spread	Net interest spread					3.03	%					3.05	%	Net interest spread					3.00	%					3.27	%
Net interest income and margin	Net interest income and margin			$	16,010	3.29	%			$	15,034	3.42	%	Net interest income and margin			$	17,505	3.19	%			$	16,171	3.60	%

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 three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ which is a non-U.S. GAAP financial measure. ~~See~~Please 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 3~~Non-accrual~~ The Company’s PPP loans, totaling $190.6 million at March 31, 2021, are included in ~~total loan balances, lowering the effective yield~~this amount 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 ninethree 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.March 31, 2021.

6640

The following table ~~reconciles, as~~presents the reconciliation of ~~the dates set forth below,~~ net interest margin for the periods indicated:


	Three Months Ended March 31,
(Dollars in thousands)	2021			2020
Net interest margin - U.S. GAAP basis
Net interest income	$	17,505		$	16,171
Average interest-earning assets	2,227,105			1,801,872
Net interest margin	3.19		%	3.60		%

Net interest margin - non-U.S. GAAP basis
Net interest income	$	17,505		$	16,171
Plus: Impact of fully tax-equivalent adjustment	377			261
Net interest income on a fully tax-equivalent basis	17,882			16,432
Average interest-earning assets	2,227,105			1,801,872
Net interest margin on a fully tax-equivalent basis	3.26		%	3.66		%

Key Metrics


	Three Months Ended March 31,
(Dollars in thousands, except per share data)		2021			2020













Book value per common share		$	20.38		$	17.08











Efficiency ratio 1		63.8		%	91.3		%
Overhead ratio 2 3		3.1		%	5.1		%




Net loan charge-offs to total loans 4		0.1		%	0.5		%

Allowance for loan losses to total loans 5		1.5		%	0.8		%
Nonperforming loans		$	11,577		$	5,909
Nonperforming loans to total loans		0.7		%	0.4		%


Equity to assets		8.9		%	10.1		%
Bank leverage ratio		11.3		%	9.8		%

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

2 Annualized for the quarterly periods presented

3 Noninterest expense as a percentage of average assets

4 Charge-offs less recoveries

5 Excludes loans held-for-sale

Net Interest Income

Net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities. Interest-earning assets include loans, investment securities and certificates of deposit in banks. Interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts and repurchase agreements. Net interest income, which is the primary source of revenue for the Bank, is also impacted by changes in market interest rates, as well as the mix of interest-earning assets and interest-bearing liabilities. Net interest income is impacted favorably by increases in noninterest-bearing demand deposits and equity.

Net interest margin is calculated by dividing net interest income by average interest-earning assets and serves as a measurement of

the net revenue stream generated by the Bank’s balance sheet. Net interest margin (tax equivalent) was 3.26% for the three months ended March 31, 2021 compared to 3.66% for the three months ended March 31, 2020. The net interest margin continues to face considerable pressure due to low interest rates and competitive pricing of loans and deposits in the Bank’s markets. During 2020, the Federal Reserve lowered its key interest rate from a range of 1.50% to 1.75% to a range of 0.00% to 0.25% and remains at this rate as of March 31, 2021. Management’s estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in Item 3 – Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report.

Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest income while maintaining an appropriate level of interest rate risk. Net interest spread (tax-equivalent) was 3.06% for the three months ended March 31, 2021 compared to 3.33% for the three months

ended March 31, 2020. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 20 basis points in the three months ended March 31, 2021 compared to 33 basis points in the three months ended March 31, 2020. The increase of $490.0 million in average noninterest-bearing demand deposits helped maintain the favorable spread.

Company management continues to analyze methods to deploy assets into an earning asset mix which will result in a stronger net interest margin. Loan growth continues to be strong and management anticipates that loan activity will remain strong in the near term future.

During the three months ended March 31, 2021, net interest income increased by $1.3 million, or 8.25%, to $17.5 million from $16.2 million during the three months ended March 31, 2020. This increase is largely due to the increase in the average earning assets of $425.2 million being primarily funded by the increase in noninterest-bearing demand deposits of $490.0 million. Also impacting the yield were the sale of four branches to Summit in April 2020, the accretion related to loans acquired from First State and amortization of PPP origination fees. Average total earning assets was $2.23 billion in the three months ended March 31, 2021 compared to $1.80 billion in the three months ended March 31, 2020. Although there was an increase in average total earning assets, total interest income decreased by $1.6 million, or 7.90%, to $19.1 million in the three months ended March 31, 2021 from $20.7 million in the three months ended March 31, 2020. This decrease in total interest income was driven by the effect of the Federal Reserve lowering its key interest rates, which resulted in the decrease in yield on earning assets of 113 basis points. Average total loans and loans held-for-sale increased to $1.57 billion in the three months ended March 31, 2021 from $1.54 billion in the three months ended March 31, 2020, primarily as the result of a $173.2 million increase in average commercial loans; however, PPP loans with an outstanding balance of $190.6 million accounted for a portion of the increase and carried just a 1% yield, outside of origination fee accretion. Yield on total loans and loans held-for-sale decreased 59 basis points. Changes in the balance sheet related to the Summit and First State transactions also impacted yield on earning assets.

Average investment securities increased $147.9 million as the result of a $102.3 million increase in tax-exempt investments and a $45.6 million increase in taxable investments. Yield on tax-exempt securities decreased 77 basis points and taxable securities yield decreased 62 basis points.

Average interest-bearing liabilities decreased by $29.9 million. The decrease was primarily the result of decreases of $165.9 million in the average balance of certificates of deposit and $69.6 million in the average balance of FHLB and other borrowings, partially offset by increases of $111.5 million in the average balance of negotiable order of withdrawal accounts, $55.1 million in money market checking accounts and $39.3 million in the average balance of subordinated debt.

Average interest-bearing deposits were $1.23 billion for both the three months ended March 31, 2021 and for the three months ended March 31, 2020. Total interest expense decreased by $3.0 million, caused primarily by a $2.9 million decrease in deposit interest. The result was a 86-basis point decrease in the cost of interest bearing liabilities.

The Company’s average earning assets increased $425.2 million and net interest income increased by $1.3 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The net interest margin continues to be pressured by falling rates and increased competition for high quality loan growth.

The Bank’s yield on earning assets declined due to decreases in the loan portfolio yield of 59 basis points, driven by the addition of PPP loans originated in the second quarter of 2020 and the first quarter of 2021, and the investment portfolio yield of 53 basis points, while the cost of interest bearing liabilities decreased by 86 basis points.

The cost of interest-bearing liabilities decreased to 0.48% in the three months ended March 31, 2021 from 1.34% in the three months ended March 31, 2020. This decrease is primarily the result of decreases of 162 basis points in the cost of FHLB and other borrowings and a 93 basis point decrease in the cost of deposits. Further discussion on borrowings is included in Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.

Provision for Loan Losses

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 $0.6 million and $1.1 million were made for the three months ended March 31, 2021 and 2020, respectively. The decrease in loan loss provision is mainly the result of changes in the level of recognized charge-offs and changes in the resulting historical loss rates. In addition, changes to the outstanding balances of the loan portfolios, changes to the qualitative adjustment factor framework within the allowance methodology and adjustments to the risk grading of significant loans within the portfolio were all contributing factors in the ultimate change in loan loss provision.

Total loan balances increased $240.6 million during the three months ended March 31, 2021 versus an increase of $22.0 million in the three months ended March 31, 2020. The commercial loan portfolio increased by $212.2 million during the three months ended March 31, 2021, in comparison to an increase of $30.7 million in the three months ended March 31, 2020, while the residential mortgage loan portfolio increased by $35.4 million during the three months ended March 31, 2021, while decreasing by $10.1 million in the three months ended March 31, 2020. Included in the commercial and total loan volume increases are SBA PPP loans totaling $190.6 million as of March 31, 2021. This portion of loan growth is significant to the overall change in provision as these loans are guaranteed by the SBA, and accordingly, are subject to a loan loss allocation that is only a fraction of the typical allocation rate applied to other loans in the portfolio. In addition, net charge-offs during the three months ended March 31, 2021 totaled $0.2 million, in comparison to net charge-offs of $1.8 million in the three months ended March 31, 2020. Additionally, provision was impacted by a $0.3 million decrease in the specific loan loss allocations in the three months ended March 31, 2021, relative to a $0.1 million decrease in the three months ended March 31, 2020.

Meanwhile, 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 in the third quarter of 2020 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 COVID-19 pandemic made it apparent that the framework required modifications to consider this greater degree of risk. While the ultimate timing and severity of impacts to the economic and business conditions in which the Company operates are not yet 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 %
known, it appears 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 COVID-19 pandemic and the fact that it impacts virtually all industries 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 and the timing and effectiveness of vaccines. 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 the economy and 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 the Company's loan portfolios have not yet fully revealed themselves in terms of delinquent loans or deterioration in collateral values. Meanwhile, the Company has not currently made any significant changes to lending strategies that would impact the concentrations of credit risk within those portfolios.

Noninterest Income

~~Mortgage~~Payment card and service charge income, mortgage fee income, ~~gain~~consulting compliance income, and gains on ~~derivatives, interchange income, commercial swap fee income, insurance and investment services income, income on bank owned life insurance and portfolio loan sales~~equity securities 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~~During the three months ended ~~September 30, 2020,~~March 31, 2021, equity method investment income has generated additional noninterest income. Total of noninterest income ~~totaled $19.4 million compared to $14.7 million~~ for the ~~same time period in 2019.~~ three months ended March 31, 2021 and 2020 was $12.5 million and $10.8 million, respectively.

The increase in noninterest income ~~of $4.7 million~~for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was primarily the result of an increase of $6.5 million in equity method investment income from ICM and a decrease of ~~$13.6~~$3.6 million ~~a gain~~in the loss on ~~mortgage combination transaction of $3.3 million, and an increase in compliance consulting income of $1.1 million. This increase was~~derivatives. These increases were partially offset by a decrease of $11.2 million in mortgage fee ~~income of $4.2 million and a decrease in the gain on derivatives of $8.6 million.~~income.

~~The increase in equity~~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 $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 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$6.5 million was due to the ~~Purchase~~ICM combination in July 2020. Prior to this combination, income from the Company's mortgage activities was recognized through mortgage fee income.

Payment card and ~~Assumption Agreement with Summit Community Bank that the Company closed~~service charge income increased from $0.6 million in the ~~second quarter of 2020. The increase in mortgage fee income of $5.4 million is driven by an increase of $304.4~~three months ended March 31, 2020 to $1.5 million in ~~mortgage loans sold for~~ the ~~nine~~three months ended ~~September 30, 2020 compared to the nine months ended September 30, 2019. The bargain purchase gain of $4.7 million was~~March 31, 2021 due to the ~~First State acquisition. The increase in compliance consulting income~~expansion of ~~$3.0~~the Company's Banking as a Service (“BaaS”) platform.

Loss on derivatives decreased from $3.6 million ~~was~~for the three months ended March 31, 2020 to zero for the three months ended March 31, 2021, due to the removal of the mortgage derivative driven by the ~~2019 Chartwell acquisition. The increase~~ICM combination.

Mortgage fee income decreased $11.2 million in ~~gain on sale of securities of $1.0 million is mostly driven by~~ the ~~decreased rate environment driving opportunities for gains on the sale of investments. The $13.7 million decrease in holding gain on equity securities was~~three months ended March 31, 2021 due to ~~an increase~~the ICM combination in July 2020. Prior to this combination, income from the ~~valuation of the Company’s Fintech investment portfolio during the second quarter of 2019.~~Company's mortgage activities was recognized through mortgage fee income.

6743

Noninterest Expense

~~The Company had 338 full-time equivalent personnel at September 30,~~Noninterest expense was $19.1 million and $24.7 million in in the three months ended March 31, 2021 and 2020, ~~as noted, compared to 420 full-time equivalent personnel as of September 30, 2019. The decrease in full-time equivalent personnel is a direct result of the MVB Mortgage transaction. Company~~respectively. Approximately 62% and ~~Bank management will continue to strive to find new ways of increasing efficiencies and leveraging its resources, while effectively optimizing 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 51.58% for the third quarter of 2020 compared to 78.64% for the third quarter of 2019. This ratio measures the efficiency66% of noninterest ~~expenses incurred in relationship to net interest income plus noninterest income. The decreased efficiency ratio~~expense for the three months ended ~~September 30,~~March 31, 2021 and 2020, isrespectively, was related to personnel costs. Personnel costs are a significant part of the Company's noninterest expense as such costs are critical to services organizations. Salaries and benefits decreased by $4.3 million, primarily as a result of the ~~growth in net interest income~~ICM combination and ~~noninterest 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~~four branches to ~~these deals, the Company incurred the following deal related costs~~Summit 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 September 30, 2020, noninterest expense totaled $18.3 million compared to $23.4 million for the same time period in 2019. The $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.April 2020.

Mortgage processing decreased by ~~$725 thousand. The decrease~~$0.9 million 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~~three months ended March 31, 2021 compared 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~~three months ended ~~September 30,~~March 31, 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 as the result of the ~~following:~~

Salaries and employee benefits expense increased by $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 First State acquisition, the Paladin, LLC acquisition, and the Chartwell acquisition.

Professional fees expense increased by $2.9 million. This increase in professional fees expense of $1.3 million was 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.

~~Other operating expense increased by $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 communication expense increased by $1.2 million. The increase in data processing and communications expense of $780 thousand was 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.

Mortgage processing decreased by $509 thousand. The decrease in mortgage processing is mainly driven by the MVB Mortgage transaction, which removed mortgage processing from being expensed through the Company.ICM combination.

Return on ~~Average~~ Assets ~~(Annualized)~~and Equity

~~Excluding discontinued operations, the~~Assets

The Company’s return on average assets was ~~1.21%~~1.3% for the ~~third quarter of 2020,~~three months ended March 31, 2021, compared to ~~0.92%~~0.2% for the ~~third quarter of 2019.~~three months ended March 31, 2020. The increased return ~~for the third quarter of 2020~~in 2021 is a ~~direct~~ result of a ~~$2.1~~$7.0 million increase in earnings, while average total assets increased by ~~$262.8~~$483.9 million, ~~primarily~~mainly as the result of a ~~$164.6 million increase in interest-bearing deposits in banks, a $70.2~~$245.8 million increase in average ~~other assets,~~interest-bearing deposits with banks, a $147.9 million increase in average investment securities and a ~~$13.4~~$32.3 million increase in average total ~~loans and loans held for sale.~~loans.

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 $49.1 million increase in average other assets.Equity

~~Return on Average Equity (Annualized)~~

~~Excluding discontinued operations, the~~The Company’s return on average stockholders’ equity was ~~11.25%~~13.6% for the ~~third quarter of 2020,~~three months ended March 31, 2021, compared to ~~8.54%~~1.9% for the ~~third quarter of 2019.~~three months ended March 31, 2020. The increased return ~~for the third quarter of 2020~~in 2021 is a ~~direct~~ result of a ~~$2.1~~$7.0 million increase in earnings, while average ~~stockholders’~~ equity increased by ~~$27.2~~$22.0 million. ~~The increase in average stockholders’ equity was primarily due to a $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 $5.4 million increase in paid-in capital, and a $3.3 million decrease in accumulated other comprehensive loss.

~~Overview~~Statement of ~~the Consolidated Balance Sheets~~

The greatest balance changes since December 31, 2019 were as follows: total assets increased by $270.3 million, to $2.21 billion, loans increased $54.1 million, to $1.43 billion, available-for-sale investment securities increased $62.1 million, to $298.0 million, deposits increased $633.9 million, to $1.90 billion, borrowings decreased $197.1 million, to $25.8 million, and stockholders’ equity increased by $22.2 million, to $234.1 million.Financial Condition

Cash and Cash Equivalents

Cash and cash equivalents totaled ~~$295.8~~$339.6 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$28.0~~$263.9 million at December 31, ~~2019.~~2020.

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~~ Due to the ~~changes~~increase in ~~the industry related to COVID-19, the Company~~liquidity driven by growth in noninterest-bearing deposits, management 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 sheetelected to maintain a ~~greater balance of~~higher cash and cash equivalents ~~than has typically been used~~balance to ~~maintain liquidity.~~provide flexibility during the COVID-19 pandemic.

6944

Investment Securities

Investment securities, including equity securities, totaled ~~$322.1~~$451.3 million at ~~September 30, 2020,~~March 31, 2021, compared to ~~$254.3~~$438.2 million at December 31, ~~2019. As~~2020. The following table presents a summary of ~~September 30, 2020,~~ the investment securities portfolio ~~is comprised~~as of the ~~following mix of securities:~~periods indicated. The available-for-sale securities are reported at estimated fair value.


(Dollars in thousands)	March 31, 2021		December 31, 2020
Available-for-sale securities:
United States government agency securities	$	48,104	$	56,992
United States sponsored mortgage-backed securities	89,207		95,769
United States treasury securities	56,970		—
Municipal securities	209,734		231,887
Other debt securities	7,500		7,500
Other securities	11,607		18,476
Total investment securities available-for-sale	$	423,122	$	410,624

Equity securities	$	28,200	$	27,585

•~~47.6% – Municipal securities~~

•~~16.6% – U.S. Agency securities~~

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

•~~2.3% – Other debt securities~~

•~~4.9% – Other securities~~

•~~7.4% – Equity securities~~

~~The Company and Bank management monitor~~Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through the 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 ~~clients. The Company and Bank management believe~~customers. Management believes 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 Company to begin the 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 ~~$1.43~~$1.69 billion as of ~~September 30, 2020~~March 31, 2021 and totaled ~~$1.37~~$1.45 billion as of December 31, ~~2019.~~2020. The Bank’s lending is primarily focused in ~~the Marion, Harrison, Monongalia, Kanawha, Putnam and Cabell counties of~~North Central 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.~~Northern Virginia. The portfolio consists principally of commercial lending, ~~mortgage~~retail 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~~

For more information regarding the Company's loans, please see Note 3 – Loans and Allowance for Loan Losses accompanying the consolidated financial statements included elsewhere 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.~~this report.

Loan Concentration

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, $1.14 billion, or 79.6%~~2020, commercial and ~~$1.06 billion, or 77.4%, respectively,~~non-residential real estate loans comprised the largest component of the ~~Company's~~ loan ~~portfolio consisted~~portfolio. A large portion of commercial loans ~~and PCI commercial loans acquired from First State. A significant portion of the nonresidential~~are secured by real estate ~~loan portfolio is secured by commercial real estate. The majority of nonresidential real estate loans~~and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are ~~lines of credit~~typically secured by accounts receivable, ~~and equipment and obligations of states and political subdivisions.~~mortgages or equipment. While the loan concentration is in ~~nonresidential real estate~~commercial loans, the ~~nonresidential real estate~~commercial portfolio is comprised of loans to many different borrowers, in numerous different industries, ~~but~~ primarily located in ~~our~~the Company's market areas.

Allowance for Loan Losses

The ~~allowance for loan losses~~ALL was ~~$25.9~~$26.2 million or ~~1.81%~~1.5% of total loans at ~~September 30, 2020~~March 31, 2021 compared to ~~$11.8~~$25.8 million or ~~0.86%~~1.8% of total loans at December 31, ~~2019.~~2020. The ~~increase~~decrease 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 ~~changes in historical loss rates, changes in outstanding loan portfolios,~~ and changes in the ~~level of specific loan~~resulting historical loss ~~allocations. Most notably, throughout 2020, management has continued~~rates. In addition, changes to ~~evaluate~~ the ~~breadth~~outstanding balances of the ~~current allowance methodology, in order to assess how well structured the methodology is to appropriately respond~~loan portfolios, changes 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 adjustment factor framework within the allowance methodology ~~that have better positioned the Bank~~and adjustments to ~~adequately assess~~ the risk tograding of significant loans within the ~~loan~~ portfolio ~~and allocate loan loss provision accordingly.~~were all contributing factors in the change.

~~The Bank management~~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.~~ALL. 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~~and verifiable information from the local market to assess risks to specific loans and the loan portfolios as a whole.

~~Capital Resources~~

Funding Sources

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 ~~$1.90~~$2.22 billion, or 93.4% of funding sources, at ~~September 30,~~March 31, 2021. This same information at December 31, 2020 reflected $1.98 billion in deposits representing 97.4% of such funding sources.

FHLB and other borrowings and subordinated debt represented 6.1% of funding sources at March 31, 2021. FHLB and other borrowings, including PPPLF borrowings, totaled $102.2 million at March 31, 2021. Subordinated debt totaled $43.4 million at March 31, 2021.

FHLB and other borrowings and subordinated debt represented 2.1% of funding sources at December 31, 2020. There were no FHLB and other borrowings at December 31, 2020. Subordinated debt totaled $43.4 million at December 31, 2020.

~~Noninterest-bearing~~Repurchase agreements, which are available to large corporate customers, represented 0.4% and 0.5% of funding sources at December 31, 2020 and 2019, respectively.

Management continues to emphasize the development of additional noninterest-bearing deposits ~~remain~~as a core funding source for the ~~Bank and thus, the~~

Company. At ~~September 30, 2020,~~March 31, 2021, noninterest-bearing balances totaled ~~$642.8~~$837.2 million, compared to ~~$278.5~~$715.8 million at December 31, ~~2019. Of~~2020, or 37.8% and 36.1% of total deposits, respectively. Interest-bearing deposits totaled $1.38 billion at March 31, 2021, compared to $1.27 billion at December 31, 2020, or 62.2% and 63.9% of total deposits, respectively. The main driver of deposit growth has been the ~~$642.8 million, noninterest-bearing balances~~increase in Fintech deposits through adding new relationships and continuing to grow current relationships. This growth in Fintech deposits is primarily due to the increasing in gaming deposits, primarily as a result of ~~$304.0 million are related to Fintech opportunities and noninterest-bearing balances~~the increasing number of ~~$127.7 million are related to title business funds.~~states legalizing sports gaming. The Company ~~and Bank management intend~~currently expects its Fintech banking to continue to ~~focus on finding ways of continuing to increase the base of noninterest-bearing sources.~~grow.

~~Interest-bearing deposits totaled $1.26 billion at September 30, 2020 compared to $986.5 million at December 31, 2019.~~The following table sets forth the balance of each of the deposit categories as of the periods indicated:

At September 30, 2020, the Bank had brokered deposits of $15.3 million and CDs with other banks of $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.


(Dollars in thousands)	March 31, 2021		December 31, 2020
Noninterest-bearing demand	$	837,221	$	715,791
Interest-bearing demand	698,218		496,502
Savings and money markets	520,998		545,501
Time deposits, including CDs and IRAs	160,116		224,595
Total deposits	$	2,216,553	$	1,982,389

Time deposits that meet or exceed the FDIC insurance limit	$	14,829	$	16,955

Average interest-bearing deposits totaled ~~$1.26~~$1.23 billion during both the ~~third quarter of 2020~~three months ended March 31, 2021 and 2020. Average noninterest-bearing deposits totaled $821.9 million during the three months ended March 31, 2021 compared to ~~$1.14 billion~~$332.0 million during the ~~third quarter of 2019, an increase of $117.5 million.~~ three months ended March 31, 2020.

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

Management will continue to emphasize deposit growth opportunities from the network of current clients and Fintech partners. The Company and Bank 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~~short-term borrowings from ~~the investment portfolio, and~~ FHLB and ~~other borrowings~~overnight repurchase agreements to fund its operations and investments. ~~At September 30,~~For details on the Company's borrowings, please refer to Note 7 – Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report.

Capital and Stockholders' Equity

During the quarter ended March 31, 2021, stockholders’ equity decreased approximately $3.3 million to $236.7 million. This decrease consists of the redemption of preferred stock of $7.3 million, other comprehensive loss of $4.1 million and cash dividends of $1.2 million. These decreases were offset by net income for the quarter of $8.1 million, common stock options exercised totaling $0.7 million, stock-based compensation of $0.6 million and noncontrolling interest due to acquisition of $0.5 million. With the stockholders’ equity decreasing as noted above, the equity to assets ratio decreased from 10.3% to 8.9% due to a reduction in equity and the $314.6 million increase in total assets during the quarter. The Company paid dividends to common shareholders of $1.2 million in each of the three months ended March 31, 2021 and 2020 ~~repurchase agreements totaled $10.0 million~~ compared to ~~$10.2~~earnings of $8.1 million ~~at December~~in the three months ended March 31, ~~2019. In addition~~2021 versus $1.0 million in the three months ended March 31, 2020, resulting in the dividend payout ratio decreasing from 115.2% in the three months ended March 31, 2020 to 14.3% in the three months ended March 31, 2021.

The Company and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. The Bank is

required to comply with applicable capital adequacy standards established by the FDIC. 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. West Virginia state chartered banks, such as the Bank, are subject to similar capital requirements adopted by the West Virginia Division of Financial Institutions. Bank regulators have established “risk-based” capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets companies hold in their portfolios. A

weight category of 0% (lowest risk assets), 20%, 50%, 100% or 150% (highest risk assets) is assigned to each asset on the balance

sheet. Detailed information concerning the Company’s risk-based capital ratios can be found in Supervision and Regulation in Item 1 – Business and Note 15 – Regulatory Capital Requirements to the ~~aforementioned funds alternatives,~~consolidated financial statements and accompanying notes contained in the 2020 Form 10-K.

In November 2019, federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020. The intent of the CBLR is to provide a simple alternative measure of capital adequacy for electing qualifying depository institutions as directed under the EGRRCPA. Under the CBLR, if a qualifying depository institution elects to use such measure, such institutions will be considered well capitalized if its ratio of Tier 1 capital to average total consolidated assets (i.e. leverage ratio) exceeds a 9% threshold, subject to a limited two quarter grace period, during which the leverage ratio cannot go 100 basis points below the then applicable threshold, and will not be required to calculate and report risk-based capital ratios.

In April 2020, under the CARES Act, the 9% leverage ratio threshold was temporarily reduced to 8% in response to the COVID-19 pandemic. The threshold will increase to 8.5% in 2021 and return to 9% in 2022. The Bank ~~has access~~elected to ~~more~~begin using the CBLR for the first quarter of 2021 and intends to utilize this measure for the foreseeable future. Eligibility criteria to utilize the CBLR includes the following:

● Total assets of less than ~~$488.3 million through additional advances from~~$10 billion;

● Total trading assets plus liabilities of 5% or less of consolidated assets;

● Total off-balance sheet exposures of 25% or less of consolidated assets;

● Cannot be an advanced approaches banking organization; and

● Leverage ratio greater than 9%, or temporarily prescribed threshold established in response to COVID-19.

The Bank's CBLR at March 31, 2021 was 11.3%, which is above the ~~FHLB~~well capitalized standard of ~~Pittsburgh and the ability~~8.5%. Management believes that capital continues to ~~readily sell jumbo certificates of deposits to other banks as well as brokered deposit markets.~~provide a strong base for profitable growth.

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~~the Company’s policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions.

The main source of liquidity for the Bank comes through deposit growth. Liquidity is also provided from cash generated from investment maturities, principal payments from loans and income from loans and investment securities. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, cash provided by financing activities totaled ~~$331.2~~$328.9 million, while outflows from investing activity totaled ~~$154.7~~$263.4 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.~~Certificate of Deposit Account Registry Services. 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, all of which ~~approximately $75 million remains~~is available, subject to authorization from the Board ~~authorization~~of Directors and market conditions, to issue ~~equity~~debt or ~~debt~~equity securities at ~~our~~the Company's discretion. While ~~we seek~~the Company seeks to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit usit to sell securities on acceptable terms, ~~at any given time~~ or at all.

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.

Current Economic Conditions

The Company considers its primary market area for CoRe banking services to be comprised of ~~those counties where it has a physical branch presence and their contiguous counties. This includes Marion, Harrison, Monongalia, Kanawha, Putnam, and Cabell counties of~~North Central West Virginia and ~~Fairfax and Loudoun counties of Virginia. The~~Northern Virginia, where the Bank currently operates a total of ~~thirteen~~13 full-service banking branches: ten in West Virginia and three in Virginia. The Company considers its Fintech banking market to be customers located throughout the entire United States.

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,believes that 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~~its primary market areas reflect economic climates that are consistent with the general national economic 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 and unemployment rates have increased significantly. Unemployment in the United States was ~~7.7%~~6.2% and ~~3.3% in September 2020 and 2019, respectively.~~

~~The unemployment levels in the Company’s primary market areas were as follows~~4.5% for ~~the periods indicated:~~

August 2020 August 2019
Harrison County, WV 8.2 % 4.3 %
Marion County, WV 9.0 5.0
Monongalia County, WV 6.6 3.7
Kanawha County, WV 9.6 4.6
Putnam County, WV 7.3 4.2
Cabell County, WV 8.3 4.3
Fairfax County, VA 6.0 2.4
Loudoun County, VA 5.4 2.4

~~Capital/Stockholders' Equity~~

For the nine months ended September 30, 2020, stockholders’ equity increased approximately $22.2 million to $234.1 million. This increase consists of year-to-date net income of $25.6 million, offset by dividends paid totaling $3.6 million, stock-based compensation of $1.7 million, and a decrease in other comprehensive loss of $69 thousand. As stockholders’ equity increased, the equity to assets ratio decreased 0.33% to 10.57%. The Company paid dividends to common shareholders of $3.2 million in the nine months ended 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 6.47% in the nine months ended September 30, 2019 to 12.80% in the nine months ended September 30, 2020.

At September 30, 2020, accumulated other comprehensive loss totaled $1.3 million, a decrease in the loss of $69 thousand from December 31, 2019. 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, and a decrease of $539 thousand in the other comprehensive income related to the investment hedge.

~~Treasury stock totaled 179,626 shares, up 128,549 shares from December 31, 2019 primarily due to common stock repurchased during 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 increased from 12.84% at December 31, 2019 to 15.89% at September 30, 2020. The 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 $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~~

•~~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 was 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% forMarch 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.~~

~~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 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.respectively.

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 ~~clients.~~customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.

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

Commitments to extend credit are agreements to lend to a ~~client~~customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily

represent future cash requirements. The Company evaluates each ~~client’s~~customer’s credit worthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Company upon extension of credit, varies and is based on ~~management’s~~management��s credit evaluation of the ~~client.~~customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a ~~client~~customer to a ~~third party.~~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 ~~client.~~customers. The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

Concentration of Credit Risk

The Company grants a majority of its commercial, financial, agricultural, real estate and installment loans to ~~clients~~customers throughout the ~~Marion, Harrison, Monongalia, Kanawha, Putnam, and Cabell County areas of~~North Central West Virginia ~~as well as the~~and Northern Virginia ~~area and adjacent counties.~~markets. 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 ~~clients~~customers on a case-by-case basis and the amount of collateral it obtains is based upon management’s credit evaluation.

Regulatory

The Company is required to maintain certain reserve balances on hand in accordance with the Federal Reserve Board requirements. ~~The average balance maintained in~~In accordance with ~~such~~these requirements, ~~was $0 on September 30, 2020 and December 31, 2019. During 2016,~~the Company implemented a deposit reclassification program ~~was implemented and~~that allowed the Company to ~~reduce its requirement of~~maintain no such reserve balances ~~on hand in accordance with the Federal Reserve Board's daily Federal Reserve Requirement.~~as of March 31, 2021 and December 31, 2020.

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 client service coupled with ~~the highest quality~~high-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~~deposits, notably through its expansion of deposit acquisition and fee income strategies through the ~~fintech vertical.~~Fintech division. During ~~the third quarter of~~ 2020 and into 2021, the Company entered into agreements for ~~card acquiring sponsorships and~~ debit card program sponsorship to further enhance fee income and noninterest income. In addition, the Company continues to expand into the Fintech industry through the acquisition of technology, including a software development team, in order to scale and diversify its banking capabilities.

Critical Accounting Policies and Estimates

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~~preparation of the ~~economic slowdown which will occur as a result~~accompanying condensed consolidated financial statements in conformity with U.S. GAAP required management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the ~~COVID-19 pandemic is unknown. Financial markets have adjusted dramatically to the expectation~~reported amounts of ~~reduced economic activity. The financial market benchmark most relevant to the Company’s current~~revenue and future profitability is the U.S. Government Treasury yield curve. The U.S. Government Treasury yield curve is used as a basis for the pricing of most bonds, loans, borrowings, deposits, and other fixed income yield curves. The U.S. Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given the Company’s asset sensitive position, Management expects that net interest income will decline. As the outlook for the COVID-19 pandemic improves, management expects that the U.S. Government Treasury curve will experience some degree of an upward shift over time.

Management expects that some 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 clients may be eligible to defer loan payments to a later date. The Company actively 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.expenses.

There ~~was considerable demand for~~have been no significant changes to the ~~PPP implemented by~~Company's critical accounting policies and estimates or in the ~~CARES Act to combat~~underlying accounting assumptions and estimates used in these critical accounting policies from those disclosed in the ~~economic slowdown brought on by~~consolidated financial statements and accompanying notes contained in 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. The original tranche of PPP funding of $349 billion ran out 13 days after the program's implementation. The second tranche of PPP funding of $310 billion still had funds available as of June 30, 2020 the program's original closure date. On July 2, 2020, additional legislation was passed that allowed small businesses to apply for loans through August 8, 2020. The deadline to apply for PPP loans has passed as of September 30, 2020.Form 10-K.

~~As of September 30, 2020, commercial loans totaling $41.1 million~~Recent Accounting Pronouncements 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.Developments

~~Additionally, management has continued~~Recent accounting pronouncements and developments applicable to ~~take steps to generate liquidity~~the Company are described further in ~~anticipation~~Note 1 – Nature of ~~temporary loan payment deferrals or other loan payment disruptions, which are likely to materialize as a result~~Operations and Basis of ~~decreased economic activity brought on by~~Presentation accompanying the ~~COVID-19 pandemic. Management sold certain bond portfolio holdings and issued brokered deposits~~consolidated financial statements included elsewhere 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.~~this report.

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”)~~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~~Risk

The objective of the asset/liability management function is to structure the balance sheet in ways that maintain consistent growth in net interest income and minimize exposure to market risks within its policy guidelines. This objective is accomplished through management of balance sheet liquidity and interest rate risk exposure based on changes in economic conditions, interest rate levels and customer preferences. The Company manages balance sheet liquidity through the investment portfolio, sales of commercial and residential real estate loans and through the utilization of diversified funding sources, including retail deposits, a variety of wholesale funding sources and borrowings through the FHLB. Interest rate risk is managed through the use of interest rate caps, commercial loan swap transactions and interest rate lock commitments on mortgage loans held-for-sale, as well as the structuring of loan terms that provide cash flows to be consistently re-invested along the rate cycle.

The Company's primary market risk is interest rate fluctuation. Interest rate risk results from the traditional banking activities in which the Bank engages, such as gathering deposits and extending loans. Many factors, including economic conditions, financial conditions, movements in interest rates and consumer preferences affect the difference between interest earned on assets and interest paid on liabilities. The Company’s interest rate risk represents the levels of exposure its income and market values have to fluctuations in interest rates. Interest rate risk is measured as the change in earnings and the theoretical market value of equity that results from changes in interest rates. The ALCO oversees the management of interest rate risk and its objective is to maximize stockholder value, enhance profitability and increase capital, serve customer and community needs and protect the Company from any material financial consequences associated with changes in interest rates.

Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); changing rate relationships across yield curves that affect bank activities (basis risk); changing rate relationships across the spectrum of maturities (yield curve risk); and interest rate related options embedded in certain bank products (option risk). Changes in interest rates may also affect a bank’s underlying economic value. The values of a bank’s assets, liabilities and interest-rate related, off-balance sheet contracts are affected by changes in rates because the present values of future cash flows, and in some cases the cash flows themselves, are changed when discounting by different rates.

The Company ~~uses a simulation model to analyze, manage and formulate operating strategies~~believes that ~~address net interest income sensitivity to movements in interest rates. The simulation model projects net interest income based on various~~accepting some level of interest rate ~~scenarios over a twenty-four-month period. The model~~risk is ~~based on the actual maturity and re-pricing characteristics of rate sensitive assets and liabilities. The model incorporates certain assumptions which management believes~~necessary in order to ~~be reasonable regarding the impact of changing interest rates~~achieve realistic profit goals. Management and the ~~prepayment assumption~~Board of ~~certain assets and liabilities as of June 30, 2020. The model assumes changes in~~Directors have chosen an interest ~~rates without any management intervention to change~~rate risk profile that is consistent with the composition of the balance sheet. According to the model run for the period ended 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 6.4%. An immediate 200-basis point increase in interest rates would result in an increase in net interest income by 12.3%. A 100-basis point decrease in interest rates would result in a decrease in net interest income of 5.9%.Company's strategic business plan. 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 Board of Directors has established a comprehensive interest rate risk management policy, which is administered by the ALCO. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of ~~its financial instruments are influenced by changes~~equity capital (a measure of economic value of equity or “EVE” at risk) resulting from a hypothetical change in ~~the level of~~ interest rates. The Company ~~manages its exposure~~measures the potential adverse impacts that changing interest rates may have on short-term earnings, long-term value and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors embedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology employed. When interest rates change, actual movements in different categories of interest-earning assets and interest-bearing liabilities, loan prepayments and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers’ ability to ~~fluctuations~~service their debts or the impact of rate changes on demand for loan and deposit products.

A base case forecast is prepared using market consensus rate forecasts and alternative simulations reflecting more and less extreme behavior of rates each quarter. The analysis is presented to the ALCO and the Board of Directors. In addition, more frequent forecasts are produced when interest rates are particularly uncertain, when other business conditions so dictate, or when necessary to model potential balance sheet changes.

The balance sheet is subject to quarterly testing for interest rate shock possibilities to indicate the inherent interest rate risk. Average interest rates are shocked by +/- 100, 200, 300 and 400 basis points (“bp”). The goal is to structure the balance sheet so that net interest earnings at risk over a twelve-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

At March 31, 2021, the Company is shown in an asset sensitive position for the first year after rate shocks. Management continuously strives to reduce higher costing fixed rate funding instruments, while increasing assets that are more fluid in their repricing. Theoretically, an asset sensitive position is more favorable in a rising rate environment, since more assets than liabilities will reprice in a given time frame as interest rates rise. Similarly, a liability sensitive position is theoretically favorable in a declining interest rate environment, since more liabilities than assets will reprice in a given time frame as interest rates decline. Management works to maintain a consistent spread between yields on assets and costs of deposits and borrowings, regardless of the direction of interest rates.


Estimated Changes in Net Interest Income
Change in interest rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Policy Limit	25.0	%	20.0	%	15.0	%	10.0	%	10.0	%	15.0	%	20.0	%	25.0	%
December 31, 2020	42.7	%	30.7	%	19.3	%	9.6	%	(6.6)	%	(9.6)	%	(12.4)	%	(12.9)	%
December 31, 2019	5.7	%	3.5	%	1.3	%	0.3	%	(6.9)	%	(18.4)	%	(26.8)	%	(32.5)	%

As shown above, measures of net interest income at risk in a rising rate environment were more favorable at December 31, 2020 versus December 31, 2019 and less favorable in a falling rate environment for the same time periods. One factor explaining this year-over-year difference is the general level of market interest rates. A parallel downward interest rate shock would further compress the yields on assets and liabilities, while a parallel upward interest rate shock would widen the spread between yields on assets and liabilities.

Net interest income at risk exceeded policy limits in the -200 bp, -300 bp and -400 bp parallel instantaneous interest rate shock scenarios. The policy violations in these scenarios are driven largely by the general level or market interest rates described in the preceding paragraph as well as the Company's cost of funding. The Company's deposit costs are low and have little room to reprice to a lower interest rate in a falling rate environment. However, the Company's floating rate assets are exposed to the full effect of repricing to a lower interest rate in a falling rate environment.

The paragraph above discusses net interest income at risk in various shock scenarios; scenarios in which interest rates immediately move by a large margin. The Company's net interest income profile exhibits declining net interest income when rates fall gradually, but the impact is not as extreme as is suggested in a shock scenario. Essentially, a gradual interest rate decline scenario smooths the impact of falling rates over a 12 or 24 month period. The Company's expectation is that over any given one to two year period, interest rates will likely move at a gradual pace.

As interest rates fall, mortgage companies experience a higher volume of loan originations and refinance activity. This benefit is not reflected in measures of net interest income at risk, as origination and refinance activity was classified as fee income prior to the combination with ICM. This increase in fee income represents a benefit to net income that offsets the losses to net interest income experienced in a falling rate environment. After the ICM combination, the income related to loan originations and refinance activity is reflected as income from an equity method investment.

The measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates ~~through policies established~~on all of the Company’s cash flows and by ~~its ALCO.~~discounting the cash flows to estimate the present value of assets and liabilities. The ~~ALCO meets quarterly~~difference between these discounted values of the assets and liabilities is the economic value of equity, which theoretically approximates the fair value of the Company’s net assets.


Estimated Changes in Economic Value of Equity (EVE)
Change in interest rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp		-300 bp		-400 bp
Policy Limit	35.0	%	25.0	%	17.0	%	12.0	%	12.0	%	17.0	%	25.0	%	35.0	%
December 31, 2020	2.7	%	3.8	%	5.0	%	3.0	%	(3.1)	%	4.1	%	14.8	%	20.0	%
December 31, 2019	10.6	%	8.6	%	6.7	%	5.0	%	(15.1)	%	(36.8)	%	(44.1)	%	(32.5)	%

The EVE at risk in down rate scenarios increased at December 31, 2020, when compared to December 31, 2019. The increase in economic value of equity in rising rate environments is largely attributable to the effect that an increase in interest rates has ~~responsibility~~on the present value of non-interest-bearing deposits. The discount rate for ~~formulating~~non-interest-bearing deposits rises as interest rates rise; however, these deposits pay a rate of zero. The cost of these liabilities does not increase as interest rates rise, but the discount rate applied to the expected future cash flows of these liabilities increases with interest rates. Any increase in the market rates used to discount the cash flows of these liabilities reduces the present value of these liabilities. The decrease in present value of these liabilities results in a net increase to economic value of equity. A falling rate environment would result in a higher net present value for these liabilities and ~~implementing strategies~~would lead to ~~improve balance sheet positioning and reviewing~~a net decrease to economic value of equity.

Additionally, interest-bearing deposits contribute to the large declines in economic value of equity in falling rate environments as a result of their low cost. Interest-bearing deposit costs are modeled with a floor of zero, meaning that the interest rates paid on deposits cannot be negative. In the event of a large downward interest rate ~~sensitivity.~~shock, deposit costs would not move below zero. However, the discount rates applied to the expected future cash flows of these deposits could sustain a large decline in interest rates before reaching zero. This has the effect of increasing the present value of the interest-bearing-deposit liability and ultimately decreasing economic value of equity.

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 occurring as a result of the COVID-19 pandemic is still unknown. Financial markets adjusted dramatically to the reduced economic activity and the pace of recovery is uncertain. The financial market benchmark most relevant to the Company’s current and future profitability is the United States Government Treasury yield curve. The United States 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 United States Government Treasury yield curve experienced a large, relatively parallel, downward shift. Given the Company’s asset sensitive position, management expects that net interest income will begin to increase as the curve begins to shift upward. As the outlook for the COVID-19 pandemic improves, management expects that the United States Government Treasury curve will experience some degree of an upward shift over time.

Credit Risk

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 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 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.

78Impact of Inflation and Changing Prices

The consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations. Unlike industrial companies, the Company's assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

Item 4 – Controls and Procedures

~~The~~As of March 31, 2021, the Company carried out an evaluation under the supervision and with the participation of ~~its~~ management, including ~~its President and~~the Chief Executive Officer ~~along with the~~and Chief Financial Officer, ~~(the Principal Financial Officer), has evaluated~~of the effectiveness ~~as of September 30, 2020,~~ of the design and operation of ~~the Company’s~~our disclosure controls and procedures ~~as such term is~~ defined ~~under Rule~~in Rules 13a-15(e) ~~promulgated under~~and 15d-15(e) of the ~~Securities~~ Exchange ~~Act~~Act. Based on the results of ~~1934, as amended (the “Exchange Act”). Based upon that~~this evaluation, the ~~Company’s President and~~ Chief Executive Officer ~~along with its Principal~~and Chief Financial Officer concluded that ~~the Company’s~~our disclosure controls and procedures were effective as of ~~September 30, 2020.~~March 31, 2021.

~~There have been~~During the three months ended March 31, 2021, there were no ~~material~~ changes in the Company’s internal control over financial reporting ~~during the third quarter of 2020~~ that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

7952

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 the 2020 Form 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~~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 clients may take in respect of this virus may result in a period of disruption, including the Company’s financial reporting capabilities, its operations, and could potentially impact the Company’s 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.

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~~There was no share repurchase activity during the three months ended ~~September 30, 2020:~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that may yet be Purchased Under the Plans or Programs
July 1 - July 31, 2020 3,500 12.89 3,500 4,297,456
August 1 - August 31, 2020 20,532 13.99 20,532 4,712,759
September 1 - September 30, 2020 58,392 15.63 58,392 3,799,967
82,424 82,424

March 31, 2021.

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

8353


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:	~~November 2, 2020~~May 3, 2021	By:	/s/ Larry F. Mazza
			Larry F. Mazza
			President, CEO and Director
			(Principal Executive Officer)

Date:	~~November 2, 2020~~May 3, 2021	By:	/s/ Donald T. Robinson
			Donald T. Robinson
			Executive Vice President and CFO
			(Principal Financial and Accounting Officer)

8454


		Page
PART I	FINANCIAL INFORMATION	35

Item 1	Financial Statements	35

	Consolidated Balance Sheets	35
	Consolidated Statements of Income	46
	Consolidated Statements of Comprehensive Income	67
	Consolidated Statements of Changes in Stockholders’ Equity	78
	Consolidated Statements of Cash Flows	9
	Notes to the Consolidated Financial Statements	1110

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5538

Item 3	Quantitative and Qualitative Disclosures About Market Risk	7849

Item 4	Controls and Procedures	7952

PART II	OTHER INFORMATION	8053

Item 1	Legal Proceedings	8053

Item 1A	Risk Factors	8053

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	8253

Item 3	Defaults Upon Senior Securities	8253

Item 4	Mine Safety Disclosures	8253

Item 5	Other Information	8353

Item 6	Exhibits	8353

	SIGNATURES	8454



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


	Nine Months Ended September 30,
	2020		2019
OPERATING ACTIVITIES
Net income	$	25,573	$	22,896
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net amortization and accretion of investments	1,112		917
Net amortization of deferred loan costs	779		190
Provision for loan losses	16,365		1,557
Depreciation and amortization	761		2,346
Stock based compensation	1,717		1,319
Loans originated for sale	(1,334,910)		(1,151,918)
Proceeds of loans sold	1,475,854		1,095,794
Mortgage fee income	(33,427)		(28,030)
Gain on sale of available-for-sale securities	(899)		(80)
Loss on sale of available-for-sale securities	34		259
Gain on sale of equity securities	(48)		0
Loss on sale of equity securities	0		7
Gain on sale of portfolio loans	(302)		(228)
Income on bank owned life insurance	(663)		(973)
Deferred taxes	3,958		(4,214)
Amortization of operating lease right-of-use asset	73		56
Holding gain on equity securities	(111)		(13,767)
Bargain purchase gain	(4,671)		0
Gain on sale of banking centers	(9,631)		0
Gain on mortgage combination transaction	(3,338)		0
Equity method investment income	(13,620)		0
Changes in other assets	(36,742)		(19,120)
Changes in other liabilities	3,444		27,208
Net cash provided by (used in) operating activities	91,308		(65,781)
INVESTING ACTIVITIES
Purchases of investment securities available-for-sale	(132,896)		(52,892)
Maturities/paydowns of investment securities available-for-sale	42,770		29,287
Sales of investment securities available-for-sale	48,579		26,996
Purchases of premises & equipment	(4,211)		(1,134)
Disposals of premises & equipment	1,687		0
Net increase in loans	(43,869)		(78,593)
Purchases of restricted bank stock	(24,013)		(34,507)
Redemptions of restricted bank stock	33,578		31,604
Proceeds from sale of certificates of deposit with banks	1,241		1,237
Purchases of certificates of deposit with banks	(993)		0
Proceeds from sale of other real estate owned	7,700		731
Proceeds from death benefit of bank owned life insurance policies	0		688
Purchase of equity securities	(6,260)		(1,300)
Sales of equity securities	669		5,968
Net cash paid for branch divestiture	(136,005)		0
Net cash provided by (used in) business combinations and divestitures	57,306		(2,651)
Net cash used in investing activities	(154,717)		(74,566)
FINANCING ACTIVITIES
Net increase in deposits	491,259		147,250
Net decrease in repurchase agreements	(127)		(5,465)
Net change in FHLB and other borrowings	(154,483)		26,754

Subordinated debt redemption	0		(12,400)


Preferred stock redemption	0		(500)
Common stock options exercised	75		876
Common stock repurchased	(1,921)		0
Cash dividends paid on common stock	(3,228)		(1,457)
Cash dividends paid on preferred stock	(345)		(364)
Net cash provided by financing activities	331,230		154,694
Increase in cash and cash equivalents	267,821		14,347
Cash and cash equivalents at beginning of period	28,002		22,221
Cash and cash equivalents at end of period	$	295,823	$	36,568



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


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


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


	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


Year	Amount
2020	$	5,800
2021	0
2022	0
2023	10,000
2024	10,000
Thereafter	4,124
	$	29,924


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


Three Months Ended September 30, 2020	Commercial & Retail Banking		Mortgage Banking		Financial Holding Company		Intercompany Eliminations		Consolidated
(Dollars in thousands)
Interest income	$	18,737	$	78	$	0	$	(188)	$	18,627
Interest expense	2,553		232		20		(188)		2,617
Net interest income	16,184		(154)		(20)		0		16,010
Provision for loan losses	8,631		0		0		0		8,631
Net interest income after provision for loan losses	7,553		(154)		(20)		0		7,379

Noninterest Income:
Mortgage fee income	26		7,238		0		0		7,264
Other income	3,080		9,555		1,481		(1,982)		12,134
Total noninterest income	3,106		16,793		1,481		(1,982)		19,398

Noninterest Expenses:
Salaries and employee benefits	7,526		82		2,911		0		10,519
Other expense	8,389		68		1,271		(1,982)		7,746
Total noninterest expenses	15,915		150		4,182		(1,982)		18,265

Income (loss) before income taxes	(5,256)		16,489		(2,721)		0		8,512
Income tax expense (benefit)	(1,556)		4,245		(668)		0		2,021




Net income (loss)	$	(3,700)	$	12,244	$	(2,053)	$	0	$	6,491
Preferred stock dividends	0		0		116		0		116
Net income (loss) available to common shareholders	$	(3,700)	$	12,244	$	(2,169)	$	0	$	6,375

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	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,				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)


(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)


(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


	August 2020		August 2019
Harrison County, WV	8.2	%	4.3	%
Marion County, WV	9.0		5.0
Monongalia County, WV	6.6		3.7
Kanawha County, WV	9.6		4.6
Putnam County, WV	7.3		4.2
Cabell County, WV	8.3		4.3
Fairfax County, VA	6.0		2.4
Loudoun County, VA	5.4		2.4