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EX-32.1 - EX-32.1 - MVB FINANCIAL CORPmvbf-20160331ex3213dc6ae.htm
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United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[  X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

 

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

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, West Virginia  26554-2777

(Address of principal executive offices)

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)

Indicate by check mark whether the registrant has (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  [ X ]                         No  [    ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  [ X ]                         No  [    ]

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

Large accelerated filer

Accelerated filer    [ X ]

Non-accelerated filer                            

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes  [     ]                         No  [ X ]

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

As of May 5, 2016, the Registrant had 8,078,000 shares of common stock outstanding with a par value of $1.00 per share. 

 

 

 


 

MVB Financial Corp.

Table of Contents

 

 

 

Part I. 

Financial Information

 

 

Item 1. 

Financial Statements

 

 

 

The unaudited interim consolidated financial statements of MVB Financial Corp. (“the Company” or “MVB”) and subsidiaries (“Subsidiaries”) including MVB Bank, Inc. (the “Bank” or “MVB Bank”) and its wholly-owned subsidiary Potomac Mortgage Group, Inc., which does business as  MVB Mortgage (“MVB Mortgage”) and MVB Insurance, LLC (“MVB Insurance”) listed below are included on pages 3-35 of this report.

 

 

 

Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

 

Consolidated Statements of Income for the Three Months ended March 31, 2016 and 2015

 

Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2016 and 2015

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2016 and 2015

 

Consolidated Statements of Cash Flows for the Three Months ended March 31, 2016 and 2015

 

Notes to Consolidated Financial Statements

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations are included on pages 35-51 of this report.

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk.

 

 

Item 4. 

Controls and Procedures

 

 

Part II. 

Other Information

 

 

Item 1. 

Legal Proceedings

 

 

Item 1A. 

Risk Factors

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 

Item 3. 

Defaults Upon Senior Securities

 

 

Item 4. 

Mine Safety Disclosures

 

 

Item 5. 

Other Information

 

 

Item 6. 

Exhibits

 

 

 

2


 

Part I. Financial Information

Item 1. Financial Statements

MVB Financial Corp. and Subsidiaries

Consolidated Balance Sheets  

(Unaudited) (Dollars in thousands)

(Dollars in thousands except per share data)

 

 

 

 

 

 

 

 

    

March 31,

    

December 31,

 

 

 

2016

 

2015

 

 

 

(Unaudited)

 

(Note 1)

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Cash and due from banks

 

$

15,314

 

$

14,302

 

Interest bearing balances with banks

 

 

13,412

 

 

14,831

 

Total cash and cash equivalents

 

 

28,726

 

 

29,133

 

Certificates of deposit with other banks

 

 

13,150

 

 

13,150

 

Investment Securities:

 

 

 

 

 

 

 

Securities available-for-sale

 

 

134,825

 

 

70,256

 

Securities held-to-maturity (fair value of $0 for 2016 and $54,470 for 2015)

 

 

 —

 

 

52,859

 

Loans held for sale

 

 

98,876

 

 

102,623

 

Loans:

 

 

1,075,606

 

 

1,032,170

 

Less: Allowance for loan losses

 

 

(8,447)

 

 

(8,006)

 

Net Loans

 

 

1,067,159

 

 

1,024,164

 

Premises and equipment

 

 

26,377

 

 

26,275

 

Bank owned life insurance

 

 

22,493

 

 

22,332

 

Accrued interest receivable and other assets

 

 

22,554

 

 

25,204

 

Goodwill

 

 

18,480

 

 

18,480

 

TOTAL ASSETS

 

$

1,432,640

 

$

1,384,476

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest bearing

 

$

86,603

 

$

80,423

 

Interest bearing

 

 

1,004,965

 

 

931,891

 

Total deposits

 

 

1,091,568

 

 

1,012,314

 

 

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

 

14,655

 

 

13,291

 

Repurchase agreements

 

 

29,561

 

 

27,437

 

FHLB and other borrowings

 

 

146,267

 

 

183,198

 

Subordinated debt

 

 

33,524

 

 

33,524

 

Total liabilities

 

 

1,315,575

 

 

1,269,764

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Preferred stock, par value $1,000; 20,000 authorized and 9,283 issued in 2016 and 2015, respectively (See Footnote 7)

 

 

16,334

 

 

16,334

 

Common stock, par value $1; 20,000,000 shares authorized; 8,129,077 and 8,112,998 issued; and 8,078,000 and 8,061,921 outstanding in 2016 and 2015, respectively

 

 

8,129

 

 

8,113

 

Additional paid-in capital

 

 

74,309

 

 

74,228

 

Retained earnings

 

 

21,503

 

 

20,054

 

Accumulated other comprehensive loss

 

 

(2,126)

 

 

(2,933)

 

Treasury Stock, 51,077 shares, at cost

 

 

(1,084)

 

 

(1,084)

 

Total stockholders’ equity

 

 

117,065

 

 

114,712

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,432,640

 

$

1,384,476

 

 

See accompanying notes to unaudited consolidated financial statements.

3


 

 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Income

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

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

 

2016

 

2015

 

INTEREST INCOME

    

 

    

    

 

    

 

Interest and fees on loans

 

$

12,431

 

$

8,764

 

Interest on deposits with other banks

 

 

88

 

 

64

 

Interest on investment securities - taxable

 

 

310

 

 

239

 

Interest on tax exempt loans and securities

 

 

553

 

 

571

 

Total interest income

 

 

13,382

 

 

9,638

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Interest on deposits

 

 

1,888

 

 

1,367

 

Interest on repurchase agreements

 

 

21

 

 

24

 

Interest on FHLB and other borrowings

 

 

226

 

 

157

 

Interest on subordinated debt

 

 

552

 

 

543

 

Total interest expense

 

 

2,687

 

 

2,091

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

10,695

 

 

7,547

 

Provision for loan losses

 

 

625

 

 

659

 

Net interest income after provision for loan losses

 

 

10,070

 

 

6,888

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

173

 

 

132

 

Income on bank owned life insurance

 

 

161

 

 

167

 

Visa debit card and interchange income

 

 

292

 

 

209

 

Mortgage fee income

 

 

6,785

 

 

6,309

 

Gain on sale of portfolio loans

 

 

149

 

 

346

 

Insurance and investment services income

 

 

1,117

 

 

1,698

 

Gain on sale of securities

 

 

381

 

 

121

 

Gain on derivatives

 

 

401

 

 

2,249

 

Other operating income

 

 

217

 

 

168

 

Total noninterest income

 

 

9,676

 

 

11,399

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSES

 

 

 

 

 

 

 

Salary and employee benefits

 

 

11,260

 

 

9,734

 

Occupancy expense

 

 

1,010

 

 

875

 

Equipment depreciation and maintenance

 

 

574

 

 

483

 

Data processing and communications

 

 

1,165

 

 

926

 

Mortgage processing

 

 

861

 

 

746

 

Marketing, contributions and sponsorships

 

 

299

 

 

337

 

Professional fees

 

 

705

 

 

662

 

Printing, postage and supplies

 

 

222

 

 

186

 

Insurance, tax and assessment expense

 

 

400

 

 

428

 

Travel, entertainment, dues and subscriptions

 

 

395

 

 

320

 

Other operating expenses

 

 

243

 

 

258

 

Total noninterest expense

 

 

17,134

 

 

14,955

 

Income before income taxes

 

 

2,612

 

 

3,332

 

Income tax expense

 

 

816

 

 

1,229

 

Net Income

 

$

1,796

 

$

2,103

 

Preferred dividends

 

 

186

 

 

142

 

Net Income available to common shareholders

 

$

1,610

 

$

1,961

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

$

0.20

 

$

0.25

 

Earnings per share - diluted

 

$

0.20

 

$

0.24

 

Cash dividends declared

 

$

0.02

 

$

 —

 

Weighted average shares outstanding - basic

 

 

8,061,998

 

 

7,983,285

 

Weighted average shares outstanding - diluted

 

 

9,901,250

 

 

8,135,058

 

 

See accompanying notes to unaudited consolidated financial statements.

4


 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited) (Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

March 31,

 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

Net Income

    

    

$

1,796

    

$

2,103

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains during the year

 

 

 

418

 

 

541

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains during the year related to reclassified held-to-maturity securities

 

 

 

1,825

 

 

 —

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

 

 

(897)

 

 

(217)

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain recognized in income

 

 

 

(112)

 

 

(121)

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gain recognized in income related to reclassified held-to-maturity securities

 

 

 

(269)

 

 

 —

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

 

 

152

 

 

49

 

 

 

 

 

 

 

 

 

 

Change in defined benefit pension plan

 

 

 

(517)

 

 

(273)

 

 

 

 

 

 

 

 

 

 

Income tax effect

 

 

 

207

 

 

109

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

 

807

 

 

88

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

$

2,603

 

$

2,191

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

5


 

 

 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

    

 

    

 

    

    

    

 

    

Accumulated

    

    

 

    

    

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

Total

 

 

 

Preferred

 

Common

 

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury

 

Stockholders’

 

 

 

Stock

 

Stock

 

 

Capital

 

Earnings

 

(Loss)

 

Stock

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2014

 

$

16,334

 

$

8,034

 

$

74,342

 

$

14,454

 

$

(2,642)

 

$

(1,084)

 

$

109,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

2,103

 

 

 —

 

 

 —

 

 

2,103

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

88

 

 

 —

 

 

88

 

Dividends on preferred stock (See Footnote 7)

 

 

 —

 

 

 —

 

 

 —

 

 

(142)

 

 

 —

 

 

 —

 

 

(142)

 

Stock based compensation

 

 

 —

 

 

 —

 

 

99

 

 

 —

 

 

 —

 

 

 —

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2015

 

$

16,334

 

$

8,034

 

$

74,441

 

$

16,415

 

$

(2,554)

 

$

(1,084)

 

$

111,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2015

 

$

16,334

 

$

8,113

 

$

74,228

 

$

20,054

 

$

(2,933)

 

$

(1,084)

 

$

114,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 —

 

 

 —

 

 

 —

 

 

1,796

 

 

 —

 

 

 —

 

 

1,796

 

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

807

 

 

 —

 

 

807

 

Cash dividends paid ($0.02 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(161)

 

 

 —

 

 

 —

 

 

(161)

 

Dividends on preferred stock (See Footnote 7)

 

 

 —

 

 

 —

 

 

 —

 

 

(186)

 

 

 —

 

 

 —

 

 

(186)

 

Stock based compensation

 

 

 —

 

 

 —

 

 

105

 

 

 —

 

 

 —

 

 

 —

 

 

105

 

Common stock options exercised

 

 

 —

 

 

16

 

 

(24)

 

 

 —

 

 

 —

 

 

 —

 

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2016

 

$

16,334

 

$

8,129

 

$

74,309

 

$

21,503

 

$

(2,126)

 

$

(1,084)

 

$

117,065

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

 

 

 

 

 

6


 

MVB Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited) (Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

March 31,

 

 

 

2016

 

2015

 

OPERATING ACTIVITIES

    

 

    

    

 

    

  

Net Income

 

$

1,796

 

$

2,103

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Net amortization and accretion of investments

 

 

180

 

 

185

 

Net amortization of deferred loan fees

 

 

(22)

 

 

22

 

Provision for loan losses

 

 

625

 

 

659

 

Depreciation and amortization

 

 

800

 

 

454

 

Stock based compensation

 

 

105

 

 

99

 

Loans originated for sale

 

 

(317,168)

 

 

(338,846)

 

Proceeds of loans sold

 

 

327,700

 

 

288,880

 

Mortgage fee income

 

 

(6,785)

 

 

(6,309)

 

Gain on sale of securities

 

 

(381)

 

 

(121)

 

Income on bank owned life insurance

 

 

(161)

 

 

(167)

 

Deferred taxes

 

 

(520)

 

 

(20)

 

Other, net

 

 

1,731

 

 

2,433

 

Net cash provided by (used in) operating activities

 

 

7,900

 

 

(50,628)

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchases of investment securities available-for-sale

 

 

(32,885)

 

 

(11,535)

 

Maturities/paydowns of investment securities available-for-sale

 

 

1,613

 

 

1,511

 

Maturities/paydowns of investment securities held-to-maturity

 

 

400

 

 

540

 

Sales of investment securities available-for-sale

 

 

21,225

 

 

11,484

 

Purchases of premises and equipment

 

 

(652)

 

 

(394)

 

Net increase in loans

 

 

(43,449)

 

 

(33,065)

 

Loans purchased

 

 

(149)

 

 

(346)

 

Purchases of restricted bank stock

 

 

(5,450)

 

 

(6,040)

 

Redemptions of restricted bank stock

 

 

6,933

 

 

4,349

 

Proceeds from sale of certificates of deposit with banks

 

 

 —

 

 

248

 

Proceeds from sale of other real estate owned

 

 

15

 

 

 —

 

Net cash used in investing activities

 

 

(52,399)

 

 

(33,248)

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Net increase in deposits

 

 

79,254

 

 

43,081

 

Net increase (decrease) in repurchase agreements

 

 

2,124

 

 

(6,551)

 

Net change in short-term FHLB borrowings

 

 

(36,908)

 

 

43,997

 

Principal payments on FHLB borrowings

 

 

(23)

 

 

(41)

 

Common stock options exercised

 

 

(8)

 

 

 —

 

Cash dividends paid on common stock

 

 

(161)

 

 

 —

 

Cash dividends paid on preferred stock

 

 

(186)

 

 

(142)

 

Net cash provided by financing activities

 

 

44,092

 

 

80,344

 

(Decrease) in cash and cash equivalents

 

 

(407)

 

 

(3,532)

 

Cash and cash equivalents at beginning of period

 

 

29,133

 

 

30,077

 

Cash and cash equivalents at end of period

 

$

28,726

 

$

26,545

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

    

 

    

    

 

    

 

Loans transferred to other real estate owned

 

$

 —

 

$

 —

 

Cashless stock options exercised

 

$

16

 

$

 —

 

Cash payments for:

 

 

 

 

 

 

 

Interest on deposits, repurchase agreements and borrowings

 

$

3,089

 

$

2,547

 

Income taxes

 

$

 —

 

$

 —

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

7


 

MVB Financial Corp. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Note 1 – Basis of Presentation

 

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10‑Q.  Accordingly, they do not include all the information and footnotes required by GAAP for annual year-end financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, have been included and are of a normal, recurring nature. The consolidated balance sheet as of December 31, 2015 has been derived from audited financial statements included in the Company’s 2015 filing on Form 10-K.  Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

The accounting and reporting policies of MVB Financial Corp. (“the Company” or “MVB”) and its subsidiaries (“Subsidiaries”), including MVB Bank, Inc. (the “Bank”), the Bank’s subsidiary Potomac Mortgage Group, Inc., which does business as MVB Mortgage (“MVB Mortgage”) and MVB Insurance, LLC, conform to accounting principles generally accepted in the United States and practices in the banking industry. The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates, such as the allowance for loan losses, are based upon known facts and circumstances. Estimates are revised by management in the period such facts and circumstances change.  Actual results could differ from those estimates. All significant inter-company accounts and transactions have been eliminated in consolidation. 

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s December 31, 2015, Form 10-K filed with the Securities and Exchange Commission.

 

In certain instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Specifically, a portion of the prior periods’ interest income and interest expense was classified as gain on loans held for sale and has been reclassified in the current presentation.

 

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

 

Note 2 – Recent Accounting Pronouncements 

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net) (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. ASU 2016-08 clarifies how an entity should identify the unit of accounting (i.e. the specified good or service) for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The amendments in ASU 2016-08 affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and have similar effective dates and transition requirements (i.e., effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein). The Company is currently evaluating the impact of adopting the new revenue recognition guidance on its consolidated financial statements.

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In March 2016, the FASB issued ASU 2016-04, Liabilities —Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products (“ASU 2016-04”). The amendments apply to entities that offer certain prepaid stored value products (e.g., prepaid gift cards issued on a specific payment network and redeemable at network-accepting merchant locations, prepaid telecommunication cards, and traveler’s checks). Liabilities related to the sale of prepaid stored-value products are financial liabilities. The amendments provide a narrow scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606 Revenue from Contracts with Customers. Neither current U.S. GAAP nor the pending guidance in Topic 606 contains specific guidance for the derecognition of prepaid stored-value product liabilities. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company will evaluate the provisions of this ASU to determine the potential impact the new standard will have on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments – Overall: Classification and Measurement (Subtopic 825-10) (“ASU 2016-01”). Amendments within ASU No. 2016-01 that relate to non-public entities have been excluded from this presentation. The amendments in this ASU No.2016-01 address the following: 1) require equity investments to be measured at fair value with changes in fair value recognized in net income; 2) simplify the impairment assessment of equity investments without readily-determinable fair values by requiring a qualitative assessment to identify impairment; 3) eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; 4) require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5) require separate presentation in other comprehensive income for the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; 6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and 7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The Company is currently evaluating the provisions of this amendment to determine the potential impact the new standard will have on the Company's consolidated financial statements as it relates to accounting for financial instruments.

 

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date.  The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. As such, the adoption of ASU 2015-15 did not have a material impact on the Company’s consolidated financial statements.

 

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In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements: Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”), to clarify the SEC staff's position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. The SEC staff has announced that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-15 is effective upon issuance for all entities. As such, the adoption of ASU 2015-15 did not have a material impact on the Company’s consolidated financial statements.

 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-2”).  The amendments modify the evaluation reporting organizations must perform to determine if certain legal entities should be consolidated as VIEs. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company has evaluated the provisions of ASU No. 2015-02 and determined the new standard has no impact on the Company's consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-9”). These amendments affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g. insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. The ASU allows for either full retrospective or modified retrospective adoption. We are evaluating the transition method that will be elected and the potential effects of the adoption of the ASU on our consolidated financial statements.

 

 

Note 3 – Investments

 

Prior to the final determination of Basel III, investments were recorded as held-to-maturity due to the uncertainty of the capital treatment of available-for-sale investments. Upon the issuance of the final ruling, the Company opted out of the Other Comprehensive Income treatment of available-for-sale investments permitted under Basel III. Due to the change in capital treatment under the final ruling of Basel III, the Company’s purpose of recording investments as held-to-maturity changed; therefore, during the period ended March 31, 2016, the Company reclassified $52.4 million, with

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unrealized holding gains of $1.8 million, of the remaining held-to-maturity investments into available-for-sale investments.

 

There were no investment securities held-to-maturity at March 31, 2016.

 

Amortized cost and fair values of investment securities held-to-maturity at December 31, 2015, including gross unrealized gains and losses, are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

Municipal securities

 

$

52,859

 

$

1,699

 

$

(88)

 

$

54,470

 

Total investment securities held–to-maturity

 

$

52,859

 

$

1,699

 

$

(88)

 

$

54,470

 

 

 

 

Amortized cost and fair values of investment securities available-for-sale at March 31, 2016 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

U.S. Agency securities

 

$

34,480

 

$

47

 

$

(77)

 

$

34,450

 

U.S. Sponsored Mortgage-backed securities

 

 

33,655

 

 

34

 

 

(356)

 

 

33,333

 

Municipal securities

 

 

59,739

 

 

1,638

 

 

(110)

 

 

61,267

 

Total debt securities

 

 

127,874

 

 

1,719

 

 

(543)

 

 

129,050

 

Equity and other securities

 

 

5,693

 

 

87

 

 

(5)

 

 

5,775

 

Total investment securities available-for-sale

 

$

133,567

 

$

1,806

 

$

(548)

 

$

134,825

 

 

Amortized cost and fair values of investment securities available-for-sale at December 31, 2015 are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amortized

    

Unrealized

    

Unrealized

    

Fair

 

(in thousands)

 

Cost

 

Gain

 

Loss

 

Value

 

U.S. Agency securities

 

$

29,532

 

$

 —

 

$

(181)

 

$

29,351

 

U.S. Sponsored Mortgage-backed securities

 

 

34,246