NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts presented in the tables, except share
and per share amounts, are in thousands)
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Financial Statement Presentation
- The unaudited condensed consolidated financial statements include the accounts of Ocean Shore Holding Co. (the “Company”)
and its subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited
condensed consolidated financial statements were prepared in accordance with instructions to Form 10-Q, pursuant to the rules and
regulations of the United States Securities and Exchange Commission (SEC) for interim information, and, therefore, do not include
information or footnotes necessary for a complete presentation of financial position, results of operations, changes in stockholders’
equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
However, all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the condensed
consolidated financial statements have been included. These financial statements should be read in conjunction with the audited
consolidated financial statements and the accompanying notes thereto included in the Company’s Annual Report on Form 10-K
for the period ended December 31, 2015. The results for the nine months ended September 30, 2016 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31, 2016 or any other period. The Company has evaluated
subsequent events through the date of the issuance of its financial statements.
On July 12, 2016, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with OceanFirst Financial Corp. (“OceanFirst”),
the parent company of OceanFirst Bank, and Masters Merger Sub Corp. (“Merger Sub”), a wholly-owned subsidiary of OceanFirst.
Pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge (the “First-Step Merger”)
with and into Ocean Shore, with Ocean Shore as the surviving entity, and immediately following the effective time of the First-Step
Merger, Ocean Shore will merge with and into OceanFirst, with OceanFirst as the surviving entity (together with the First-Step
Merger, the “Integrated Mergers”). It is anticipated that immediately following the consummation of the Integrated
Mergers, Ocean City Home Bank, a federal savings bank, will merge with and into OceanFirst Bank, a federal savings bank, with OceanFirst
Bank as the surviving bank. See footnote 12 for more information on business combination.
Use of
Estimates in the Preparation of Financial Statements
- The preparation of the consolidated financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of
income and expenses during the reporting period. The most significant estimates and assumptions relate to the allowance for loan
losses, other-than-temporary impairment on investment securities, goodwill and intangible impairment, deferred income taxes and
the fair value measurements of financial instruments. Actual results could differ from those estimates
under
different assumptions and conditions, and the differences may be material to the consolidated financial statements.
New Accounting
Pronouncements
–
In May 2014, the FASB issued ASU 2014-09, which created
Accounting Standard Codification (“ASC”) ASC 606
"Revenue from Contracts with Customers,"
superseding
the revenue recognition requirements in ASC 605. This ASU requires an entity to recognize revenue for 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. The amendment includes a five-step process to assist an entity in achieving the main principle(s)
of revenue recognition under ASC 605. The amendment will be effective for the Company for the first annual period ending after
December 15, 2016, including interim periods within that reporting period, and should be applied on a prospective basis. Early
adoption of the guidance is not permitted. The Company is currently evaluating the impact of this ASU on its financial position,
results of operations and disclosures.
In August 2014, the FASB also issued ASU
2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. This ASU requires management
to perform an assessment of going concern and provides specific guidance on when and how to assess or disclose going concern uncertainties.
The new standard also defines terms used in the evaluation of going concern, such as "substantial doubt." Following application,
the Company will be required to perform assessments at each annual and interim period, provide an assessment period of one year
from the issuance date, and make disclosures in certain circumstances in which substantial doubt is identified. The amendment will
be effective for the Company for the first reporting period ending after December 15, 2016. Earlier application is permitted. The
Company does not expect this ASU to have an impact on its financial position, result of operations, or disclosures.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
This amendment requires that 1) equity investments, except those accounted for under the equity method of accounting or result
in consolidation of the investee, be measured at fair value with changes in the fair value being recorded in net income, unless
those equity investments do not have readily determinable fair values in which case they will be measured at cost less impairment,
if any, plus the effect of changes resulting from observable price transactions in orderly transactions or for the identical or
similar investment of the same issuer, 2) simplifies the impairment assessment of equity instruments that do not have readily determinable
fair values, 3) eliminates the requirement to disclose methods and assumptions used to estimate fair value of instruments measured
at amortized cost on the balance sheet, 4) requires public entities to use "exit price" when measuring the fair value
of financial instruments, 5) requires entities to separately present in other comprehensive income the portion of the total change
in fair value of a liability resulting from instrument-specific credit risk when the fair value option has been elected for that
liability, 6) requires separate presentation of financial assets and financial liabilities by measurement category and form of
financial asset on the balance sheet or in the accompanying notes, and 7) clarifies that an entity should evaluate the need for
a valuation allowance on its deferred tax asset related to its available-for-sale securities in combination with its other deferred
tax assets. This amendment will be effective for the Company for the first reporting period beginning after December 15, 2017,
with earlier adoption permitted by public entities on a limited basis. Adoption of the amendment must be applied by means of a
cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for amendments related
to equity instruments that do not have readily determinable fair values which should be applied prospectively. Earlier application
is permitted. The Company is in the process of evaluating the impacts of the adoption of this ASU on its financial position, results
of operations and disclosures.
In March 2016, the FASB issued ASU 2016-09,
“
Compensation - Stock Compensation
(Topic 718)”. The ASU simplifies various aspects relating to share-based
payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting
for forfeitures, and classification on the statement of cash flows. The amendment will be effective for the Company for the first
reporting period beginning after December 15, 2016. Earlier adoption is permitted. If early adopted, an entity must adopt all of
the amendments in the same period. Depending on the area of change, the amendment will be applied either prospectively, retrospectively
or by using a modified retrospective approach. The Company is in the process of evaluating the impacts of the adoption of this
ASU on its financial position, results of operations and disclosures.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments.
This ASU
requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience,
current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better
form their credit loss estimates. The ASU also requires enhanced disclosures to help financial statement users better
understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting
standards of an entity’s portfolio. The amendment will be effective for the Company for the first reporting period beginning
after December 15, 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impacts of the
adoption of this ASU on its financial position, results of operation and disclosures.
Investment securities are summarized as follows:
|
|
September 30, 2016
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities - Municipal
|
|
$
|
375
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
375
|
|
U.S. Treasury and government sponsored entity mortgage-backed securities
|
|
|
447
|
|
|
|
53
|
|
|
|
—
|
|
|
|
500
|
|
Totals
|
|
$
|
822
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
5,685
|
|
|
$
|
4
|
|
|
$
|
(937
|
)
|
|
$
|
4,752
|
|
U.S. Treasury and federal agencies
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
Equity securities
|
|
|
3
|
|
|
|
2
|
|
|
|
—
|
|
|
|
5
|
|
U.S. treasury and government sponsored entity mortgage-backed securities
|
|
|
95,855
|
|
|
|
328
|
|
|
|
(607
|
)
|
|
|
95,576
|
|
Totals
|
|
$
|
101,576
|
|
|
$
|
334
|
|
|
$
|
(1,544
|
)
|
|
$
|
100,366
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities - Municipal
|
|
$
|
577
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
577
|
|
U.S. Treasury and government sponsored entity mortgage-backed securities
|
|
|
507
|
|
|
|
53
|
|
|
|
—
|
|
|
|
560
|
|
Totals
|
|
$
|
1,084
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
1,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
9,660
|
|
|
$
|
26
|
|
|
$
|
(842
|
)
|
|
$
|
8,844
|
|
U.S. Treasury and federal agencies
|
|
|
10,033
|
|
|
|
7
|
|
|
|
—
|
|
|
|
10,040
|
|
Equity securities
|
|
|
3
|
|
|
|
39
|
|
|
|
—
|
|
|
|
42
|
|
U.S. Treasury and government sponsored entity mortgage-backed securities
|
|
|
94,248
|
|
|
|
223
|
|
|
|
(1,489
|
)
|
|
|
92,982
|
|
Totals
|
|
$
|
113,944
|
|
|
$
|
295
|
|
|
$
|
(2,331
|
)
|
|
$
|
111,908
|
|
As of September 30, 2016 and December 31,
2015, the Company had investment securities available for sale with an estimated fair value of $99.7 million and $97.9 million,
respectively, pledged as collateral to secure public fund deposits.
The following table provides the gross
unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a
continuous unrealized loss position at September 30, 2016 and December 31, 2015:
|
|
September 30, 2016
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(Dollars in thousands)
|
|
Debt securities -Corporate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,751
|
|
|
$
|
(937
|
)
|
|
$
|
2,751
|
|
|
$
|
(937
|
)
|
U.S. treasury and government sponsored entity mortgage- backed securities
|
|
|
18,940
|
|
|
|
(33
|
)
|
|
|
37,869
|
|
|
|
(574
|
)
|
|
|
56,809
|
|
|
|
(607
|
)
|
Totals
|
|
$
|
18,940
|
|
|
$
|
(33
|
)
|
|
$
|
40,620
|
|
|
$
|
(1,511
|
)
|
|
$
|
59,560
|
|
|
$
|
(1,544
|
)
|
|
|
December 31, 2015
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
|
(Dollars in thousands)
|
|
Debt securities – Corporate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,843
|
|
|
$
|
(842
|
)
|
|
$
|
2,843
|
|
|
$
|
(842
|
)
|
U.S. Treasury and government sponsored entity mortgage- backed securities
|
|
|
20,704
|
|
|
|
(217
|
)
|
|
|
51,821
|
|
|
|
(1,272
|
)
|
|
|
72,525
|
|
|
|
(1,489
|
)
|
Totals
|
|
$
|
20,704
|
|
|
$
|
(217
|
)
|
|
$
|
54,664
|
|
|
$
|
(2,114
|
)
|
|
$
|
75,368
|
|
|
$
|
(2,331
|
)
|
Management has reviewed its investment
securities as of September 30, 2016 and has determined that all declines in fair value below amortized cost are temporary.
Management evaluates securities for other-than-temporary
impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concerns warrant such
evaluation. The OTTI assessment is a subjective process requiring the use of judgments and assumptions. During the securities-level
assessments, consideration is given to (1) the intent not to sell and probability that the Company will not be required to sell
the security before recovery of its cost basis to allow for any anticipated recovery in fair value, (2) the financial condition
and near-term prospects of the issuer, as well as company news and current events, and (3) the ability to collect the future expected
cash flows. Key assumptions utilized to forecast expected cash flows may include loss severity, expected cumulative loss percentage,
cumulative loss percentage to date, weighted average FICO and weighted average loan-to-value (“LTV”), rating or scoring,
credit ratings and market spreads, as applicable.
The Company assesses and recognizes OTTI
in accordance with applicable accounting standards. Under these standards, if the Company determines that a security in the unrealized
loss position is designated to be sold or it is more likely than not that the Company will be required to sell the security prior
to recovery of its amortized cost basis, the impairment of such security is concluded to be other than temporary and the entire
amount of the unrealized loss will be recorded in earnings. If the Company has not made a decision to sell the security and it
does not expect that it will be required to sell the security prior to the recovery of the amortized cost basis but the Company
concludes that the entire amortized cost basis of the security will not be recovered, while the OTTI is concluded to exists, the
Company only recognizes currently in earnings the amount of decline in value attributable to credit deterioration, with the remaining
component of OTTI presented in other comprehensive income.
Corporate
Debt Securities
- The Company’s investments in the preceding table in corporate debt securities consist of corporate
debt securities issued by large financial institutions and single issuer and pooled trust preferred/collateralized debt obligations
backed by bank trust preferred capital securities.
At September
30, 2016, two single issuer trust preferred securities have been in a continuous unrealized loss position for 12 months or longer.
Those securities have an aggregate depreciation of 25.4% from the Company’s amortized cost basis. The initial decline of
these securities was primarily attributable to depressed market pricing of non-rated issues of trust preferred securities observed
during the financial downturn. The unrealized loss position continued to improve, and the current decline of these debt securities
is principally attributable to the rising interest rate environment and depressed pricing on lower yielding investments with prolonged
maturities, which had an impact for these types of investments. These securities were performing in accordance with their contractual
terms as of September 30, 2016, and had paid all contractual cash flows since the Company’s initial investment. Management
believes these unrealized losses are not other-than-temporary based upon the Company’s analysis that the securities will
perform in accordance with their terms and the Company’s intent not to sell these investments for a period of time sufficient
to allow for the anticipated recovery of fair value, which may be maturity. The Company expects recovery of fair value when
market conditions have stabilized and that the Company will receive all contractual principal and interest payments related to
those investments.
United
States Treasury, US Federal Agencies and Government Sponsored Enterprise Mortgage-backed Securities
- The Company’s investments
in the preceding table in United States government sponsored enterprise notes consist of debt obligations of the Federal Home Loan
Bank (“FHLB”), Federal Home Loan Mortgage Corporation (“FHLMC”), and Federal National Mortgage Association
(“FNMA”). At September 30, 2016 the Company had 11 agency mortgage-backed securities with unrealized losses for 12
months or longer. Those securities had aggregate depreciation of 1.5% from the Company’s amortized cost basis. These securities
were performing in accordance with their contractual terms as of September 30, 2016, and had paid all contractual cash flows since
the Company’s initial investment and that the Company expects to receive all contractual principal and interest payments
related to those investments. Management believes these unrealized losses are not
other-than-temporary
based upon the Company’s analysis that the securities will perform in accordance with their terms and the Company’s
intent not to sell these investments for a period of time sufficient to allow for the anticipated recovery of fair value, which
may be maturity.
The amortized
cost and estimated fair value of debt securities available for sale and held to maturity at September 30, 2016 by contractual maturity
are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
|
|
September 30, 2016
|
|
|
|
Held to Maturity
|
|
|
Available for Sale Securities
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
Due within 1 year
|
|
$
|
375
|
|
|
$
|
375
|
|
|
$
|
1,996
|
|
|
$
|
2,000
|
|
Due after 1 year through 5 years
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
|
|
33
|
|
Due after 5 years through 10 years
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Due after 10 years
|
|
|
—
|
|
|
|
—
|
|
|
|
3,688
|
|
|
|
2,751
|
|
Total
|
|
$
|
375
|
|
|
$
|
375
|
|
|
$
|
5,717
|
|
|
$
|
4,784
|
|
Equity securities had a cost of $3 thousand and a fair value
of $5 thousand as of September 30, 2016. Mortgage-backed securities had a cost of $96.3 million and a fair value of $96.1 million
as of September 30, 2016.
|
3.
|
LOANS RECEIVABLE – NET
|
Loans receivable consist of the following:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in thousands)
|
|
Real estate - mortgage:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
615,851
|
|
|
$
|
607,807
|
|
Commercial and multi-family
|
|
|
85,314
|
|
|
|
84,075
|
|
Total real estate-mortgage
|
|
|
701,165
|
|
|
|
691,882
|
|
Real estate - construction:
|
|
|
|
|
|
|
|
|
Residential
|
|
|
18,174
|
|
|
|
14,960
|
|
Commercial
|
|
|
4,855
|
|
|
|
3,595
|
|
Total real estate - construction
|
|
|
23,029
|
|
|
|
18,555
|
|
Commercial
|
|
|
18,277
|
|
|
|
21,383
|
|
Consumer:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
49,291
|
|
|
|
51,001
|
|
Other consumer loans
|
|
|
274
|
|
|
|
431
|
|
Total consumer loans
|
|
|
49,565
|
|
|
|
51,432
|
|
Total loans
|
|
|
792,036
|
|
|
|
783,252
|
|
Net deferred loan cost
|
|
|
4,216
|
|
|
|
3,886
|
|
Allowance for loan losses
|
|
|
(3,307
|
)
|
|
|
(3,190
|
)
|
Net total loans
|
|
$
|
792,945
|
|
|
$
|
783,948
|
|
The Bank originates loans to customers
primarily in its local market area. The ultimate repayment of these loans is dependent to a certain degree on the local economy
and real estate market. The intent of management is to hold loans originated and purchased to maturity.
Changes in the allowance
for loan losses are as follows:
|
|
Nine months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Dollars in thousands)
|
|
Balance, beginning of period
|
|
$
|
3,190
|
|
|
$
|
3,760
|
|
Provision for loan loss
|
|
|
463
|
|
|
|
496
|
|
Charge-offs
|
|
|
(348
|
)
|
|
|
(1,140
|
)
|
Recoveries
|
|
|
2
|
|
|
|
—
|
|
Balance, end of period
|
|
$
|
3,307
|
|
|
$
|
3,116
|
|
The provision for loan losses charged to
expense is based upon past loan loss experiences, a series of qualitative factors, and an evaluation of losses in the current loan
portfolio, including the specific evaluation of impaired loans. Values assigned to the qualitative factors and those developed
from historic loss experience provide a dynamic basis for the calculation of reserve factors for both pass–rated loans (general
pooled allowance) and the criticized and classified loans that continue to perform.
Non-performing assets segregated by class of loans are as follows:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(Dollars in thousands)
|
|
Real estate
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
2,969
|
|
|
$
|
2,597
|
|
Commercial and multi-family
|
|
|
835
|
|
|
|
1,580
|
|
Real estate – construction
|
|
|
143
|
|
|
|
143
|
|
Commercial
|
|
|
153
|
|
|
|
41
|
|
Consumer
|
|
|
198
|
|
|
|
601
|
|
Non-accrual loans
|
|
|
4,298
|
|
|
|
4,962
|
|
Troubled debt restructuring, non-accrual
|
|
|
961
|
|
|
|
708
|
|
Total non-performing loans
|
|
|
5,259
|
|
|
|
5,670
|
|
Real estate owned
|
|
|
1,007
|
|
|
|
1,814
|
|
Total non-performing assets
|
|
$
|
6,266
|
|
|
$
|
7,484
|
|
A rollforward of the Company’s nonaccretable and accretable
yield on loans accounted for under ASU 310-30,
Loans and Debts Securities Acquired with Deteriorated Credit Quality
, is
shown below for the nine month periods ended September 30, 2016 and 2015:
|
|
Contractual
Receivable
Amount
|
|
|
Nonaccretable
(Yield)/Premium
|
|
|
Accretable
(Yield)/Premium
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in thousands)
|
|
Balance at January 1, 2016
|
|
$
|
38,621
|
|
|
$
|
(2,423
|
)
|
|
$
|
426
|
|
|
$
|
36,624
|
|
Principal reductions
|
|
|
(4,609
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,609
|
)
|
Charge-offs, net
|
|
|
(1,495
|
)
|
|
|
1,495
|
|
|
|
—
|
|
|
|
—
|
|
Accretion of loan discount (premium)
|
|
|
—
|
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
(80
|
)
|
Transfer between nonaccretable and accretable yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Settlement adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2016
|
|
$
|
32,517
|
|
|
$
|
(928
|
)
|
|
$
|
346
|
|
|
$
|
31,935
|
|
|
|
Contractual
Receivable
Amount
|
|
|
Nonaccretable
(Yield)/Premium
|
|
|
Accretable
(Yield)/Premium
|
|
|
Carrying
Amount
|
|
|
|
(Dollars in thousands)
|
|
Balance at January 1, 2015
|
|
$
|
44,216
|
|
|
$
|
(2,540
|
)
|
|
$
|
542
|
|
|
$
|
42,218
|
|
Principal reductions
|
|
|
(4,211
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,211
|
)
|
Charge-offs, net
|
|
|
(64
|
)
|
|
|
64
|
|
|
|
—
|
|
|
|
—
|
|
Accretion of loan discount (premium)
|
|
|
—
|
|
|
|
—
|
|
|
|
(87
|
)
|
|
|
(87
|
)
|
Transfer between nonaccretable and accretable yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Settlement adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at September 30, 2015
|
|
$
|
39,941
|
|
|
$
|
(2,476
|
)
|
|
$
|
455
|
|
|
$
|
37,920
|
|
An age analysis of past due loans, segregated by class of loans,
as of September 30, 2016 and December 31, 2015 are as follows:
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
Than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
$
|
760
|
|
|
$
|
—
|
|
|
$
|
3,338
|
|
|
$
|
4,098
|
|
|
$
|
611,753
|
|
|
$
|
615,851
|
|
Commercial and multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
835
|
|
|
|
835
|
|
|
|
84,479
|
|
|
|
85,314
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
143
|
|
|
|
143
|
|
|
|
22,886
|
|
|
|
23,029
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
153
|
|
|
|
18,124
|
|
|
|
18,277
|
|
Consumer
|
|
|
134
|
|
|
|
83
|
|
|
|
197
|
|
|
|
414
|
|
|
|
49,151
|
|
|
|
49,565
|
|
Total
|
|
$
|
894
|
|
|
$
|
83
|
|
|
$
|
4,666
|
|
|
$
|
5,643
|
|
|
$
|
786,393
|
|
|
$
|
792,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
$
|
1,483
|
|
|
$
|
—
|
|
|
$
|
2,968
|
|
|
$
|
4,451
|
|
|
$
|
603,356
|
|
|
$
|
607,807
|
|
Commercial and multi-family
|
|
|
—
|
|
|
|
—
|
|
|
|
1,580
|
|
|
|
1,580
|
|
|
|
82,495
|
|
|
|
84,075
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
143
|
|
|
|
143
|
|
|
|
18,412
|
|
|
|
18,555
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
41
|
|
|
|
41
|
|
|
|
21,342
|
|
|
|
21,383
|
|
Consumer
|
|
|
93
|
|
|
|
21
|
|
|
|
601
|
|
|
|
715
|
|
|
|
50,717
|
|
|
|
51,432
|
|
Total
|
|
$
|
1,576
|
|
|
$
|
21
|
|
|
$
|
5,333
|
|
|
$
|
6,930
|
|
|
$
|
776,322
|
|
|
$
|
783,252
|
|
Impaired
loans are set forth in the following table. No interest income was recognized on impaired loans subsequent to their classification
as impaired.
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
$
|
5,309
|
|
|
$
|
5,477
|
|
|
$
|
—
|
|
|
$
|
147
|
|
Commercial and Multi-Family
|
|
|
800
|
|
|
|
800
|
|
|
|
—
|
|
|
|
160
|
|
Construction
|
|
|
143
|
|
|
|
143
|
|
|
|
—
|
|
|
|
143
|
|
Commercial
|
|
|
41
|
|
|
|
41
|
|
|
|
—
|
|
|
|
41
|
|
Consumer
|
|
|
868
|
|
|
|
868
|
|
|
|
—
|
|
|
|
54
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
|
3,751
|
|
|
|
3,941
|
|
|
|
677
|
|
|
|
268
|
|
Commercial and Multi-Family
|
|
|
285
|
|
|
|
310
|
|
|
|
140
|
|
|
|
285
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
275
|
|
|
|
275
|
|
|
|
61
|
|
|
|
92
|
|
Consumer
|
|
|
274
|
|
|
|
319
|
|
|
|
51
|
|
|
|
68
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
$
|
9,060
|
|
|
$
|
9,418
|
|
|
$
|
677
|
|
|
$
|
181
|
|
Commercial and Multi-Family
|
|
|
1,085
|
|
|
|
1,110
|
|
|
|
140
|
|
|
|
181
|
|
Construction
|
|
|
143
|
|
|
|
143
|
|
|
|
—
|
|
|
|
144
|
|
Commercial
|
|
|
316
|
|
|
|
316
|
|
|
|
61
|
|
|
|
79
|
|
Consumer
|
|
|
1,142
|
|
|
|
1,187
|
|
|
|
51
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
$
|
6,103
|
|
|
$
|
6,320
|
|
|
$
|
—
|
|
|
$
|
153
|
|
Commercial and Multi-Family
|
|
|
1,545
|
|
|
|
1,545
|
|
|
|
—
|
|
|
|
257
|
|
Construction
|
|
|
143
|
|
|
|
143
|
|
|
|
—
|
|
|
|
143
|
|
Commercial
|
|
|
41
|
|
|
|
41
|
|
|
|
—
|
|
|
|
41
|
|
Consumer
|
|
|
1,187
|
|
|
|
1,187
|
|
|
|
—
|
|
|
|
66
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
$
|
3,758
|
|
|
$
|
3,868
|
|
|
$
|
599
|
|
|
$
|
268
|
|
Commercial and Multi-Family
|
|
|
285
|
|
|
|
310
|
|
|
|
23
|
|
|
|
285
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Consumer
|
|
|
179
|
|
|
|
179
|
|
|
|
4
|
|
|
|
179
|
|
Total
|
|
|
434
|
|
|
|
479
|
|
|
|
179
|
|
|
|
72
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family Residential
|
|
$
|
9,861
|
|
|
$
|
10,188
|
|
|
$
|
599
|
|
|
$
|
183
|
|
Commercial and Multi-Family
|
|
|
1,830
|
|
|
|
1,855
|
|
|
|
23
|
|
|
|
261
|
|
Construction
|
|
|
143
|
|
|
|
143
|
|
|
|
—
|
|
|
|
143
|
|
Commercial
|
|
|
220
|
|
|
|
220
|
|
|
|
4
|
|
|
|
110
|
|
Consumer
|
|
|
1,621
|
|
|
|
1,666
|
|
|
|
179
|
|
|
|
68
|
|
Included in the Company’s loan portfolio
are modified commercial loans. Per FASB ASC 310-40,
Troubled Debt Restructuring (“TDR”),
a modification is one
in which the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession
to the debtor that it would not otherwise consider, such as providing for a below market interest rate and/or forgiving principal
or previously accrued interest; this modification may stem from an agreement or be imposed by law or a court, and may involve a
multiple note structure. Generally, prior to the modification, the loans which are modified as a TDR are already classified as
non-performing. These loans may only be returned to performing (i.e. accrual status) after considering the borrower’s sustained
repayment performance for a reasonable amount of time, generally six months; this sustained repayment performance may include the
period of time just prior to the restructuring. As of September 30, 2016, the Company entered into 21 TDR agreements with a total
carrying value of $4.8 million, of which three were not performing totaling $961 thousand as compared to 18 TDR agreements with
a total carrying value of $4.2 million of which five were not performing totaling $660 thousand as of September 30, 2015. The Company
entered into one new TDR agreement totaling $592 thousand during the three and nine month periods ending September 30, 2016 as
compared to two and eight new TDR agreements during the three and nine month periods ending September 30, 2015 totaling $321 thousand
and $1.2 million, respectively.
Federal regulations require us to review
and classify our assets on a regular basis. In addition, federal banking regulators have the authority to identify problem assets
and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and
loss. “Substandard assets” must have one or more defined weaknesses and are characterized by the distinct possibility
that we will sustain some loss if the deficiencies are not corrected. “Doubtful assets” have the weaknesses of substandard
assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified as “loss”
is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations
also provide for a “special mention” category, described as assets which do not currently expose us to a sufficient
degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention.
When we classify an asset as substandard or doubtful we establish a specific allowance for loan losses. If we classify an asset
as loss, we charge off an amount equal to 100% of the portion of the asset classified as loss.
The following
table presents classified loans by class of loans as of September 30, 2016 and December 31, 2015.
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
1-4
Family
Residential
|
|
|
Commercial
and
Multi-Family
|
|
|
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
|
(Dollars in thousands)
|
|
Grade:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention
|
|
$
|
4,042
|
|
|
$
|
3,182
|
|
|
$
|
671
|
|
|
$
|
321
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,048
|
|
|
$
|
807
|
|
Substandard
|
|
|
7,160
|
|
|
|
7,916
|
|
|
|
3,312
|
|
|
|
3,989
|
|
|
|
143
|
|
|
|
143
|
|
|
|
543
|
|
|
|
557
|
|
|
|
760
|
|
|
|
1,272
|
|
Doubtful and Loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
11,202
|
|
|
$
|
11,098
|
|
|
$
|
3,983
|
|
|
$
|
4,310
|
|
|
$
|
143
|
|
|
$
|
143
|
|
|
$
|
656
|
|
|
$
|
557
|
|
|
$
|
1,808
|
|
|
$
|
2,079
|
|
The following
table presents the credit risk profile of loans based on payment activity as of September 30, 2016 and December 31, 2015.
|
|
Real
Estate
|
|
|
|
|
|
|
|
|
|
1-4
Family
Residential
|
|
|
Commercial
and
Multi-Family
|
|
|
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
9/30/2016
|
|
|
12/31/2015
|
|
|
|
(Dollars in thousands
|
|
Performing
|
|
$
|
612,882
|
|
|
$
|
605,210
|
|
|
$
|
84,479
|
|
|
$
|
82,495
|
|
|
$
|
22,886
|
|
|
$
|
18,412
|
|
|
$
|
18,124
|
|
|
$
|
21,342
|
|
|
$
|
49,367
|
|
|
$
|
50,831
|
|
Non-Performing
|
|
|
2,969
|
|
|
|
2,597
|
|
|
|
835
|
|
|
|
1,580
|
|
|
|
143
|
|
|
|
143
|
|
|
|
153
|
|
|
|
41
|
|
|
|
198
|
|
|
|
601
|
|
Total
|
|
$
|
615,851
|
|
|
$
|
607,807
|
|
|
$
|
85,314
|
|
|
$
|
84,075
|
|
|
$
|
23,029
|
|
|
$
|
18,555
|
|
|
$
|
18,277
|
|
|
$
|
21,383
|
|
|
$
|
49,565
|
|
|
$
|
51,432
|
|
The following
table details activity in the allowance for possible loan losses by portfolio segment for the periods ended September 30, 2016
and December 31, 2015. Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses
in other categories.
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
Residential
|
|
|
Commercial
and
Multi-Family
|
|
|
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
2,051
|
|
|
$
|
240
|
|
|
$
|
25
|
|
|
$
|
236
|
|
|
$
|
638
|
|
|
$
|
3,190
|
|
Charge-offs
|
|
|
(169
|
)
|
|
|
(83
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(96
|
)
|
|
|
(348
|
)
|
Recoveries
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Provision for loan losses
|
|
|
209
|
|
|
|
307
|
|
|
|
8
|
|
|
|
131
|
|
|
|
(192
|
)
|
|
|
463
|
|
Ending balance
|
|
$
|
2,093
|
|
|
$
|
464
|
|
|
$
|
33
|
|
|
$
|
367
|
|
|
$
|
350
|
|
|
$
|
3,307
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
677
|
|
|
$
|
140
|
|
|
$
|
—
|
|
|
$
|
61
|
|
|
$
|
51
|
|
|
$
|
929
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,416
|
|
|
$
|
324
|
|
|
$
|
33
|
|
|
$
|
306
|
|
|
$
|
299
|
|
|
$
|
2,378
|
|
Loan Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
615,851
|
|
|
$
|
85,314
|
|
|
$
|
23,029
|
|
|
$
|
18,277
|
|
|
$
|
49,565
|
|
|
$
|
792,036
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
9,060
|
|
|
$
|
1,085
|
|
|
$
|
143
|
|
|
$
|
316
|
|
|
$
|
1,142
|
|
|
$
|
11,746
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
606,791
|
|
|
$
|
84,229
|
|
|
$
|
22,886
|
|
|
$
|
17,961
|
|
|
$
|
48,423
|
|
|
$
|
780,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
2,318
|
|
|
$
|
625
|
|
|
$
|
33
|
|
|
$
|
380
|
|
|
$
|
404
|
|
|
$
|
3,760
|
|
Charge-offs
|
|
|
(683
|
)
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(306
|
)
|
|
|
(245
|
)
|
|
|
(1,259
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Provision for loan losses
|
|
|
416
|
|
|
|
(360
|
)
|
|
|
(8
|
)
|
|
|
162
|
|
|
|
479
|
|
|
|
689
|
|
Ending balance
|
|
$
|
2,051
|
|
|
$
|
240
|
|
|
$
|
25
|
|
|
$
|
236
|
|
|
$
|
638
|
|
|
$
|
3,190
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
599
|
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
178
|
|
|
$
|
804
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
1,452
|
|
|
$
|
217
|
|
|
$
|
25
|
|
|
$
|
232
|
|
|
$
|
460
|
|
|
$
|
2,386
|
|
Loan Receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
607,807
|
|
|
$
|
84,075
|
|
|
$
|
18,555
|
|
|
$
|
21,383
|
|
|
$
|
51,432
|
|
|
$
|
783,252
|
|
Ending balance: individually evaluated for impairment
|
|
$
|
9,861
|
|
|
$
|
1,830
|
|
|
$
|
143
|
|
|
$
|
220
|
|
|
$
|
1,621
|
|
|
$
|
13,675
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
597,946
|
|
|
$
|
82,245
|
|
|
$
|
18,412
|
|
|
$
|
21,163
|
|
|
$
|
49,811
|
|
|
$
|
769,577
|
|
Deposits consist of the following major classifications:
|
|
|
September 30, 2016
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
Amount
|
|
|
Interest Rate
|
|
|
|
(Dollars in thousands)
|
|
NOW and other demand deposit accounts
|
|
$
|
490,117
|
|
|
|
0.13
|
%
|
|
$
|
457,488
|
|
|
|
0.13
|
%
|
Passbook savings and club accounts
|
|
|
177,392
|
|
|
|
0.20
|
%
|
|
|
174,640
|
|
|
|
0.20
|
%
|
Subtotal
|
|
|
667,509
|
|
|
|
|
|
|
|
632,128
|
|
|
|
|
|
Certificates with original maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
24,157
|
|
|
|
0.29
|
%
|
|
|
29,341
|
|
|
|
0.30
|
%
|
One to three years
|
|
|
142,263
|
|
|
|
0.94
|
%
|
|
|
127,813
|
|
|
|
1.03
|
%
|
Three years and beyond
|
|
|
23,221
|
|
|
|
1.50
|
%
|
|
|
22,751
|
|
|
|
1.56
|
%
|
Total certificates
|
|
|
189,641
|
|
|
|
|
|
|
|
179,905
|
|
|
|
|
|
Total
|
|
$
|
857,150
|
|
|
|
|
|
|
$
|
812,033
|
|
|
|
|
|
The aggregate amount of certificate accounts
in denominations of $100 thousand or more at September 30, 2016 and December 31, 2015 amounted to $79.0 million and $70.6 million,
respectively. Currently, deposits in excess of $250 thousand are generally not federally insured.
Municipal
demand deposit accounts in denominations of $100 thousand
or more at September 30, 2016
and December 31, 2015 amounted to $203.6 million and $194.6 million, respectively.
Basic net income per share is based upon
the weighted average number of common shares outstanding, net of any treasury shares, while diluted net income per share is based
upon the weighted average number of common shares outstanding, net of any treasury shares, after consideration of the potential
dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period,
and impact of unallocated Employee Stock Ownership Plan (“ESOP”) shares.
The calculated basic and dilutive EPS are
as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Numerator – Net Income
|
|
$
|
1,701
|
|
|
$
|
1,669
|
|
|
$
|
5,233
|
|
|
$
|
5,121
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average shares outstanding
|
|
|
6,207,118
|
|
|
|
6,043,604
|
|
|
|
6,158,551
|
|
|
|
5,983,355
|
|
Effect of dilutive common stock equivalents
|
|
|
101,053
|
|
|
|
101,532
|
|
|
|
89,172
|
|
|
|
105,272
|
|
Diluted average shares outstanding
|
|
|
6,308,171
|
|
|
|
6,145,136
|
|
|
|
6,247,723
|
|
|
|
6,088,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
|
$
|
0.85
|
|
|
$
|
0.86
|
|
Diluted
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
|
$
|
0.84
|
|
|
$
|
0.84
|
|
At September
30, 2016 and 2015, there were 179,938 and 318,265 outstanding anti-dilutive options, respectively, 25,620 and 35,150 outstanding
dilutive non-vested shares, respectively.
|
6.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation is accounted
for in accordance with FASB ASC 718,
Compensation – Stock Compensation
. The Company establishes fair value for its
equity awards to determine their cost. The Company recognizes the related expense for employees over the appropriate vesting
period, or when applicable, service period. However, consistent with the stock compensation topic of the FASB Accounting Standards
Codification, the amount of stock-based compensation recognized at any date must at least equal the portion of the grant date
value of the award that is vested at that date and as a result it may be necessary to recognize the expense using a ratable method.
In accordance with FASB ASC 505-50,
Equity-Based Payments to Non-Employees,
the compensation expense for non-employees
is recognized on the grant date, or when applicable, the service period.
The Company’s 2005 and 2010 Equity-Based
Incentive Plans (the “Equity Plans”) authorize the issuance of shares of common stock pursuant to awards that may
be granted in the form of stock options to purchase common stock (“options”) and awards of shares of common stock
(“stock awards”). The purpose of the Equity Plans is to attract and retain personnel for positions of substantial
responsibility and to provide additional incentive to certain officers, directors, advisory directors, employees and other persons
to promote the success of the Company. Under the Equity Plans, options expire ten years after the date of grant, unless terminated
earlier under the option terms. A committee of non-employee directors has the authority to determine the conditions upon which
the options granted will vest. Options are granted at the then fair market value of the Company’s stock.
A summary of the status of the Company’s
stock options under the Equity Plans as of September 30, 2016 and 2015 and changes during the nine months ended September 30,
2016 and 2015 are presented below:
|
|
Nine Months Ended
September
30, 2016
|
|
|
Nine Months Ended
September
30, 2015
|
|
|
|
Number
of shares
|
|
|
Weighted
average
exercise
price
|
|
|
Number
of shares
|
|
|
Weighted
average
exercise
price
|
|
Outstanding at the beginning of the period
|
|
|
380,407
|
|
|
$
|
11.46
|
|
|
|
674,391
|
|
|
$
|
12.15
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
109,748
|
|
|
|
11.64
|
|
|
|
287,130
|
|
|
$
|
13.08
|
|
Forfeited
|
|
|
2,160
|
|
|
|
13.56
|
|
|
|
3,894
|
|
|
$
|
11.69
|
|
Outstanding at the end of the period
|
|
|
268,499
|
|
|
$
|
11.36
|
|
|
|
383,367
|
|
|
$
|
11.45
|
|
Exercisable at the end of the period
|
|
|
229,891
|
|
|
$
|
10.92
|
|
|
|
309,367
|
|
|
$
|
10.94
|
|
Stock options vested or expected to vest (1)
|
|
|
206,902
|
|
|
$
|
10.92
|
|
|
|
345,030
|
|
|
$
|
11.45
|
|
(1) Includes
vested shares and nonvested shares after a forfeiture rate, which is based upon historical data, is applied.
The
following table summarizes all stock options outstanding under the Equity Plan as of September 30, 2016:
|
|
Options Outstanding
|
Date Issued
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Life
|
November 20, 2007
|
|
|
10,066
|
|
|
$
|
11.32
|
|
|
1.1 years
|
August 18, 2010
|
|
|
160,735
|
|
|
$
|
10.21
|
|
|
3.9 years
|
March 15, 2011
|
|
|
7,100
|
|
|
$
|
12.06
|
|
|
4.5 years
|
August 17, 2011
|
|
|
22,318
|
|
|
$
|
11.53
|
|
|
4.9 years
|
November 19, 2012
|
|
|
11,800
|
|
|
$
|
13.10
|
|
|
6.1 years
|
November 19, 2013
|
|
|
56,480
|
|
|
$
|
14.14
|
|
|
7.1 years
|
Total
|
|
|
268,499
|
|
|
$
|
11.36
|
|
|
4.7 years
|
The compensation expense recognized for
the three and nine months ended September 30, 2016 was $45 thousand and $135 thousand, respectively, as compared to $46 thousand
and $138 thousand for the three and nine months ended September 30, 2015, respectively.
At
September 30, 2016, there was $118 thousand of total unrecognized compensation cost related to options granted under the stock
option plans. That cost is expected to be recognized over a weighted average period of 0.9
years.
Summary
of Non-vested Stock Award Activity:
|
|
Nine Months ended
September 30, 2016
|
|
|
Nine Months ended
September 30, 2015
|
|
|
|
Number of
shares
|
|
|
Weighted avg
grant date fair
value
|
|
|
Number of
shares
|
|
|
Weighted avg
grant date fair
value
|
|
Outstanding at the beginning of period
|
|
|
26,610
|
|
|
$
|
14.06
|
|
|
|
54,950
|
|
|
$
|
10.74
|
|
Issued
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
990
|
|
|
$
|
12.06
|
|
|
|
19,800
|
|
|
$
|
10.30
|
|
Outstanding at the end of period
|
|
|
25,620
|
|
|
$
|
14.14
|
|
|
|
35,150
|
|
|
$
|
14.08
|
|
The compensation expense recognized for
the three and nine months ended September 30, 2016 was $30 thousand and $93 thousand, respectively, as compared to $45 thousand
and $208 thousand for the three and nine months ended September 30, 2015, respectively.
As
of September 30, 2016, there was $257 thousand of total unrecognized compensation costs related to non-vested stock awards. That
cost is expected to be recognized over a weighted average period of 1.1 years
.
Income tax expense was $2.6 million for
an effective tax rate of 33.1% for the nine months ended September 30, 2016 compared to $2.6 million for an effective tax rate
of 33.5% for the same period in 2015.
Periodic reviews of the carrying amount
of deferred tax assets are made to determine if the establishment of a valuation allowance is necessary. If based on the available
evidence in future periods, it is more likely than not that all or a portion of the Company’s deferred tax assets will not
be realized, a deferred tax valuation allowance would be established. Consideration is given to all positive and negative evidence
related to the realization of the deferred tax assets. Items considered in this evaluation include historical financial performance,
expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carryforward
periods, experience with operating loss and tax credit carryforwards not expiring unused, tax planning strategies and timing of
reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals
of temporary differences. The evaluation is based on current tax laws as well as expectations of future performance. At September
30, 2016 and December 31, 2015, no valuation allowance has been recorded for any portfolio of the outstanding deferred tax asset.
The Company recognizes, when applicable,
interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement.
As of September 30, 2016, the tax years ended December 31, 2012 through 2015 were subject to examination by the Internal Revenue
Service, while the tax years ended December 31, 2011 through 2015 were subject to New Jersey examination.
During the third quarter of 2016, the Board of Directors of
the Company declared a cash dividend of $0.06 per share, which was paid on August 26, 2016 to stockholders of record as of the
close of business on August 5, 2016.
No reclassification adjustments were recognized
in Accumulated Other Comprehensive Income during the nine months ended September 30, 2016 and 2015. A summary of the changes in
components of Accumulated Other Comprehensive Income for the nine months ended September 30, 2016 and 2015 are presented below:
|
|
Unrealized
Gain (Loss) on
Available for
Sale Securities
|
|
|
Loss on Post
Retirement
Life Benefit
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
|
(Dollars in thousands)
|
|
Beginning balance - 01/01/2016
|
|
$
|
(1,254
|
)
|
|
$
|
(133
|
)
|
|
$
|
(1,387
|
)
|
Current period change
|
|
|
826
|
|
|
|
9
|
|
|
|
835
|
|
Tax benefit
|
|
|
(339
|
)
|
|
|
─
|
|
|
|
(339
|
)
|
Ending balance – 09/30/2016
|
|
$
|
(767
|
)
|
|
$
|
(124
|
)
|
|
$
|
(891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance – 01/01/2015
|
|
$
|
(1,282
|
)
|
|
$
|
(169
|
)
|
|
$
|
(1,451
|
)
|
Current period change
|
|
|
1,037
|
|
|
|
16
|
|
|
|
1,053
|
|
Tax benefit
|
|
|
(419
|
)
|
|
|
─
|
|
|
|
(419
|
)
|
Ending balance – 09/30/2015
|
|
$
|
(664
|
)
|
|
$
|
(153
|
)
|
|
$
|
(817
|
)
|
|
9.
|
FAIR
VALUE MEASUREMENTS
|
The Company accounts for fair value measurement
in accordance with FASB ASC 820,
Fair Value Measurements and Disclosures
. FASB ASC 820 defines fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value measurements. FASB ASC 820 does not
require any new fair value measurements. The definition of fair value retains the exchange price notion in earlier definitions
of fair value. FASB ASC 820 clarifies that the exchange price is the price in an orderly transaction between market participants
to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability.
The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price),
not the price that would be paid to acquire the asset or received to assume the liability (an entry price). FASB ASC 820 emphasizes
that fair value is a market-based measurement, not an entity-specific measurement. FASB ASC 820 also clarifies the
application of fair value measurement in a market that is not active.
FASB ASC 820 describes
three levels of inputs that may be used to measure fair value:
Level 1
- Quoted prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3
- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted
cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant
management judgment or estimation.
The Company’s assessment of the
significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific
to the asset or liability.
In addition, the Company is to disclose
the fair value measurements for financial assets on both a recurring and non-recurring basis.
The following tables presents assets that
are measured at fair value on a recurring basis by major product category and fair value hierarchy as of September 30, 2016 and
December 31, 2015:
|
|
Category Used for Fair
Value Measurement
|
|
September 30, 2016
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entity mortgage-backed
securities
|
|
$
|
—
|
|
|
$
|
95,576
|
|
|
$
|
—
|
|
U.S. Treasury and federal agencies
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
Corporate securities
|
|
|
—
|
|
|
|
4,752
|
|
|
|
—
|
|
Equity securities
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
Totals
|
|
$
|
5
|
|
|
$
|
100,361
|
|
|
$
|
—
|
|
|
|
Category Used for Fair
Value Measurement
|
|
December 31, 2015
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entity mortgage-backed
securities
|
|
$
|
—
|
|
|
$
|
92,982
|
|
|
$
|
—
|
|
U.S. Treasury and federal agencies
|
|
|
—
|
|
|
|
10,040
|
|
|
|
—
|
|
Corporate securities
|
|
|
—
|
|
|
|
8,844
|
|
|
|
—
|
|
Equity securities
|
|
|
42
|
|
|
|
—
|
|
|
|
—
|
|
Totals
|
|
$
|
42
|
|
|
$
|
111,866
|
|
|
$
|
—
|
|
In accordance with the fair value measurement
and disclosures topic of the FASB Accounting Standards Codification management assessed whether the volume and level of activity
for certain assets have significantly decreased when compared with normal market conditions. The Company concluded that there
was not a significant decrease in the volume and level of activity with respect to certain investments included in the corporate
debt securities and classified as level 2 in accordance with the framework for fair value measurements. Fair value for such securities
is obtained from third party broker quotes. The Company evaluated these values to determine that the quoted price is based on
current information that reflects orderly transactions or a valuation technique that reflects market participant assumptions by
benchmarking the valuation results and assumptions used against similar securities that are more actively traded in order to assess
the reasonableness of the estimated fair values. The fair market value estimates we assign to these securities assume liquidation
in an orderly fashion and not under distressed circumstances.
Certain assets are measured at fair value
on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is evidence of impairment). The Company measures impaired loans,
FHLB stock and loans or bank properties transferred into other real estate owned at fair value on a non-recurring basis.
Summary of Non-Recurring Fair Value Measurements
|
|
|
|
|
Category Used for Fair Value
Measurement
|
|
|
|
|
Nine Month
Period
Ended
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Losses
|
|
|
|
(Dollars in thousands)
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
3,655
|
|
|
$
|
-
|
|
|
$
|
360
|
|
|
$
|
3,296
|
|
|
$
|
(222
|
)
|
Real estate owned
|
|
|
575
|
|
|
|
-
|
|
|
|
329
|
|
|
|
247
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
3,875
|
|
|
$
|
─
|
|
|
$
|
1,718
|
|
|
$
|
2,157
|
|
|
$
|
(123
|
)
|
Real estate owned
|
|
|
1,587
|
|
|
|
─
|
|
|
|
1,587
|
|
|
|
─
|
|
|
|
(255
|
)
|
Impaired Loans
The Company considers a loan to be impaired
when it becomes probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of
the loan agreement. Under FASB ASC 310, collateral dependent impaired loans are valued based on the fair value of the collateral,
which is based on appraisals, less cost to sell. These adjustments are based upon observable inputs, and therefore, the fair value
measurement has been categorized as a level 2 measurement. In some cases, adjustments are made to the appraised values for various
factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market and
in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement has been categorized
as a Level 3 measurement. At September 30, 2016, total loans remeasured at fair value were $3.7 million. Such loans were
carried at the value of $3.9 million immediately prior to remeasurement, resulting in the recognition of impairment through earnings
for the life of the loan in the amount of $222 thousand. At September 30, 2015, total loans remeasured at fair value were $3.9
million. Such loans were carried at the value of $4.0 million immediately prior to remeasurement, resulting in the recognition
of impairment through earnings for the life of the loan in the amount of $123 thousand.
Real Estate Owned
Once an asset is determined to be uncollectible,
the underlying collateral is repossessed and reclassified to foreclosed real estate and repossessed assets. These assets are carried
at lower of cost or fair value of the collateral, less cost to sell. These adjustments are based upon observable inputs, and therefore,
the fair value measurement has been categorized as a Level 2 measurement. In some cases, adjustments are made to the appraised
values for various factors, including age of the appraisal, age of the comparables included in the appraisal, and known changes
in the market and in the collateral. These adjustments are based upon unobservable inputs, and therefore, the fair value measurement
has been categorized as a Level 3 measurement. At September 30, 2016, total real estate owned remeasured at fair value was $575
thousand. These properties were carried at a value of $705 thousand immediately prior to remeasurement, resulting in $130 thousand
of impairment through earnings. At September 30, 2015, total real estate owned remeasured at fair value was $1.6 million. These
properties were carried at a value of $1.8 million immediately prior to remeasurement, resulting in $255 thousand of impairment
through earnings.
Fair Value of Financial Instruments
In accordance with FASB ASC 825-10-50-10,
the Company is required to disclose the fair value of financial instruments. The fair value of a financial instrument is
the current amount that would be exchanged between willing parties, other than in a distressed sale. Fair value is best determined
using observable market prices; however, for many of the Company’s financial instruments, no quoted market prices are readily
available. In instances where quoted market prices are not readily available, fair value is determined using present value or other
techniques appropriate for the particular instrument. These techniques involve some degree of judgment and, as a result, are not
necessarily indicative of the amounts the Company would realize in a current market exchange. Different assumptions or estimation
techniques may have a material effect on the estimated fair value. The following table summarizes these results:
|
|
|
|
|
Category Used For Fair Value
|
|
September 30, 2016
|
|
Carrying Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
145,469
|
|
|
$
|
145,469
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
822
|
|
|
|
—
|
|
|
|
875
|
|
|
|
—
|
|
Available for sale
|
|
|
100,366
|
|
|
|
5
|
|
|
|
100,361
|
|
|
|
—
|
|
Loans receivable, net
|
|
|
792,945
|
|
|
|
—
|
|
|
|
814,468
|
|
|
|
—
|
|
Federal Home Loan Bank stock
|
|
|
5,875
|
|
|
|
—
|
|
|
|
5,875
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and other demand deposit accounts
|
|
|
490,117
|
|
|
|
—
|
|
|
|
483,352
|
|
|
|
—
|
|
Passbook savings and club accounts
|
|
|
177,392
|
|
|
|
—
|
|
|
|
171,867
|
|
|
|
—
|
|
Certificates
|
|
|
189,641
|
|
|
|
—
|
|
|
|
190,737
|
|
|
|
—
|
|
Advances from Federal Home Loan Bank
|
|
|
105,000
|
|
|
|
—
|
|
|
|
112,398
|
|
|
|
—
|
|
|
|
|
|
|
Category Used For Fair Value
|
|
December 31, 2015
|
|
Carrying Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
87,710
|
|
|
$
|
87,710
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity
|
|
|
1,084
|
|
|
|
—
|
|
|
|
1,137
|
|
|
|
—
|
|
Available for sale
|
|
|
111,908
|
|
|
|
42
|
|
|
|
111,866
|
|
|
|
—
|
|
Loans receivable, net
|
|
|
783,948
|
|
|
|
—
|
|
|
|
793,597
|
|
|
|
—
|
|
Federal Home Loan Bank stock
|
|
|
5,864
|
|
|
|
—
|
|
|
|
5,864
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and other demand deposit accounts
|
|
|
457,488
|
|
|
|
—
|
|
|
|
476,186
|
|
|
|
—
|
|
Passbook savings and club accounts
|
|
|
174,640
|
|
|
|
—
|
|
|
|
183,352
|
|
|
|
—
|
|
Certificates
|
|
|
179,905
|
|
|
|
—
|
|
|
|
180,624
|
|
|
|
—
|
|
Advances from Federal Home Loan Bank
|
|
|
105,000
|
|
|
|
—
|
|
|
|
111,315
|
|
|
|
—
|
|
Cash and Cash Equivalents
—
For
cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.
Investment and Mortgage-Backed
Securities
—
For investment securities, fair values are based on a combination of quoted
prices for identical assets in active markets, quoted prices for similar assets in markets that are either actively or not actively
traded and pricing models, discounted cash flow methodologies, or similar techniques that may contain unobservable inputs that
are supported by little or no market activity and require significant judgment. For investment securities that do not actively
trade in the marketplace, (primarily our investment in trust preferred securities of non-publicly traded companies) fair value
is obtained from third party broker quotes. The Company evaluates prices from a third party pricing service, third party broker
quotes, and from another independent third party valuation source to determine their estimated fair value. These quotes are benchmarked
against similar securities that are more actively traded in order to assess the reasonableness of the estimated fair values. The
fair market value estimates we assign to these securities assume liquidation in an orderly fashion and not under distressed circumstances.
For securities classified as available for sale, the changes in fair value are reflected in the carrying value of the asset and
are shown as a separate component of stockholders’ equity.
Loans Receivable - Net
—
The
fair value of loans receivable is estimated based on the present value using discounted cash flows based on estimated market discount
rates at which similar loans would be made to borrowers and reflect similar credit ratings and interest rate risk for the same
remaining maturities.
FHLB Stock
—
Although
FHLB stock is an equity interest in an FHLB, it is carried at cost because it does not have a readily determinable fair value as
its ownership is restricted and it lacks a market. While certain conditions are noted that required management to evaluate the
stock for impairment, it is currently probable that the Company will realize its cost basis. Management concluded that no impairment
existed as of September 30, 2016. The estimated fair value approximates the carrying amount.
NOW and Other Demand Deposit, Passbook
Savings and Club, and Certificates Accounts—
The fair value of NOW and other demand
deposit accounts and passbook savings and club accounts is the amount payable on demand at the reporting date. The fair value of
certificates is estimated by discounting future cash flows using interest rates currently offered on certificates with similar
remaining maturities.
Advances from FHLB
—
The
fair value was estimated by determining the cost or benefit for early termination of each individual borrowing.
Junior Subordinated Debenture
—
The
fair value was estimated by discounting approximate cash flows of the borrowings by yields estimating the fair value of similar
issues.
Commitments to Extend Credit and
Letters of Credit
—The majority of the Bank’s commitments to extend credit and
letters of credit carry current market interest rates if converted to loans. Because commitments to extend credit and letters of
credit are generally unassignable by either the Bank or the borrower, they only have value to the Bank and the borrower. The estimated
fair value approximates the recorded deferred fee amounts, which are not significant.
The fair
value estimates presented herein are based on pertinent information available to management as of September 30, 2016 and December
31, 2015. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts
have not been comprehensively revalued for purposes of these consolidated financial statements since September 30, 2016 and December
31, 2015, and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
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10.
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GOODWILL AND INTANGIBLE ASSETS
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Goodwill totaled $4.6 million at September
30, 2016 as compared to $4.6 million at December 31, 2015. The Company completed its annual goodwill impairment test as of August
1, 2016 and concluded that goodwill was not impaired.
At September 30, 2016, no triggering events have occurred from the
date of the impairment test that would have impaired goodwill.
The core deposit intangible totaled $365
thousand at September 30, 2016 as compared to $440 thousand at December 31, 2015. The core deposit intangible is being amortized
over its estimated useful life of approximately 15 years from August 1, 2011.
Summary of Real Estate Owned (“REO”):
|
|
2016
|
|
|
2015
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
Property
|
|
|
Property
|
|
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Total
|
|
|
Property
|
|
|
Property
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
Balance, January 1,
|
|
$
|
1,773
|
|
|
$
|
41
|
|
|
$
|
1,814
|
|
|
$
|
609
|
|
|
$
|
41
|
|
|
$
|
650
|
|
Transfers into Real Estate Owned
|
|
|
230
|
|
|
|
815
|
|
|
|
1,045
|
|
|
|
1,839
|
|
|
|
195
|
|
|
|
2,034
|
|
Sales of Real Estate Owned
|
|
|
(1,503
|
)
|
|
|
(349
|
)
|
|
|
(1,852
|
)
|
|
|
(585
|
)
|
|
|
(195
|
)
|
|
|
(780
|
)
|
Balance, September 30,
|
|
$
|
500
|
|
|
$
|
507
|
|
|
$
|
1,007
|
|
|
$
|
1,863
|
|
|
$
|
41
|
|
|
$
|
1,904
|
|
On July 12, 2016, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with OceanFirst Financial Corp. (“OceanFirst”),
the parent company of OceanFirst Bank, and Masters Merger Sub Corp. (“Merger Sub”), a wholly-owned subsidiary of OceanFirst.
Pursuant to the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge (the “First-Step Merger”)
with and into Ocean Shore, with Ocean Shore as the surviving entity, and immediately following the effective time of the First-Step
Merger, Ocean Shore will merge with and into OceanFirst, with OceanFirst as the surviving entity (together with the First-Step
Merger, the “Integrated Mergers”). It is anticipated that immediately following the consummation of the Integrated
Mergers, Ocean City Home Bank, a federal savings bank, will merge with and into OceanFirst Bank, a federal savings bank, with OceanFirst
Bank as the surviving bank.
At the effective time of the First-Step
Merger, the Company’s stockholders will be entitled to receive $4.35 in cash and 0.9667 shares of OceanFirst common stock,
par value $0.01 per share (“OceanFirst Common Stock” and, together with such cash consideration, the “Merger
Consideration”), for each share of Company common stock. Additionally, all outstanding and unexercised options to purchase
Company common stock will fully vest and will convert into the right to receive a number of shares of OceanFirst Common Stock (rounded
down to the nearest whole share) determined by multiplying (i) the number of shares of Ocean Shore Common Stock subject to such
Ocean Shore stock option immediately prior to the effective time by (ii) 1.2084; and the exercise price per share of the new option
will be equal to the quotient obtained by dividing (a) the per share exercise price for the shares of Ocean Shore Common Stock
subject to such Ocean Shore option by (b) 1.2084 (rounded up to the nearest whole cent). Each outstanding Company restricted stock
award will vest at the effective time and will convert into the right to receive the Merger Consideration.
Subject to the satisfaction or waiver of
the closing conditions contained in the Merger Agreement, including (1) the approval of the Merger Agreement by the Company’s
stockholders, (2) the approval of the issuance of shares of OceanFirst Common Stock by OceanFirst’s stockholders, (3) the
effectiveness of the registration statement on Form S-4 for the OceanFirst Common Stock to be issued in the transaction, (4) the
receipt of required regulatory approvals, and (5) receipt by each party of an opinion from its counsel to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, OceanFirst
and the Company expect that the transaction will be completed on November 30, 2016. However, it is possible that factors outside
the control of both companies could result in the merger being completed at a different time or not at all.
The SEC declared the registration statement on Form S-4 effective
on October 19, 2016 and the joint proxy statement/prospectus was mailed to Ocean Shore and OceanFirst stockholders on or around
October 21, 2016. Special meeting of the Company’s and OceanFirst stockholders will be held on November 22, 2016 to obtain
the requisite stockholder approval.