Notes to the Unaudited Consolidated Financial Statements
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION
Fox Chase Bancorp, Inc. (the "Bancorp" or "Fox Chase") is a Maryland corporation. The Bancorp’s primary business is holding the common stock of Fox Chase Bank (the "Bank") and making
two
loans to the Fox Chase Bank Employee Stock Ownership Plan (the "ESOP"). The Bancorp is authorized to pursue other business activities permissible by laws and regulations for bank holding companies.
The Bancorp is a bank holding company and is regulated by the Board of Governors of the Federal Reserve System. The Bank is a Pennsylvania state
-
chartered savings bank and is regulated by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (the "FDIC").
The Bancorp and the Bank (collectively referred to as the "Company" or the "Corporation") provide a wide variety of financial products and services to individuals and businesses through the Bank’s
ten
branches in Philadelphia, Richboro, Willow Grove, Warminster, Lahaska, Hatboro, and West Chester, Pennsylvania, and Ocean City, Marmora and Egg Harbor Township, New Jersey. The operations of the Company are managed as a single business segment. The Bank also owns
46.15%
of Philadelphia Mortgage Advisors ("PMA"), a mortgage banker with offices in Plymouth Meeting and Doylestown, Pennsylvania and Ocean City, New Jersey.
The Company is subject to the regulations of certain federal and state banking agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loan loss allowances and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.
The consolidated financial statements include the accounts of the Bancorp and the Bank. The Bank’s operations include the accounts of its wholly owned subsidiaries, Fox Chase Financial, Inc., Fox Chase Service Corporation, 104 S. Oakland Ave., LLC and Davisville Associates, LLC. Fox Chase Financial, Inc. is a Delaware-chartered investment holding company and its sole purpose is to manage and hold investment securities. Fox Chase Service Corporation is a Pennsylvania-chartered company and its sole purpose is to facilitate the Bank’s investment in PMA. 104 S. Oakland Ave., LLC is a New Jersey-chartered limited liability company formed to secure, manage and hold foreclosed real estate. Davisville Associates, LLC is a Pennsylvania-chartered limited liability company formed to secure, manage and hold foreclosed real estate. All material inter-company transactions and balances have been eliminated in consolidation. Prior period amounts are reclassified, when necessary, to conform with the current year’s presentation.
The Company follows accounting principles and reporting practices that are in compliance with U.S. generally accepted accounting principles ("GAAP"). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These interim financial statements do not contain all necessary disclosures required by GAAP for complete financial statements and therefore should be read in conjunction with the audited financial statements and the notes thereto included in Fox Chase Bancorp, Inc.’s Annual Report on Form 10-K for the year ended
December 31, 2015
, as filed with the Securities and Exchange Commission on
March 4, 2016
. These financial statements include all normal and recurring adjustments which management believes were necessary in order to conform to GAAP. The 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
or any other period.
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION (CONTINUED)
Per Share Information
Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. Average unallocated shares in the ESOP and shares purchased to fund the Bancorp’s equity incentive plans are not included in either basic or diluted earnings per share.
The following table presents the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
2015
|
|
|
|
(Unaudited)
|
Net income
|
|
|
$
|
2,249,000
|
|
|
$
|
2,279,000
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
(1)
|
|
11,767,590
|
|
|
11,768,571
|
|
Average common stock acquired by stock benefit plans:
|
|
|
|
|
ESOP shares unallocated
|
|
(415,800
|
)
|
|
(480,852
|
)
|
Shares purchased by trust
|
|
(195,115
|
)
|
|
(260,153
|
)
|
Weighted-average common shares used to calculate basic earnings per share
|
|
11,156,675
|
|
|
11,027,566
|
|
Dilutive effect of:
|
|
|
|
|
Restricted stock awards
|
|
43,279
|
|
|
46,597
|
|
Stock option awards
|
|
114,434
|
|
|
193,503
|
|
Weighted-average common shares used to calculate diluted earnings per share
|
|
11,314,388
|
|
|
11,267,666
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.20
|
|
|
$
|
0.21
|
|
Earnings per share - diluted
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
Outstanding common stock equivalents which are anti-dilutive
|
|
71,668
|
|
|
508,610
|
|
|
|
|
|
|
|
(1)
Excludes treasury stock.
|
|
|
|
|
|
NOTE 2 - BUSINESS COMBINATIONS
Proposed Merger with Univest Corporation of Pennsylvania
On December 8, 2015, Univest Corporation of Pennsylvania ("Univest") and Fox Chase entered into a merger agreement (the "Merger Agreement") that provides that the Company will merge with and into Univest, with Univest remaining as the surviving entity. Following the merger, Fox Chase Bank will merge with and into Univest Bank and Trust Co., with Univest Bank and Trust Co. remaining as the surviving entity.
At the effective time of the Merger, Fox Chase shareholders will be entitled to elect to receive, for each share of Fox Chase common stock, subject to the election and adjustment procedures described in the joint proxy statement/prospectus, either
0.9731
shares of Univest common stock or
$21.00
in cash; provided, however, that
60%
of the total number of outstanding shares of Fox Chase common stock will be converted into Univest common stock, and the remaining outstanding shares of Fox Chase common stock will be converted into cash. As a result, if more Fox Chase shareholders elect to receive either Univest common stock or cash than is available as merger consideration under the merger agreement, those Fox Chase shareholders electing the over-subscribed form of consideration may have the over-subscribed consideration proportionately reduced and substituted with consideration in the alternative form.
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
Subject to the satisfaction or waiver of the closing conditions contained in the merger agreement, including the approval of the merger agreement by the Company’s and Univest's shareholders and the receipt of required regulatory approvals, Univest and the Company expect that the merger will be completed during the third quarter of 2016. However, it is possible that factors outside the control of both companies, including whether or when the required regulatory approvals will be received, could result in the merger being completed at a different time or not at all.
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and fair value of securities available-for-sale and held-to-maturity as of
March 31, 2016
and
December 31, 2015
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(In thousands, Unaudited)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
$
|
301
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
306
|
|
Corporate securities
|
17,608
|
|
|
107
|
|
|
—
|
|
|
17,715
|
|
Agency residential mortgage related securities
|
115,592
|
|
|
2,258
|
|
|
(45
|
)
|
|
117,805
|
|
Total available-for-sale securities
|
$
|
133,501
|
|
|
$
|
2,370
|
|
|
$
|
(45
|
)
|
|
$
|
135,826
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
$
|
1,776
|
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
1,810
|
|
Private label residential mortgage related securities
|
2,452
|
|
|
11
|
|
|
—
|
|
|
2,463
|
|
Agency residential mortgage related securities
|
140,300
|
|
|
2,182
|
|
|
(100
|
)
|
|
142,382
|
|
Total held-to-maturity securities
|
$
|
144,528
|
|
|
$
|
2,227
|
|
|
$
|
(100
|
)
|
|
$
|
146,655
|
|
|
|
|
December 31, 2015
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
(In thousands)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
299
|
|
Corporate securities
|
17,625
|
|
|
9
|
|
|
(93
|
)
|
|
17,541
|
|
Agency residential mortgage related securities
|
121,195
|
|
|
1,597
|
|
|
(881
|
)
|
|
121,911
|
|
Total available-for-sale securities
|
$
|
139,121
|
|
|
$
|
1,606
|
|
|
$
|
(976
|
)
|
|
$
|
139,751
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
$
|
1,776
|
|
|
$
|
—
|
|
|
$
|
(11
|
)
|
|
$
|
1,765
|
|
Private label residential mortgage related securities
|
2,522
|
|
|
—
|
|
|
(25
|
)
|
|
2,497
|
|
Agency residential mortgage related securities
|
145,892
|
|
|
663
|
|
|
(967
|
)
|
|
145,588
|
|
Total held-to-maturity securities
|
$
|
150,190
|
|
|
$
|
663
|
|
|
$
|
(1,003
|
)
|
|
$
|
149,850
|
|
Obligations of U.S. government agencies represents debt issued by the Federal Home Loan Bank (the "FHLB") and are not backed by the full faith and credit of the United States government.
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
The following tables show gross unrealized losses and fair value of securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
(In thousands, Unaudited)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage related securities
|
$
|
2,587
|
|
|
$
|
(4
|
)
|
|
$
|
17,179
|
|
|
$
|
(41
|
)
|
|
$
|
19,766
|
|
|
$
|
(45
|
)
|
Total available-for-sale securities
|
$
|
2,587
|
|
|
$
|
(4
|
)
|
|
$
|
17,179
|
|
|
$
|
(41
|
)
|
|
$
|
19,766
|
|
|
$
|
(45
|
)
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency residential mortgage related securities
|
$
|
1,324
|
|
|
$
|
—
|
|
|
$
|
9,438
|
|
|
$
|
(100
|
)
|
|
$
|
10,762
|
|
|
$
|
(100
|
)
|
Total held-to-maturity securities
|
$
|
1,324
|
|
|
$
|
—
|
|
|
$
|
9,438
|
|
|
$
|
(100
|
)
|
|
$
|
10,762
|
|
|
$
|
(100
|
)
|
Total temporarily impaired securities
|
$
|
3,911
|
|
|
$
|
(4
|
)
|
|
$
|
26,617
|
|
|
$
|
(141
|
)
|
|
$
|
30,528
|
|
|
$
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
|
|
|
|
|
|
(In thousands)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
$
|
299
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
(2
|
)
|
Corporate securities
|
15,015
|
|
|
(93
|
)
|
|
—
|
|
|
—
|
|
|
15,015
|
|
|
(93
|
)
|
Agency residential mortgage related securities
|
79,995
|
|
|
(716
|
)
|
|
7,927
|
|
|
(165
|
)
|
|
87,922
|
|
|
(881
|
)
|
Total available-for-sale securities
|
$
|
95,309
|
|
|
$
|
(811
|
)
|
|
$
|
7,927
|
|
|
$
|
(165
|
)
|
|
$
|
103,236
|
|
|
$
|
(976
|
)
|
Held-to-Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
$
|
1,766
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,766
|
|
|
$
|
(11
|
)
|
Private label residential mortgage related securities
|
2,497
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
2,497
|
|
|
(25
|
)
|
Agency residential mortgage related securities
|
80,741
|
|
|
(709
|
)
|
|
9,768
|
|
|
(258
|
)
|
|
90,509
|
|
|
(967
|
)
|
Total held-to-maturity securities
|
$
|
85,004
|
|
|
$
|
(745
|
)
|
|
$
|
9,768
|
|
|
$
|
(258
|
)
|
|
$
|
94,772
|
|
|
$
|
(1,003
|
)
|
Total temporarily impaired securities
|
$
|
180,313
|
|
|
$
|
(1,556
|
)
|
|
$
|
17,695
|
|
|
$
|
(423
|
)
|
|
$
|
198,008
|
|
|
$
|
(1,979
|
)
|
During the
three
month periods ended
March 31, 2016
and
2015
,
no
securities were sold. There were
no
net investment securities gains or losses in the consolidated statement of operations for the
three
month periods ended
March 31, 2016
or
2015
.
The Company evaluates a variety of factors when concluding whether a security is other-than-temporarily impaired. These factors include, but are not limited to, the type and purpose of the security, the underlying rating of the issuer, the presence of credit enhancements, the length of time a security has been in a loss position and the severity of the loss.
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
At
March 31, 2016
, gross unrealized losses totaled
$145,000
.
Fifteen
agency residential mortgage related securities, with a fair value of
$26.6 million
, had an unrealized loss position of
$141,000
for twelve months or longer as of
March 31, 2016
. Additionally,
four
agency residential mortgage related securities, with a fair value of
$3.9 million
and an unrealized loss position of
$4,000
, had unrealized loss positions for less than twelve months as of
March 31, 2016
. The fair value of these
nineteen
securities primarily fluctuates with changes in market conditions for the underlying securities and changes in the interest rate environment. The Company does not intend to sell the securities in an unrealized loss position and it is not more likely than not that it will be required to sell these securities before a recovery of fair value, which may be maturity. Upon review of the attributes of the individual securities, the Company concluded these securities were not other-than-temporarily impaired.
At
March 31, 2016
, the amortized cost of held-to-maturity investments consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
Cost
|
|
Unrealized Loss
at Transfer
|
|
Post-transfer
Accretion
|
|
Amortized
Cost
|
Securities transferred from available-for-sale
|
$
|
80,730
|
|
|
$
|
(1,625
|
)
|
|
$
|
(312
|
)
|
|
$
|
78,793
|
|
Other held-to-maturity securities
|
65,735
|
|
|
—
|
|
|
—
|
|
|
65,735
|
|
Total
|
$
|
146,465
|
|
|
$
|
(1,625
|
)
|
|
$
|
(312
|
)
|
|
$
|
144,528
|
|
The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at
March 31, 2016
and
December 31, 2015
by contractual maturity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2016
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
2,508
|
|
|
$
|
2,515
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
15,401
|
|
|
15,506
|
|
|
1,776
|
|
|
1,810
|
|
Due after five years through ten years
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Due after ten years
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total mortgage related securities
|
115,592
|
|
|
117,805
|
|
|
142,752
|
|
|
144,845
|
|
|
|
$
|
133,501
|
|
|
$
|
135,826
|
|
|
$
|
144,528
|
|
|
$
|
146,655
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
$
|
2,517
|
|
|
$
|
2,526
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due after one year through five years
|
15,409
|
|
|
15,314
|
|
|
1,776
|
|
|
1,765
|
|
Due after five years through ten years
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Due after ten years
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total mortgage related securities
|
121,195
|
|
|
121,911
|
|
|
148,414
|
|
|
148,085
|
|
|
|
$
|
139,121
|
|
|
$
|
139,751
|
|
|
$
|
150,190
|
|
|
$
|
149,850
|
|
Securities with a fair value of
$65.6 million
and
$48.7 million
at
March 31, 2016
and
December 31, 2015
, respectively, were pledged to secure public deposits.
Securities with a fair value of
$156.0 million
and
$161.7 million
at
March 31, 2016
and
December 31, 2015
, respectively, were used to secure FHLB advances, short-term borrowings, other borrowed funds and related unused borrowing capacities. See
Note 7
.
Securities with a fair value of
$1.6 million
and
$900,000
at
March 31, 2016
and
December 31, 2015
, respectively, were used to secure derivative transactions. See
Note 5
.
NOTE 4 - LOANS
The composition of net loans at
March 31, 2016
and
December 31, 2015
is provided below:
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
December 31,
2015
|
|
(In thousands)
|
|
(Unaudited)
|
|
|
Real estate loans:
|
|
|
|
|
|
One- to four-family
|
$
|
86,393
|
|
|
$
|
90,339
|
|
Multi-family and commercial
|
449,581
|
|
|
442,612
|
|
Construction
|
43,130
|
|
|
35,794
|
|
|
579,104
|
|
|
568,745
|
|
Consumer loans
|
13,906
|
|
|
14,711
|
|
Commercial and industrial loans
|
194,570
|
|
|
195,078
|
|
Total loans
|
787,580
|
|
|
778,534
|
|
Deferred loan origination fees, net
|
(341
|
)
|
|
(289
|
)
|
Allowance for loan losses
|
(10,570
|
)
|
|
(10,562
|
)
|
Net loans
|
$
|
776,669
|
|
|
$
|
767,683
|
|
The following tables present changes in the allowance for loan losses by loan segment for the
three
months ended
March 31, 2016
and the
three
months ended
March 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Unallocated
|
|
Total
|
|
(In thousands, Unaudited)
|
Balance, beginning
|
$
|
362
|
|
|
$
|
6,464
|
|
|
$
|
580
|
|
|
$
|
134
|
|
|
$
|
2,672
|
|
|
$
|
350
|
|
|
$
|
10,562
|
|
(Credit) provision for loan losses
|
(23
|
)
|
|
28
|
|
|
70
|
|
|
(12
|
)
|
|
108
|
|
|
(126
|
)
|
|
45
|
|
Loans charged off
|
—
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
Recoveries
|
—
|
|
|
7
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
17
|
|
Balance, ending
|
$
|
339
|
|
|
$
|
6,499
|
|
|
$
|
650
|
|
|
$
|
78
|
|
|
$
|
2,780
|
|
|
$
|
224
|
|
|
$
|
10,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Unallocated
|
|
Total
|
|
(In thousands, Unaudited)
|
Balance, beginning
|
$
|
405
|
|
|
$
|
5,990
|
|
|
$
|
1,038
|
|
|
$
|
184
|
|
|
$
|
2,753
|
|
|
$
|
360
|
|
|
$
|
10,730
|
|
Provision (credit) for loan losses
|
26
|
|
|
111
|
|
|
22
|
|
|
(47
|
)
|
|
349
|
|
|
11
|
|
|
472
|
|
Loans charged off
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44
|
)
|
Recoveries
|
—
|
|
|
3
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Balance, ending
|
$
|
387
|
|
|
$
|
6,104
|
|
|
$
|
1,060
|
|
|
$
|
154
|
|
|
$
|
3,102
|
|
|
$
|
371
|
|
|
$
|
11,178
|
|
NOTE 4 - LOANS (CONTINUED)
The following tables provide details of loans, and associated allowance for loan losses, which are individually or collectively evaluated for impairment as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Unallocated
|
|
Total
|
|
(In thousands, Unaudited)
|
Allowance for Loan Losses:
|
|
Balance, ending: individually evaluated for impairment
|
$
|
—
|
|
|
$
|
533
|
|
|
$
|
135
|
|
|
$
|
—
|
|
|
$
|
53
|
|
|
$
|
—
|
|
|
$
|
721
|
|
Balance, ending: collectively evaluated for impairment
|
339
|
|
|
5,966
|
|
|
515
|
|
|
78
|
|
|
2,727
|
|
|
224
|
|
|
9,849
|
|
Total
|
$
|
339
|
|
|
$
|
6,499
|
|
|
$
|
650
|
|
|
$
|
78
|
|
|
$
|
2,780
|
|
|
$
|
224
|
|
|
$
|
10,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending: individually evaluated for impairment
|
$
|
1,635
|
|
|
$
|
7,076
|
|
|
$
|
3,829
|
|
|
$
|
177
|
|
|
$
|
702
|
|
|
$
|
—
|
|
|
$
|
13,419
|
|
Balance, ending: collectively evaluated for impairment
|
84,758
|
|
|
442,505
|
|
|
39,301
|
|
|
13,729
|
|
|
193,868
|
|
|
—
|
|
|
774,161
|
|
Total
|
$
|
86,393
|
|
|
$
|
449,581
|
|
|
$
|
43,130
|
|
|
$
|
13,906
|
|
|
$
|
194,570
|
|
|
$
|
—
|
|
|
$
|
787,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Unallocated
|
|
Total
|
|
(In thousands)
|
Allowance for Loan Losses:
|
|
Balance, ending: individually evaluated for impairment
|
$
|
3
|
|
|
$
|
539
|
|
|
$
|
135
|
|
|
$
|
56
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
787
|
|
Balance, ending: collectively evaluated for impairment
|
359
|
|
|
5,925
|
|
|
445
|
|
|
78
|
|
|
2,618
|
|
|
350
|
|
|
9,775
|
|
Total
|
$
|
362
|
|
|
$
|
6,464
|
|
|
$
|
580
|
|
|
$
|
134
|
|
|
$
|
2,672
|
|
|
$
|
350
|
|
|
$
|
10,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending: individually evaluated for impairment
|
$
|
1,460
|
|
|
$
|
7,111
|
|
|
$
|
3,866
|
|
|
$
|
171
|
|
|
$
|
718
|
|
|
$
|
—
|
|
|
$
|
13,326
|
|
Balance, ending: collectively evaluated for impairment
|
88,879
|
|
|
435,501
|
|
|
31,928
|
|
|
14,540
|
|
|
194,360
|
|
|
—
|
|
|
765,208
|
|
Total
|
$
|
90,339
|
|
|
$
|
442,612
|
|
|
$
|
35,794
|
|
|
$
|
14,711
|
|
|
$
|
195,078
|
|
|
$
|
—
|
|
|
$
|
778,534
|
|
NOTE 4 - LOANS (CONTINUED)
The following tables set forth the breakdown of impaired loans by loan segment as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
Loans
|
|
Accruing
TDRs
|
|
Other
Impaired Loans
|
|
Total
Impaired Loans
|
|
Impaired Loans
with
Allowance
|
|
Impaired Loans
without
Allowance
|
|
(In thousands, Unaudited)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
$
|
759
|
|
|
$
|
876
|
|
|
$
|
—
|
|
|
$
|
1,635
|
|
|
$
|
—
|
|
|
$
|
1,635
|
|
Multi-family and commercial
|
1,066
|
|
|
1,685
|
|
|
4,325
|
|
|
7,076
|
|
|
6,305
|
|
|
771
|
|
Construction
|
—
|
|
|
3,829
|
|
|
—
|
|
|
3,829
|
|
|
3,829
|
|
|
—
|
|
Consumer loans
|
79
|
|
|
98
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
177
|
|
Commercial and industrial
|
702
|
|
|
—
|
|
|
—
|
|
|
702
|
|
|
702
|
|
|
—
|
|
Total
|
$
|
2,606
|
|
|
$
|
6,488
|
|
|
$
|
4,325
|
|
|
$
|
13,419
|
|
|
$
|
10,836
|
|
|
$
|
2,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
Loans
|
|
Accruing
TDRs
|
|
Other
Impaired Loans
|
|
Total
Impaired Loans
|
|
Impaired Loans
with
Allowance
|
|
Impaired Loans
without
Allowance
|
|
(In thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
$
|
583
|
|
|
$
|
877
|
|
|
$
|
—
|
|
|
$
|
1,460
|
|
|
$
|
117
|
|
|
$
|
1,343
|
|
Multi-family and commercial
|
1,074
|
|
|
1,685
|
|
|
4,352
|
|
|
7,111
|
|
|
6,340
|
|
|
771
|
|
Construction
|
—
|
|
|
3,866
|
|
|
—
|
|
|
3,866
|
|
|
3,866
|
|
|
—
|
|
Consumer loans
|
159
|
|
|
12
|
|
|
—
|
|
|
171
|
|
|
57
|
|
|
114
|
|
Commercial and industrial
|
718
|
|
|
—
|
|
|
—
|
|
|
718
|
|
|
718
|
|
|
—
|
|
Total
|
$
|
2,534
|
|
|
$
|
6,440
|
|
|
$
|
4,352
|
|
|
$
|
13,326
|
|
|
$
|
11,098
|
|
|
$
|
2,228
|
|
There were
no
loans past due 90 days or more and still accruing interest at
March 31, 2016
or
December 31, 2015
.
For the
three
months ended
March 31, 2016
and
2015
, the average recorded investment in impaired loans was
$13.6 million
and
$12.4 million
, respectively. The interest income recognized on these impaired loans was
$163,000
and
$141,000
for the
three
months ended
March 31, 2016
and
2015
, respectively.
At both
December 31, 2015
and
March 31, 2016
,
two
troubled debt restructurings ("TDRs") totaling
$1.1 million
are excluded from the accruing TDR column above as they are included in nonaccrual loans. Of this amount,
$1.0 million
relates to
one
multi-family and commercial real estate loan and
$93,000
relates to
one
residential loan.
NOTE 4 - LOANS (CONTINUED)
The following tables set forth the allowance for loan loss for impaired loans and general allowance by loan segment as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
Allowance for Loan Losses
|
|
Impaired Loans
|
|
|
|
|
|
|
|
Nonaccrual
Loans
|
|
Accruing
TDRs
|
|
Other
Impaired Loans
|
|
Total
Impaired Loans
|
|
|
|
|
|
|
|
|
|
General
|
|
Total
|
|
(In thousands, Unaudited)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
339
|
|
|
$
|
339
|
|
Multi-family and commercial
|
118
|
|
|
46
|
|
|
369
|
|
|
533
|
|
|
5,966
|
|
|
6,499
|
|
Construction
|
—
|
|
|
135
|
|
|
—
|
|
|
135
|
|
|
515
|
|
|
650
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
78
|
|
Commercial and industrial
|
53
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
2,727
|
|
|
2,780
|
|
Unallocated
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
224
|
|
|
224
|
|
Total allowance for loan losses
|
$
|
171
|
|
|
$
|
181
|
|
|
$
|
369
|
|
|
$
|
721
|
|
|
$
|
9,849
|
|
|
$
|
10,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Allowance for Loan Losses
|
|
Impaired Loans
|
|
|
|
|
|
|
|
Nonaccrual
Loans
|
|
Accruing
TDRs
|
|
Other
Impaired Loans
|
|
Total
Impaired Loans
|
|
|
|
|
|
|
|
|
|
General
|
|
Total
|
|
(In thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
359
|
|
|
$
|
362
|
|
Multi-family and commercial
|
119
|
|
|
46
|
|
|
374
|
|
|
539
|
|
|
5,925
|
|
|
6,464
|
|
Construction
|
—
|
|
|
135
|
|
|
—
|
|
|
135
|
|
|
445
|
|
|
580
|
|
Consumer loans
|
56
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
78
|
|
|
134
|
|
Commercial and industrial
|
54
|
|
|
—
|
|
|
—
|
|
|
54
|
|
|
2,618
|
|
|
2,672
|
|
Unallocated
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
350
|
|
|
350
|
|
Total allowance for loan losses
|
$
|
232
|
|
|
$
|
181
|
|
|
$
|
374
|
|
|
$
|
787
|
|
|
$
|
9,775
|
|
|
$
|
10,562
|
|
NOTE 4 - LOANS (CONTINUED)
The Company may, under certain circumstances, restructure loans as a concession to borrowers who have experienced financial difficulty, which results in a TDR. TDRs are impaired loans. TDRs typically result from the Company’s loss mitigation activities, which, among other activities, could include extension of maturity, rate reductions, delayed repayment or extension, and/or principal forgiveness.
The following table sets forth a summary of the TDR activity for the
three
month periods ended
March 31, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Restructured Current Period
|
|
Number
of Loans
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Type of
Modification
|
|
(Dollars in thousands, Unaudited)
|
Real estate loans:
|
|
|
|
|
|
|
|
One- to four-family
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Multi-family and commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Consumer loans
|
1
|
|
|
86
|
|
|
86
|
|
|
Delayed repayment
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total
|
1
|
|
|
$
|
86
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
Restructured Current Period
|
|
Number
of Loans
|
|
Pre-Modification
Outstanding
Recorded Investment
|
|
Post-Modification
Outstanding
Recorded Investment
|
|
Type of
Modification
|
|
(Dollars in thousands, Unaudited)
|
Real estate loans:
|
|
|
|
|
|
|
|
One- to four-family
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Multi-family and commercial
|
1
|
|
|
914
|
|
|
914
|
|
|
Delayed repayment
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Consumer loans
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total
|
1
|
|
|
$
|
914
|
|
|
$
|
914
|
|
|
|
During the
three
months ended
March 31, 2016
and
2015
,
no
TDRs defaulted that were restructured in the prior twelve months.
At
March 31, 2016
and
December 31, 2015
, the recorded investment of residential and consumer mortgage loans secured by residential real estate properties, for which formal foreclosure proceedings are in process, totaled
$277,000
and
$364,000
, respectively. At
March 31, 2016
and
December 31, 2015
, there were
three
foreclosed residential real estate properties, which were carried at
$106,000
and
$122,000
, respectively.
NOTE 4 - LOANS (CONTINUED)
The following table sets forth past due loans by segment as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
30-59
Days
Past Due
|
|
60-89
Days
Past Due
|
|
30-59
Days
Past Due
|
|
60-89
Days
Past Due
|
|
(In thousands)
|
|
(Unaudited)
|
|
|
|
|
One- to four-family real estate
|
$
|
286
|
|
|
$
|
—
|
|
|
$
|
865
|
|
|
$
|
685
|
|
Multi-family and commercial real estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Construction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
126
|
|
|
70
|
|
|
156
|
|
|
—
|
|
Commercial and industrial
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
412
|
|
|
$
|
70
|
|
|
$
|
1,021
|
|
|
$
|
685
|
|
We use
six
primary classifications for loans: pass, pass watch, special mention, substandard, doubtful and loss, of which
three
classifications are for problem loans: substandard, doubtful and loss. "Substandard loans" must have
one
or more well defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. "Doubtful loans" have the weaknesses of substandard loans 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. A loan classified "loss" is considered uncollectible and of such little value that continuance as a loan of the institution is not warranted. We also maintain a "special mention" category, described as loans 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. If we classify an asset as loss, it is recorded as a loan charged off in the current period.
The following tables set forth criticized and classified loans by segment as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Total
|
|
(In thousands, Unaudited)
|
Pass and Pass watch
|
$
|
85,634
|
|
|
$
|
433,186
|
|
|
$
|
39,301
|
|
|
$
|
13,827
|
|
|
$
|
190,528
|
|
|
$
|
762,476
|
|
Special mention
|
—
|
|
|
14,376
|
|
|
—
|
|
|
—
|
|
|
2,295
|
|
|
16,671
|
|
Substandard
|
759
|
|
|
2,019
|
|
|
3,829
|
|
|
79
|
|
|
1,747
|
|
|
8,433
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans
|
$
|
86,393
|
|
|
$
|
449,581
|
|
|
$
|
43,130
|
|
|
$
|
13,906
|
|
|
$
|
194,570
|
|
|
$
|
787,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
One- to
Four-Family
|
|
Multi-family
and
Commercial
|
|
Construction
|
|
Consumer
|
|
Commercial
and
Industrial
|
|
Total
|
|
(In thousands)
|
Pass and Pass watch
|
$
|
89,756
|
|
|
$
|
427,393
|
|
|
$
|
31,927
|
|
|
$
|
14,552
|
|
|
$
|
191,496
|
|
|
$
|
755,124
|
|
Special mention
|
—
|
|
|
13,958
|
|
|
—
|
|
|
—
|
|
|
1,799
|
|
|
15,757
|
|
Substandard
|
583
|
|
|
1,261
|
|
|
3,867
|
|
|
159
|
|
|
1,783
|
|
|
7,653
|
|
Doubtful
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans
|
$
|
90,339
|
|
|
$
|
442,612
|
|
|
$
|
35,794
|
|
|
$
|
14,711
|
|
|
$
|
195,078
|
|
|
$
|
778,534
|
|
NOTE 5 - DERIVATIVES AND HEDGING
Interest Rate Swaps
On November 3, 2006, the Company entered into an interest rate swap with a current notional amount of
$691,000
, which is used to hedge a
15
-year fixed rate loan that is earning interest at
7.43%
. The Company is receiving variable rate payments of
1-month LIBOR
plus 224 basis points and is paying fixed rate payments of
7.43%
. The swap matures in April 2022 and had a fair value loss position of
$97,000
and
$92,000
at
March 31, 2016
and
December 31, 2015
, respectively. The interest rate swap is carried at fair value in accordance with FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."
On October 12, 2011, the Company entered into an interest rate swap with a current notional amount of
$1.5 million
, which is used to hedge a
10
-year fixed rate loan that is earning interest at
5.83%
. The Company is receiving variable rate payments of
1-month LIBOR
plus 350 basis points and is paying fixed rate payments of
5.83%
. The Company designated this relationship as a fair value hedge. The swap matures in October 2021 and had a fair value loss position of
$92,000
and
$56,000
at
March 31, 2016
and
December 31, 2015
, respectively. The difference between changes in the fair values of the interest rate swap agreement and the hedged loan represents hedge ineffectiveness and is recorded in other non-interest income in the consolidated statements of operations. Hedge ineffectiveness resulted in expense of
$1,000
and
$3,000
for the
three
months ended
March 31, 2016
and
March 31, 2015
, respectively.
Credit Derivatives
We have entered into agreements with a third-party financial institution whereby the financial institution enters into interest rate derivative contracts and foreign currency swap contracts with customers referred to them by us. By the terms of the agreements, the financial institution has recourse to the Company for any exposure created under each swap contract in the event the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary arrangement that allows financial institutions like ours to provide access to interest rate and foreign currency swap transactions for our customers without creating the swap ourselves. The Company records the fair value of credit derivatives in other liabilities on the consolidated statement of condition. The Company recognizes changes in the fair value of credit derivatives, net of any fees received, as service charges and other fee income in the consolidated statements of operations.
At
March 31, 2016
, there were
four
variable-rate to fixed-rate interest rate swap transactions between the third-party financial institution and our customers with a notional amount of
$12.1 million
, and remaining maturities ranging from
three
to
seven
years. At
December 31, 2015
, there were
four
variable-rate to fixed-rate interest swap transactions between the third-party financial institution and our customers with a notional amount of
$12.2 million
, and remaining maturities ranging from
four
to
seven
years. The fair value of the swaps to the customers was a liability of
$360,000
and
$53,000
as of
March 31, 2016
and
December 31, 2015
, respectively, and all swaps were in paying positions to the third-party financial institution at
March 31, 2016
. As of
March 31, 2016
and
December 31, 2015
, the fair value of the Company’s interest rate swap credit derivatives was a liability of
$8,000
and
$6,000
, respectively. During the
three
months ended
March 31, 2016
and
2015
, the Company recognized (expense) income of
($2,000)
and
$3,000
, respectively, from interest rate swap credit derivatives.
At
March 31, 2016
and
December 31, 2015
, there were
no
foreign currency swap transactions between the third-party financial institution and our customers. During the
three
months ended
March 31, 2016
and
2015
, the Company recognized income of
$0
and
$2,000
, respectively, from foreign currency swap credit derivatives.
The maximum potential payments by the Company to the financial institution under these credit derivatives are not estimable as they are contingent on future interest rates and exchange rates, and the agreement does not provide for a limitation of the maximum potential payment amount.
NOTE 6 - DEPOSITS
Deposits and their respective weighted average interest rate at
March 31, 2016
and
December 31, 2015
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Weighted
Average
Interest Rate
|
|
Amount
|
|
Weighted
Average
Interest Rate
|
|
Amount
|
|
(Dollars in thousands)
|
|
(Unaudited)
|
|
|
|
|
Noninterest-bearing demand accounts
|
—
|
%
|
|
$
|
225,083
|
|
|
—
|
%
|
|
$
|
170,327
|
|
NOW accounts
|
0.20
|
|
|
98,019
|
|
|
0.20
|
|
|
97,838
|
|
Money market accounts
|
0.26
|
|
|
105,184
|
|
|
0.28
|
|
|
93,325
|
|
Savings and club accounts
|
0.45
|
|
|
145,110
|
|
|
0.45
|
|
|
142,966
|
|
Brokered deposits
|
0.91
|
|
|
52,378
|
|
|
0.76
|
|
|
78,481
|
|
Certificates of deposit
|
0.86
|
|
|
189,934
|
|
|
0.88
|
|
|
182,037
|
|
|
0.40
|
%
|
|
$
|
815,708
|
|
|
0.43
|
%
|
|
$
|
764,974
|
|
NOTE 7 - BORROWINGS
FHLB Advances
Pursuant to collateral agreements with the FHLB of Pittsburgh, advances are secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB.
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity Date
|
|
Amount
|
|
Coupon Rate
|
|
Call Date
|
|
Rate if Called
|
|
|
(In thousands, Unaudited)
|
|
|
|
|
|
|
September 2016
|
|
$
|
5,000
|
|
|
0.75
|
%
|
|
Not Applicable
|
|
Not Applicable
|
September 2016
|
|
10,000
|
|
|
1.04
|
|
|
Not Applicable
|
|
Not Applicable
|
June 2017
|
|
5,000
|
|
|
0.94
|
|
|
Not Applicable
|
|
Not Applicable
|
July 2017
|
|
10,000
|
|
|
0.92
|
|
|
Not Applicable
|
|
Not Applicable
|
November 2017
|
|
15,000
|
|
|
3.62
|
|
|
May 2016
|
|
3-month LIBOR + 0.10%
|
November 2017
|
|
15,000
|
|
|
3.87
|
|
|
May 2016
|
|
3-month LIBOR + 0.10%
|
December 2017
|
|
20,000
|
|
|
2.83
|
|
|
June 2016
|
|
3-month LIBOR + 0.11%
|
July 2018
|
|
10,000
|
|
|
1.32
|
|
|
Not Applicable
|
|
Not Applicable
|
|
|
$
|
90,000
|
|
|
2.34
|
%
|
|
|
|
|
For the borrowings which have a "Call Date" disclosed in the above table, if the borrowing is called, the Bank has the option to either pay off the borrowing without penalty or the borrowings' fixed rate resets to a variable 3-month LIBOR based rate, as noted in the above table. Subsequent to the call date, the borrowings are callable by the FHLB quarterly. Accordingly, the contractual maturities above may differ from actual maturities.
The Bank had a maximum borrowing capacity with the FHLB of Pittsburgh of approximately
$496.1 million
at
March 31, 2016
. As of
March 31, 2016
, the Bank had qualifying collateral pledged against its advances consisting of loans in the amount of
$632.0 million
and securities in the amount of
$63.7 million
. Additionally, as of
March 31, 2016
, the Bank had a maximum borrowing capacity of
$57.6 million
with the Federal Reserve Bank of Philadelphia through the Discount Window. This borrowing capacity was generated by pledged securities with a fair value of
$58.4 million
.
As a member of the FHLB of Pittsburgh, the Bank is required to acquire and hold shares of FHLB of Pittsburgh capital stock. The FHLB stock holding requirement is based on a percentage of the Bank's borrowings and a percentage of the Bank's "eligible assets" as defined by the FHLB. Percentages of borrowings and "eligible assets" used to determine the stock holding requirement are set by the FHLB from a defined range. Maximum percentages are
6.00%
of its advances plus
1.00%
of the Bank’s "eligible assets." Minimum percentages are
2.00%
of its advances plus
0.05%
of "eligible assets." Current percentages are
4.00%
of advances plus
0.10%
of "eligible assets." As of
March 31, 2016
, the Company had a minimum stock obligation of
$2.2 million
and a maximum stock obligation of
$11.6 million
. The Company held
$6.2 million
in FHLB stock at that date.
NOTE 7 - BORROWINGS (CONTINUED)
Other Borrowed Funds
Other borrowed funds obtained from other commercial banks under security repurchase agreements totaled
$30.0 million
at
March 31, 2016
. These borrowings contractually mature with dates ranging from October 2018 through November 2020. As disclosed in the table below, one of the borrowings may be called by the lender based on the underlying agreement. Accordingly, the contractual maturity below may differ from actual maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next Call Date
|
|
Subsequent Call Frequency
|
Maturity Date
|
|
Amount
|
|
Coupon Rate
|
|
|
|
|
(In thousands, Unaudited)
|
|
|
|
|
|
|
October 2018
|
|
$
|
5,000
|
|
|
3.15%
|
|
April 2016
|
|
Quarterly
|
December 2018
|
|
5,000
|
|
|
1-month LIBOR + 2.03%
|
|
Not Applicable
|
|
Not Applicable
|
September 2019
|
|
10,000
|
|
|
1-month LIBOR + 1.89%
|
|
Not Applicable
|
|
Not Applicable
|
September 2020
|
|
5,000
|
|
|
1-month LIBOR + 1.56%
|
|
Not Applicable
|
|
Not Applicable
|
November 2020
|
|
5,000
|
|
|
1-month LIBOR + 1.58%
|
|
Not Applicable
|
|
Not Applicable
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
Mortgage backed securities with a fair value of
$33.9 million
at
March 31, 2016
were used to secure these other borrowed funds. Changes in the fair value of pledged collateral may require the Company to pledge additional securities.
Short-term Borrowings
Short-term borrowings consist of overnight borrowings plus term borrowings with an original maturity of less than one year. Short-term borrowings are obtained from commercial banks, participants in the Federal Funds market and the FHLB. As of
March 31, 2016
, the Company had
$15.0 million
of overnight borrowings with a weighted average rate of
0.52%
. As of
December 31, 2015
, the Company had
$38.5 million
of overnight borrowings with a weighted average rate of
0.43%
.
NOTE 8 - STOCK BASED COMPENSATION
During the
three
months ended
March 31, 2016
, the Company recorded
$349,000
of stock based compensation expense comprised of stock option expense of
$115,000
and restricted stock expense of
$234,000
. This compares to
$310,000
of stock based compensation expense for the
three
months ended
March 31, 2015
comprised of stock option expense of
$112,000
and restricted stock expense of
$198,000
.
The following is a summary of the Bancorp’s stock option activity and related information for the
three
months ended
March 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
|
(Unaudited)
|
Outstanding at December 31, 2015
|
715,554
|
|
|
$
|
14.45
|
|
|
6.1 years
|
|
$
|
4,182,000
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited/Cancelled
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
715,554
|
|
|
$
|
14.45
|
|
|
5.9 years
|
|
$
|
3,488,000
|
|
Exercisable at March 31, 2016
|
428,292
|
|
|
$
|
13.40
|
|
|
4.8 years
|
|
$
|
2,537,000
|
|
NOTE 8 - STOCK BASED COMPENSATION (CONTINUED)
The following is a summary of the Bancorp’s unvested options as of
March 31, 2016
and the changes therein during the
three
months then ended.
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
(Unaudited)
|
Unvested at December 31, 2015
|
366,362
|
|
|
$
|
3.68
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
(79,100
|
)
|
|
3.88
|
|
Forfeited / Cancelled
|
—
|
|
|
—
|
|
Unvested at March 31, 2016
|
287,262
|
|
|
$
|
3.63
|
|
Expected future expense relating to the
287,262
non-vested options outstanding as of
March 31, 2016
is
$900,000
over a weighted average period of
2.6 years
.
The following is a summary of the status of the Bancorp’s restricted stock as of
March 31, 2016
and changes therein during the
three
months then ended.
|
|
|
|
|
|
|
|
|
|
|
Number of
Restricted Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
(Unaudited)
|
Unvested at December 31, 2015
|
177,073
|
|
|
$
|
16.04
|
|
Granted
|
18,608
|
|
|
17.00
|
|
Vested
|
(54,397
|
)
|
|
16.79
|
|
Forfeited / Cancelled
|
—
|
|
|
—
|
|
Unvested at March 31, 2016
|
141,284
|
|
|
$
|
15.87
|
|
Expected future compensation expense relating to the
141,284
restricted shares at
March 31, 2016
is
$1.9 million
over a weighted average period of
2.4 years
.
Performance-based restricted shares granted in 2013, as discussed in the following paragraph, vest over a
five
-year period based on continued service with the Bank and the achievement of performance metrics. The performance metrics to be evaluated during the performance period are (1) return on assets, actual and growth rate, compared to a predetermined peer group and (2) earnings per share growth rate compared to peer group ("performance criteria"). Each performance metric has a
50%
weight. On the third anniversary of the grant date ("measurement date"), the Company's level of performance relative to the performance criteria are evaluated and the number of shares that will vest at that time and over the following two years will be determined. The number of shares eligible to vest is variable and can range from
0%
to
150%
of the shares identified on the grant date (the "target shares"). Of the shares that will vest,
50%
of the shares vest on the measurement date and
25%
vest on each of the fourth and fifth anniversaries of the date of grant.
During March 2013, the Company granted performance-based restricted stock to certain executive officers of the Company, of which
39,250
shares remained outstanding at the measurement date. During March 2016, the Company awarded an additional
18,608
shares of performance-based restricted stock, which represented additional shares owed to participants under the March 2013 grant as the Company exceeded the performance targets under the 2013 award. This represented a total grant of
147.4%
of the "target shares." The
57,858
shares had a grant date fair value of
$17.00
.
During 2015, the Company granted
8,840
shares of performance-based restricted stock to certain executive officers of the Company. Performance-based restricted shares granted in 2015 utilize similar performance criteria and measurement date as outlined above for the 2012 and 2013 performance based grants. However, the 2015 awards vest
50%
at measurement date and
50%
on the fourth anniversary of the date of the grant. For the purposes of the above table, the Company is assuming 100% of the "target shares" will be awarded. However, more or less shares may actually be awarded based on the performance of the Company at the applicable measurement date, which is March 13, 2018.
NOTE 9 - FAIR VALUE
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of the respective quarter ends, and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each reporting date.
The Company determines the fair value of financial instruments using three levels of input:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2—Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, 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—Valuations are derived from unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at
March 31, 2016
and
December 31, 2015
:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate their fair value.
Investment Securities—Available-for-Sale and Held-to-Maturity
Fair values for investment securities are obtained from
one
external pricing service ("primary pricing service") as the provider of pricing on the investment portfolio on a quarterly basis. We generally obtain
one
quote per investment security. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. If quoted market prices are not available for comparable securities, fair value is based on quoted bids for the security or comparable securities. The Company made
no
adjustments to the values obtained from the primary pricing service.
Loans Receivable, Net
To determine the fair values of loans that are not impaired, we employ discounted cash flow analyses that use interest rates and terms similar to those currently being offered to borrowers. We record fair value adjustments to impaired loans on a nonrecurring basis to reflect full and partial charge-offs due to impairment. For impaired loans, we use a variety of techniques to measure fair value, such as using the current appraised value of the collateral, agreements of sale, discounting the contractual cash flows, and analyzing market data that we may adjust due to specific characteristics of the loan or collateral. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
FHLB Stock
It is not practical to determine the fair value of FHLB stock due to restriction placed on its transferability.
Mortgage Servicing Rights
The fair value of the mortgage servicing rights ("MSRs") was determined using a valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.
NOTE 9 - FAIR VALUE (CONTINUED)
Deposit Liabilities
Fair values for demand deposits (including NOW accounts), savings and club accounts and money market deposits are, by definition, equal to the amount payable on demand at the reporting date. Fair values of fixed-maturity certificates of deposit, including brokered deposits, are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar instruments with similar maturities.
Short-term Borrowings, FHLB Advances and Other Borrowed Funds
Fair values of short-term borrowings, FHLB advances and other borrowed funds are estimated using discounted cash flow analyses, based on rates currently available to the Bank for advances with similar terms and remaining maturities.
Derivative Contracts
The fair values of derivative contracts are based upon the estimated amount the Company would receive or pay to terminate the contracts or agreements, taking into account underlying interest rates, creditworthiness of underlying customers for credit derivatives and, when appropriate, the creditworthiness of the counterparties.
The estimated fair values of the Company’s financial instruments at
March 31, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
Fair Value
Hierarchy
Level
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
Carrying
Amount
|
|
Estimated
Fair
Value
|
|
|
|
(In thousands)
|
Financial assets:
|
|
|
(Unaudited)
|
|
|
|
|
Cash and cash equivalents
|
Level 1
|
|
$
|
9,112
|
|
|
$
|
9,112
|
|
|
$
|
7,798
|
|
|
$
|
7,798
|
|
Investment securities available-for-sale
|
Level 2
|
|
135,826
|
|
|
135,826
|
|
|
139,751
|
|
|
139,751
|
|
Investment securities held-to-maturity
|
Level 2
|
|
144,528
|
|
|
146,655
|
|
|
150,190
|
|
|
149,850
|
|
Loans receivable, net
|
Level 3
|
|
776,669
|
|
|
779,947
|
|
|
767,683
|
|
|
768,516
|
|
FHLB stock
|
NA
|
|
6,186
|
|
|
NA
|
|
|
6,734
|
|
|
NA
|
|
Accrued interest receivable
|
Level 2, 3
|
|
3,348
|
|
|
3,348
|
|
|
3,145
|
|
|
3,145
|
|
Mortgage servicing rights
|
Level 3
|
|
97
|
|
|
97
|
|
|
104
|
|
|
104
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and club accounts
|
Level 2
|
|
145,110
|
|
|
145,110
|
|
|
142,966
|
|
|
142,966
|
|
Demand, NOW and money market deposits
|
Level 2
|
|
428,286
|
|
|
428,286
|
|
|
361,490
|
|
|
361,490
|
|
Brokered deposits
|
Level 2
|
|
52,378
|
|
|
52,377
|
|
|
78,481
|
|
|
78,219
|
|
Certificates of deposit
|
Level 2
|
|
189,934
|
|
|
189,921
|
|
|
182,037
|
|
|
181,422
|
|
Short-term borrowings
|
Level 2
|
|
15,000
|
|
|
15,000
|
|
|
38,496
|
|
|
38,496
|
|
FHLB advances
|
Level 2
|
|
90,000
|
|
|
92,012
|
|
|
110,000
|
|
|
111,985
|
|
Other borrowed funds
|
Level 2
|
|
30,000
|
|
|
31,604
|
|
|
30,000
|
|
|
31,692
|
|
Accrued interest payable
|
Level 2
|
|
302
|
|
|
302
|
|
|
319
|
|
|
319
|
|
Derivative contracts
|
Level 2, 3
|
|
197
|
|
|
197
|
|
|
154
|
|
|
154
|
|
The following financial instruments were classified as Level 3 and carried at fair value on a recurring basis as of the dates indicated below:
|
|
•
|
Two
commercial loans, since lending credit risk is not an observable input for these loans (see interest rate swap discussion in
Note 5
). The unrealized gain on the two loans was
$177,000
at
March 31, 2016
compared to
$137,000
at
December 31, 2015
.
|
|
|
•
|
Credit derivatives are valued based on creditworthiness of the underlying borrower which is a significant unobservable input. The liability resulting from credit derivatives was
$8,000
and
$6,000
at
March 31, 2016
and
December 31, 2015
, respectively.
|
NOTE 9 - FAIR VALUE (CONTINUED)
The following measures were made on a recurring basis as of
March 31, 2016
and
December 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices in Active Markets
for Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant Other
Unobservable Inputs
|
|
|
As of
|
|
|
|
Description
|
|
March 31, 2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In thousands, Unaudited)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
|
$
|
306
|
|
|
$
|
—
|
|
|
$
|
306
|
|
|
$
|
—
|
|
Corporate securities
|
|
17,715
|
|
|
—
|
|
|
17,715
|
|
|
—
|
|
Agency residential mortgage related securities
|
|
117,805
|
|
|
—
|
|
|
117,805
|
|
|
—
|
|
Loans
(1)
|
|
2,324
|
|
|
—
|
|
|
—
|
|
|
2,324
|
|
Derivative contracts
(1)
|
|
(197
|
)
|
|
—
|
|
|
(189
|
)
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices in Active Markets
for Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant Other
Unobservable Inputs
|
|
|
As of
|
|
|
|
Description
|
|
December 31, 2015
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
(In thousands)
|
Available-for-Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of U.S. government agencies
|
|
$
|
299
|
|
|
$
|
—
|
|
|
$
|
299
|
|
|
$
|
—
|
|
Corporate securities
|
|
17,541
|
|
|
—
|
|
|
17,541
|
|
|
—
|
|
Agency residential mortgage related securities
|
|
121,911
|
|
|
—
|
|
|
121,911
|
|
|
—
|
|
Loans
(1)
|
|
2,315
|
|
|
—
|
|
|
—
|
|
|
2,315
|
|
Derivative contracts
(1)
|
|
(154
|
)
|
|
—
|
|
|
(148
|
)
|
|
(6
|
)
|
(1) Such financial instruments are recorded at fair value as further described in
Note 5
.
The following measures were made on a non-recurring basis as of
March 31, 2016
and
December 31, 2015
:
Loans, which were partially charged off at
March 31, 2016
and
December 31, 2015
. The loans’ fair values are based on Level 3 inputs, which are either an appraised value or a sales agreement, less costs to sell. These amounts do not include fully charged-off loans, because we carry fully charged-off loans at
zero
on our balance sheet.
MSRs, the fair value of which was determined using a valuation model that calculates the present value of estimated future servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds and discount rates.
Other real estate owned, for which we used Level 3 inputs, which consist of appraisals, agreements of sale or letters of intent.
NOTE 9 - FAIR VALUE (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices in Active Markets
for Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant Other
Unobservable Inputs
|
|
|
|
|
|
|
|
|
Balance
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
March 31, 2016
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
|
Loans
|
$
|
1,113
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,113
|
|
Mortgage servicing rights
|
97
|
|
|
—
|
|
|
—
|
|
|
97
|
|
Other real estate owned
|
2,615
|
|
|
—
|
|
|
—
|
|
|
2,615
|
|
Total
|
$
|
3,825
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,825
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
$
|
1,239
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,239
|
|
Mortgage servicing rights
|
104
|
|
|
—
|
|
|
—
|
|
|
104
|
|
Other real estate owned
|
2,623
|
|
|
—
|
|
|
—
|
|
|
2,623
|
|
Total
|
$
|
3,966
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,966
|
|
The following tables include a roll forward of the financial instruments which fair value is determined on a recurring basis using Significant Other Unobservable Inputs (Level 3) for the periods from
December 31, 2015
to
March 31, 2016
and
December 31, 2014
to
March 31, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
Derivative
Contracts
|
|
Loans
|
|
Total
|
|
|
|
Beginning balance, December 31, 2015
|
$
|
(6
|
)
|
|
$
|
2,315
|
|
|
$
|
2,309
|
|
Purchases/additions
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
Payments received
|
—
|
|
|
(31
|
)
|
|
(31
|
)
|
Premium amortization, net
|
—
|
|
|
—
|
|
|
—
|
|
(Decrease) increase in value
|
(2
|
)
|
|
40
|
|
|
38
|
|
Ending balance, March 31, 2016
|
$
|
(8
|
)
|
|
$
|
2,324
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
|
|
|
|
Derivative
Contracts
|
|
Loans
|
|
Total
|
|
|
|
Beginning balance, December 31, 2014
|
$
|
(12
|
)
|
|
$
|
2,451
|
|
|
$
|
2,439
|
|
Purchases/additions
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
Payments received
|
—
|
|
|
(30
|
)
|
|
(30
|
)
|
Premium amortization, net
|
—
|
|
|
—
|
|
|
—
|
|
Increase in value
|
5
|
|
|
20
|
|
|
25
|
|
Ending balance, March 31, 2015
|
$
|
(8
|
)
|
|
$
|
2,441
|
|
|
$
|
2,433
|
|
There were
no
transfers made between levels during the
three
months ended
March 31, 2016
or
2015
.
NOTE 10 – NEW ACCOUNTING PRONOUNCEMENTS
Accounting Standards Update (ASU) No. 2016-01 Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
This new guidance requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this update also require an entity to present separately in other comprehensive income 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. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
ASU No. 2016-02 - Leases (Topic 842).
This new guidance requires lessees to recognize assets and liabilities related to certain operating leases on the balance sheet. The new guidance also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2018 and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
ASU No. 2016-06 - Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force).
This new guidance requires embedded derivatives to be separated from the host contract and accounted for separately as derivatives if certain criteria are met, including the “clearly and closely related” criterion. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2016 and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
ASU No. 2016-09 - Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
This new guidance eliminates the APIC pool for excess tax benefits and requires that all excess tax benefits and tax deficiencies be recognized as an income tax benefit or expense in the income statement. All excess tax benefits and deficiencies are to be recognized in the period they are deducted on the income tax return. They shall not be anticipated when determining the annual estimated effective tax rate. Instead, they are discrete items in the reporting period in which they occur. With regards to forfeitures, entities can elect to continue to apply current U.S. GAAP or to reverse compensation cost of forfeited awards when they occur. With regards to tax withholdings and award classification, entities can withhold up to the maximum individual statutory tax rate in the applicable jurisdiction and classify the entire award as equity. For the Company, this guidance is effective for fiscal years and interim periods beginning after December 31, 2016 and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.