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EX-31.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF THE PARENT CORPORATION - ConnectOne Bancorp, Inc.connectone3113821_4-ex312.htm
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF THE PARENT CORPORATION - ConnectOne Bancorp, Inc.connectone3113821_4-ex322.htm
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF THE PARENT CORPORATION - ConnectOne Bancorp, Inc.connectone3113821_4-ex321.htm
EX-31.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF THE PARENT CORPORATION - ConnectOne Bancorp, Inc.connectone3113821_4-ex311.htm

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

FORM 10-Q

(Mark One)
 
      x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      

For the Quarterly Period Ended June 30, 2016

OR

   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 000-11486

CONNECTONE BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)

New Jersey       52-1273725
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)

301 Sylvan Avenue
Englewood Cliffs, New Jersey 07632
(Address of Principal Executive Offices) (Zip Code)

201-816-8900
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

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

       Large accelerated filer  o        Accelerated filer  x        Non-accelerated filer  o        Smaller reporting company  o
      (Do not check if smaller    
reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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

Common Stock, no par value: 30,197,318 shares
(Title of Class) (Outstanding as of August 5, 2016)



Table of Contents

Page
PART I – FINANCIAL INFORMATION
 
Item 1.       Financial Statements
  Consolidated Statements of Condition at June 30, 2016 (unaudited) and December 31, 2015 3
Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015 (unaudited) 4
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015
(unaudited)
5
Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2016 (unaudited) and
for the six months ended June 30, 2015
6
Consolidated Statements of Cash Flows for the sixth months ended June 30, 2016 and 2015 (unaudited) 7
Notes to Consolidated Financial Statements 8
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
 
Item 3. Qualitative and Quantitative Disclosures about Market Risks 57
 
Item 4. Controls and Procedures 58
 
PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings 59
 
Item 1a. Risk Factors 59
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 60
 
Item 3. Defaults Upon Senior Securities 60
 
Item 4. Mine Safety Disclosures 60
 
Item 5. Other Information 60
 
Item 6. Exhibits 61
 
SIGNATURES

2



Item 1. Financial Statements

CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION

June 30,     December 31,
(in thousands, except for share data) 2016 2015
  (unaudited)
ASSETS
Cash and due from banks $     35,850 $      31,291
Interest-bearing deposits with banks 139,263 169,604
       Cash and cash equivalents 175,113 200,895
 
Investment securities:
       Available-for-sale 208,266 195,770
       Held-to-maturity (fair value of $227,427 and $230,558) 214,718 224,056  
 
Loans held-for-sale 360 -
 
Loans receivable 3,375,620 3,099,007
Less: Allowance for loan and lease losses 32,763 26,572
       Net loans receivable 3,342,857 3,072,435
 
Investment in restricted stock, at cost 25,210 32,612
Bank premises and equipment, net 22,477 22,333
Accrued interest receivable 12,726 12,545
Bank-owned life insurance 80,028 78,801
Other real estate owned 2,029 2,549
Goodwill 145,909   145,909
Core deposit intangibles 3,474 3,908
Other assets 29,747 24,096
       Total assets $ 4,262,914 $ 4,015,909
LIABILITIES
Deposits:
       Noninterest-bearing $ 648,664 $ 650,775
       Interest-bearing 2,552,329 2,140,191
              Total deposits 3,200,993 2,790,966
Borrowings 496,414 671,587
Subordinated debentures (net of $714 and $812 in debt issuance costs) 54,441 54,343
Other liabilities 26,652 21,669
       Total liabilities 3,778,500 3,538,565
 
COMMITMENTS AND CONTINGENCIES
 
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued and
       outstanding 11,250 shares of Series B preferred stock at December 31, 2015; total liquidation
       value of $11,250 at December 31, 2015 - 11,250
Common stock, no par value, authorized 50,000,000 shares; issued 32,261,240 shares at
       June 30, 2016 and 32,149,585 at December 31, 2015; outstanding 30,197,318 shares at
       June 30, 2016 and 30,085,663 at December 31, 2015 374,287 374,287
Additional paid-in capital 9,864 8,527
Retained earnings 121,301 104,606
Treasury stock, at cost (2,063,922 common shares at June 30, 2016 and December 31, 2015) (16,717 ) (16,717 )
Accumulated other comprehensive loss (4,321 ) (4,609 )
       Total stockholders’ equity 484,414 477,344
       Total liabilities and stockholders’ equity $ 4,262,914 $ 4,015,909

See accompanying notes to unaudited consolidated financial statements.

3



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except for share and per share data) 2016     2015     2016     2015
Interest income
Interest and fees on loans $      36,561 $      30,217 $      71,578 $      59,531
Interest and dividends on investment securities:
              Taxable 1,965 2,760   4,105   5,671
              Tax-exempt 996 883 1,879 1,765
              Dividends 370 280 722 500
Interest on federal funds sold and other short-term investments 146 41 280 84
       Total interest income   40,038 34,181 78,564 67,551
Interest expense
Deposits 4,434 3,301 8,373 6,325
Borrowings 3,210 2,202 6,477 4,256
       Total interest expense 7,644 5,503 14,850 10,581
Net interest income 32,394 28,678 63,714 56,970
Provision for loan and lease losses 3,750   1,550 6,750 3,375
Net interest income after provision for loan and lease losses 28,644 27,128 56,964 53,595
Noninterest income    
Annuities and insurance commissions 32 46 72 133
Bank-owned life insurance 616 388 1,228 774
Net gains on sale of loans held for sale 56 99 92 213
Deposit, loan and other income 763 458 1,277 921
Insurance recovery - 2,224 - 2,224
Net gains on sales of investment securities 103 221 103 726
       Total noninterest income 1,570 3,436 2,772 4,991
Noninterest expenses
Salaries and employee benefits 7,753 6,948 15,353 13,575
Occupancy and equipment 2,154 1,788 4,401 3,869
FDIC insurance 615 440 1,210 1,000
Professional and consulting 700 715 1,412 1,209
Marketing and advertising 250 193 523 387
Data processing 1,010 829 2,033 1,729
Loss on extinguishment of debt - 2,397 - 2,397
Amortization of core deposit intangible 217 241 434 483
Other expenses 1,653 1,423 3,339 2,955
       Total noninterest expenses 14,352 14,974 28,705 27,604
Income before income tax expense 15,862 15,590 31,031 30,982
Income tax expense 5,003 5,069 9,781 10,081
Net income 10,859 10,521 21,250 20,901
Less: Preferred stock dividends - 28 22 56
Net income available to common stockholders $ 10,859 $ 10,493 $ 21,228 $ 20,845
Earnings per common share:
       Basic $ 0.36 $ 0.35 $ 0.71 $ 0.70
       Diluted 0.36 0.35 0.70 0.69
Weighted average common shares outstanding:
       Basic 30,089,829 29,868,247 30,071,278 29,812,521
       Diluted 30,340,376 30,231,480 30,331,172 30,203,682
Dividend per common share $ 0.075 $ 0.075 $ 0.150 $ 0.150

See accompanying notes to unaudited consolidated financial statements.

4



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2016       2015 2016 2015
Net income $      10,859 $      10,521       $      21,250       $      20,901
Other comprehensive income:  
Unrealized gains and losses:
       Unrealized holding gains (losses) on available-for-sale securities
              arising during the period 1,179 (2,811 ) 2,074 (1,304 )
       Tax effect (464 ) 1,119 (821 ) 524  
              Net of tax 715 (1,692 ) 1,253 (780 )
       Reclassification adjustment for realized gains included in net  
              income (103 ) (221 ) (103 ) (726 )
       Tax effect 42 90 42 297
              Net of tax (61 ) (131 ) (61 ) (429 )
       Amortization of unrealized net losses on held-to-maturity
              securities transferred from available-for-sale securities 44 63 96 128
       Tax effect (18 ) (27 ) (39 )   (52 )
              Net of tax 26 36 57 76
  
       Unrealized gains (losses) on cash flow hedges (289 ) 236 (1,725 ) (298 )
       Tax effect 118 (96 ) 704 122
              Net of tax (171 ) 140 (1,021 ) (176 )
       Unrealized pension plan gains and losses:
              Unrealized pension plan (losses) gains before reclassifications - 153 (1 ) 787
              Tax effect - (63 ) - (321 )
                     Net of tax -   90 (1 ) 466
              Reclassification adjustment for realized losses included in net
                     income - 108 102 216
              Tax effect - (44 ) (41 ) (89 )
                     Net of tax -   64 61 127
Total other comprehensive (loss) income 509 (1,493 ) 288 (716 )
Total comprehensive income $ 11,368 $ 9,028 $ 21,538 $ 20,185

See accompanying notes to unaudited consolidated financial statements.

5



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)

Accumulated
Additional Other Total
(dollars in thousands, except for Preferred Common Paid-In Retained Treasury Comprehensive   Stockholders’
per share data)   Stock   Stock   Capital   Earnings   Stock   Income (Loss)   Equity
Balance as of December 31, 2014 $   11,250 $   374,287 $   6,015 $    72,398 $    (16,717 ) $               (1,014 ) $          446,219
Net income - - - 20,901 - - 20,901
Other comprehensive loss, net of
tax - - - - - (716 ) (716 )
Dividend on series B preferred
       stock - - - (56 ) - - (56 )
Cash dividends declared on
       common stock ($0.15 per share) - - - (4,471 ) - - (4,471 )
Exercise of stock options (339,334
       shares) - - 1,379 - - - 1,379
Restricted stock and performance
       units grants (162,491 shares) - - - - - - -
Stock-based compensation
       expense - - 726 - - - 726
 
Balance as of June 30, 2015 $ 11,250 $ 374,287 $ 8,120 $ 88,772 $ (16,717 ) $ (1,730 ) $ 463,982
 
Balance as of December 31, 2015 $ 11,250 $ 374,287 $ 8,527 $ 104,606 $ (16,717 ) $ (4,609 ) $ 477,344
Net income - - - 21,250 - - 21,250
Other comprehensive income, net
of tax - - - - - 288 288
Dividend on series B preferred
       stock - - - (22 ) - -   (22 )
Cash dividends declared on  
       common stock ($0.15 per share) - - - (4,533 ) - - (4,533 )
 
Redemption of preferred stock (11,250 ) - - - - - (11,250 )
Exercise of stock options (36,135
       shares) - - 232 - - - 232
Restricted stock and performance
       units grants (75,520 shares) - - - - - - -
Stock-based compensation
       expense - - 1,105 - - -   1,105
 
Balance as of June 30, 2016 $ -   $ 374,287 $ 9,864 $ 121,301   $ (16,717 ) $ (4,321 ) $ 484,414

See accompanying notes to unaudited consolidated financial statements.

6



CONNECTONE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

Six Months Ended
June 30,
(in thousands) 2016       2015
Cash flows from operating activities
Net income $      21,250 $      20,901
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 1,298 1,133
Provision for loan and lease losses 6,750   3,375
Amortization of intangibles 434 483
Net accretion of loans (2,449 ) (2,692 )
Accretion on bank premises (63 ) (51 )
Accretion on deposits (132 ) (307 )
Accretion on borrowings (173 ) (264 )
Stock-based compensation 1,105 726
Gains on sales of investment securities, net (103 ) (726 )
Gains on sale of loans held for sale, net (92 ) (213 )
Loans originated for resale (2,797 ) (13,602 )
Proceeds from sale of loans held for sale 2,529 13,691
Net (gain) loss on sale of other real estate owned (210 ) 112
Increase in cash surrender value of bank-owned life insurance (1,228 ) (775 )
Amortization of premiums and accretion of discounts on investments securities, net 770 1,136
Increase in accrued interest receivable (181 ) (355 )
Increase in other assets (6,988 ) (2,009 )
Increase (decrease) in other liabilities 4,734 (1,600 )
       Net cash provided by operating activities 24,454 18,963
Cash flows from investing activities
Investment securities available-for-sale:
              Purchases (68,155 ) (10,909 )
              Sales 6,573 12,271
              Maturities, calls and principal repayments 50,758 22,074
Investment securities held-to-maturity:
              Purchases (1,000 ) (14,497 )
              Maturities and principal repayments 9,972 6,308
Net redemptions (purchases) of restricted investment in bank stocks 7,402 (3,543 )
Net increase in loans (275,305 ) (224,704 )
Purchases of premises and equipment (1,379 ) (1,682 )
Proceeds from sale of other real estate owned 1,312 126
       Net cash used in investing activities (269,822 ) (214,556 )
Cash flows from financing activities
Net increase in deposits 410,159 93,931
Increase in subordinated debt - 50,000
Advances of FHLB borrowings 375,000 500,000
Repayments of FHLB borrowings (550,000 ) (430,531 )
Repayment of repurchase agreement - (16,000 )
Cash dividends paid on common stock (4,533 ) (4,494 )
Cash dividends paid on preferred stock (22 ) (56 )
Redemption of preferred stock (11,250 ) -
Proceeds from exercise of stock options 232 1,379
       Net cash provided by financing activities 219,586 194,229
Net change in cash and cash equivalents (25,782 ) (1,364 )
Cash and cash equivalents at beginning of period 200,895 126,847
Cash and cash equivalents at end of period $ 175,113 $ 125,483
Supplemental disclosures of cash flow information
Cash payments for:
       Interest paid on deposits and borrowings $ 14,620 $ 10,149
       Income taxes 14,685 12,545
Supplemental disclosures of noncash investing activities
       Transfer of loans to other real estate owned $ 583 $ 694

See accompanying notes to unaudited consolidated financial statements.

7



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Nature of Operations and Principles of Consolidation

The consolidated financial statements of ConnectOne Bancorp, Inc. (the “Parent Corporation”) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s other direct and indirect subsidiaries, the “Company”). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey and through its twenty other banking offices. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate or are expected to be paid from cash flow of business operations. Commercial loans are expected to be repaid from cash flow from business operations. There are no significant concentrations of loans to any one industry or client. However, the clients’ ability to repay their loans is dependent on the cash flows, real estate and general economic conditions in the area.

The preceding unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2016, or for any other interim period. The Company’s 2015 Annual Report on Form 10-K should be read in conjunction with these consolidated financial statements.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates.

The consolidated financial statements have been prepared in conformity with GAAP. Some items in the prior year consolidated financial statements were reclassified to conform to current presentation. Reclassifications had no effect on prior year net income or stockholders’ equity.

Note 2. New Authoritative Accounting Guidance

ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 was originally going to be effective for us on January 1, 2017; however, the FASB recently issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date” which deferred the effective date of ASU 2014-09 by one year to January 1, 2018. The Company is currently evaluating the potential impact of ASU 2014-09 on its consolidated financial statements.

ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period ("ASU 2014-12"). ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The Company adopted ASU 2014-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-13)" requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in the ASU No. 2015-03. The Company adopted ASU No. 2015-03 effective on January 1, 2016 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

8



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 2. New Authoritative Accounting Guidance – (continued)

ASU No. 2015-12, “Plan Accounting: Defined Benefit Pension Plans (Topic 960): Defined Contribution Pension Plans, (Topic 962): Health and Welfare Benefit Plans, (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient.” ASU No. 2015-12 simplifies accounting for employee benefit plans as follows: (i) fully benefit-responsive investment contracts are now to be measured, presented and disclosed at contract value, (ii) the requirement to disclose investments that represent 5 percent or more of net assets available for benefits has been eliminated, (iii) the net appreciation or depreciation in investments for the period should be presented in the aggregate, but is no longer required to be disaggregated and disclosed by general type, (iv) if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820, and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investment’s strategy is no longer required, and (v) allows employers to measure (as a practical expedient) benefit plan assets on a month-end date nearest to the employer’s fiscal year end when the fiscal period does not coincide with a month end. The Company adopted ASU No. 2015-12 effective on January 1, 2016 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

ASU No. 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

ASU No. 2015-16, “Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. Furthermore, the income statement effects of such adjustments, if any, must be calculated as if the accounting had been completed at the acquisition date. The portion of the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period are to be recognized retrospectively. ASU 2015-16 was effective for us on January 1, 2016 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

ASU No. 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-1, among other things; (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (v) requires 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; (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective for us on January 1, 2018 and is not expected to have a significant impact on our financial statements.

ASU No. 2016-02, “Leases (Topic 842)” requires the recognition of a right of use asset and related lease liability by lessees for leases classified as operating leases under current accounting principles GAAP. Topic 842, which replaces the current guidance under Topic 840, retains a distinction between finance leases and operating leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee also will not significantly change from current GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right of use assets and lease liabilities. Topic 842 will be effective for the Company for reporting periods beginning January 1, 2019, with an early adoption permitted. The Company must apply a modified retrospective transition approach for the applicable leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.

9



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 2. New Authoritative Accounting Guidance – (continued)

ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 will be effective on January 1, 2017 and is not expected to have a significant impact on our consolidated financial statements.

ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.”ASU 2016-10 was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” related to (i) identifying performance obligations; and (ii) the licensing implementation guidance. The effective date and transition of ASU 2016-10 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.

ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.”ASU 2016-12 was issued to clarify ASC Topic 606, “Revenue from Contracts with Customers” and to address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition. Additionally, the amendments in this Update provide a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date and transition of ASU 2016-12 is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed above. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.

ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)”: Assets Measured at Amortized Cost.” ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (PCD assets) that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial allowance for credit losses is added to the purchase price rather than being reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. Interest income for PCD assets should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer assessment of credit losses at acquisition. Available-for-Sale Debt Securities—Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. Available-for-sale accounting recognizes that value may be realized either through collection of contractual cash flows or through sale of the security. Therefore, the amendments limit the amount of the allowance for credit losses to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value. The allowance for credit losses for purchased available-for-sale securities with a more-than-insignificant amount of credit deterioration since origination is determined in a similar manner to other available-for-sale debt securities; however, the initial allowance for credit losses is added to the purchase price rather than reported as a credit loss expense. Only subsequent changes in the allowance for credit losses are recorded in credit loss expense. Interest income should be recognized based on the effective interest rate, excluding the discount embedded in the purchase price that is attributable to the acquirer’s assessment of credit losses at acquisition. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the potential impact of ASU 2016-10 on our consolidated financial statements.

10



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 3. Earnings per Common Share

Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., stock options). The Company’s weighted average common shares outstanding for diluted EPS include the effect of stock options and restricted stock awards outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS.

Earnings per common share have been computed as follows:

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share amounts) 2016       2015       2016       2015
Net income $       10,859   $       10,521     $       21,250     $       20,901  
Preferred stock dividends - (28 ) (22 ) (56 )
       Net income available to common stockholders $ 10,859   $ 10,493     $ 21,228     $ 20,845  
Basic weighted average common shares outstanding 30,090 29,868 30,071 29,813
Effect of dilutive options   250     363       260       391  
       Diluted weighted average common shares outstanding 30,340 30,231 30,331 30,204
Earnings per common share:                            
       Basic $ 0.36 $ 0.35 $ 0.71 $ 0.70
       Diluted 0.36   0.35     0.70     0.69  

Note 4. Investment Securities

The Company’s investment securities are classified as available-for-sale and held-to-maturity at June 30, 2016 and December 31, 2015. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value as of June 30, 2016 and December 31, 2015. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 7 of the Notes to Consolidated Financial Statements for a further discussion.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Investment Securities – (continued)

The following tables present information related to the Company’s investment securities at June 30, 2016 and December 31, 2015 (dollars in thousands):

Gross Gross
Amortized       Unrealized       Unrealized       Fair
June 30, 2016 Cost Gains Losses Value
Investment securities available-for-sale
       Federal agency obligations $ 29,785 $ 628 $ (10 ) $ 30,403
       Residential mortgage pass-through securities 45,718 1,326 (14 ) 47,030
       Commercial mortgage pass-through securities 2,949 125 - 3,074
       Obligations of U.S. states and political subdivisions 38,085 336 - 38,421
       Trust preferred securities 16,089 506 (268 ) 16,327
       Corporate bonds and notes 34,098 1,003 (182 ) 34,919
       Asset-backed securities 17,124 - (412 ) 16,712
       Certificates of deposit 1,196 21 - 1,217
       Equity securities 376 16 (11 ) 381
       Other securities 19,724 123 (65 ) 19,782
              Total securities available-for-sale $       205,144 $ 4,084 $ (962 ) $ 208,266
 
Investment securities held-to-maturity
       U.S. Treasury and agency securities $ 28,574 $ 2,373 $ - $ 30,947
       Federal agency obligations 29,459 825 - 30,284
       Residential mortgage-backed securities 3,147 30 (12 ) 3,165
       Commercial mortgage-backed securities 1,301 44 - 1,345
       Obligations of U.S. states and political divisions 115,154 7,661 - 122,815
       Corporate bonds and notes 37,083 1,795 (7 ) 38,871
              Total securities held-to-maturity $ 214,718 $       12,728 $ (19 ) $ 227,427
 
       Total investment securities $ 419,862 $ 16,812 $ (981 ) $ 435,693
 
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2015 Cost Gains Losses Value
Investment securities available-for-sale
       Federal agency obligations $ 29,062 $ 142 $ (58 ) $ 29,146
       Residential mortgage pass-through securities 44,155 803 (48 ) 44,910
       Commercial mortgage pass-through securities 2,981 - (9 ) 2,972
       Obligations of U.S. states and political subdivisions 8,188 169 - 8,357
       Trust preferred securities 16,088 398 (231 ) 16,255
       Corporate bonds and notes 53,566 702 (292 ) 53,976
       Asset-backed securities 20,005 18 (298 ) 19,725
       Certificates of deposit 1,895 18 (8 ) 1,905
       Equity securities 376 21 (23 ) 374
       Other securities 18,303 - (153 ) 18,150
              Total securities available-for-sale $ 194,619 $ 2,271 $       (1,120 ) $       195,770
Investment securities held-to-maturity
       U.S. Treasury and agency securities $ 28,471 $ 755 $ - $ 29,226
       Federal agency obligations 33,616 280 (119 ) 33,777
       Residential mortgage-backed securities 3,805 11 (6 ) 3,810
       Commercial mortgage-backed securities 4,110 27 (2 ) 4,135
       Obligations of U.S. states and political divisions 118,015 5,001 (3 ) 123,013
       Corporate bonds and notes 36,039 719 (161 ) 36,597
              Total securities held-to-maturity $ 224,056 $ 6,793 $ (291 ) $ 230,558
 
       Total investment securities $ 418,675 $ 9,064 $ (1,411 ) $ 426,328

12


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Investment Securities – (continued)

The following table presents information for investment securities at June 30, 2016, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

June 30, 2016
Amortized Fair
Cost        Value
(in thousands)
Investment securities available-for-sale:
       Due in one year or less $ 2,770 $ 2,792
       Due after one year through five years 18,536 19,095
       Due after five years through ten years 37,235 37,547
       Due after ten years 77,836 78,565
Residential mortgage pass-through securities 45,718 47,030
Commercial mortgage pass-through securities 2,949 3,074
Equity securities 376 381
Other securities 19,724 19,782
       Total $      205,144 $       208,266
Investment securities held-to-maturity:
       Due in one year or less $ 6,007 $ 6,037
       Due after one year through five years 10,238 10,573
       Due after five years through ten years 84,718 90,673
       Due after ten years 109,307 115,634
Residential mortgage-backed securities 3,147 3,165
Commercial mortgage-backed securities 1,301 1,345
       Total $ 214,718 $ 227,427
 
Total investment securities $ 419,862 $ 435,693

Gross gains and losses from the sales, calls and maturities of investment securities for the three-month and six-month periods ended June 30, 2016 and 2015 were as follows:

Three Months Ended Six Months Ended
June 30, June 30,
(in thousands)        2016        2015        2016        2015
Proceeds $       6,573 $       2,734 $       6,573 $       12,271
Gross gains on sales of investment securities 103 221 103 726
Gross losses on sales of investment securities - - - -
       Net gains on sales of investment securities 103 221 103 726
       Less: tax provision on net gains 42 90 42 297
 
              Total $ 61 $ 131 $ 61 $ 429

The Company performs regular analysis on the available-for-sale securities portfolio to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record other-than-temporary impairment (“OTTI”) charges, through earnings, if they have the intent to sell, or more likely than not will be required to sell, an impaired debt security before recovery of its amortized cost basis. If the Company intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Company does not intend to sell the security and it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, and as such, it determines that a decline in fair value is other-than-temporary, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

13



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Investment Securities – (continued)

The Company reviews all securities for potential recognition of other-than-temporary impairment. The Company maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could include credit rating downgrades.

The Company’s assessment of whether an impairment in the portfolio is other-than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed deteriorating financial condition or sustained significant losses.

Temporarily Impaired Investments

The Company does not believe that the unrealized losses, for all securities, which were comprised of 42 and 74 investment securities as of June 30, 2016 and December 31, 2015, respectively, represent an other-than-temporary impairment. The gross unrealized losses associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, asset-backed securities, trust preferred securities, mutual funds and equity securities are not considered to be other-than-temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Company’s investment in any one issuer or industry. The Company has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Company believes the investment portfolio is prudently diversified.

The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.

The Company evaluates all securities with unrealized losses quarterly to determine whether the loss is other-than-temporary. Unrealized losses in the corporate debt securities category consist primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers. Single issuer corporate trust preferred securities are also included, and in the case of one holding the market valuation loss is largely based upon the floating rate coupon and corresponding market valuation. Neither that trust preferred issuer, nor any other corporate issuers, have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2016.

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporary, the Company evaluated the factors cited above, which the Company considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Company must exercise considerable judgment. Accordingly, there can be no assurance that the actual results will not differ from the Company’s judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Company’s financial position and results of operations. In addition, the value of, and the realization of any loss on, an investment security is subject to numerous risks as cited above.

14



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Investment Securities – (continued)

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2016 and December 31, 2015:

June 30, 2016
Total Less than 12 Months 12 Months or Longer
Fair Unrealized Fair Unrealized Fair Unrealized
      Value       Losses       Value       Losses       Value       Losses
(in thousands)
Investment securities
       available-for-sale:
 
Federal agency obligation $ 3,140 $ (10 ) $ 2,824 $ (9 ) $ 316 $ (1 )
Residential mortgage
       pass-through securities 2,090 (14 ) 1,681 (8 ) 409 (6 )
Trust preferred securities 1,309 (268 ) - - 1,309 (268 )
Corporate bonds and notes 11,145 (182 ) 7,290 (72 ) 3,855 (110 )
Asset-backed securities 16,513 (412 ) 6,988 (177 ) 9,525 (235 )
Equity securities 123 (11 ) - - 123 (11 )
Other securities 5,435 (65 ) - - 5,435 (65 )
       Total $       39,755 $         (962 ) $       18,783 $         (266 ) $       20,972 $         (696 )
 
Investment securities
       held-to-maturity:
 
Residential mortgage
       pass-through securities 1,751 (12 ) 1,751 (12 ) - -
Corporate bonds and notes 2,765 (7 ) - - 2,765 (7 )
       Total $ 4,516 $ (19 ) $ 1,751 $ (12 ) $ 2,765 $ (7 )
 
Total temporarily impaired
       securities $ 44.271 $ (981 ) $ 20,534 $ (278 ) $ 23,737 $ (703 )

15



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 4. Investment Securities – (continued)

December 31, 2015
Total Less than 12 Months 12 Months or Longer
Fair Unrealized Fair Unrealized Fair Unrealized
       Value        Losses        Value        Losses        Value        Losses
(dollars in thousands)
Investment Securities
       Available-for-Sale:
Federal agency obligation $        12,260 $ (58 ) $ 12,013 $ (54 ) $ 247 $ (4 )
Residential mortgage
       pass-through securities 9,027 (48 ) 9,027 (48 ) - -
Commercial mortgage-backed
       securities 2,971 (9 ) 2,971 (9 ) - -
Trust preferred securities 1,345 (231 ) - - 1,345 (231 )
Corporate bonds and notes 16,533 (292 ) 12,702 (161 ) 3,831 (131 )
Asset-backed securities 14,745 (298 ) 11,250 (188 ) 3,495 (110 )
Certificates of deposit 215 (8 ) 215 (8 ) - -
Equity securities 123 (23 ) - - 123 (23 )
Other securities 5,347 (153 ) - - 5,347 (153 )
Total $ 62,566 $        (1,120 ) $        48,178 $        (468 ) $        14,388 $        (652 )
Investment Securities
       Held-to-Maturity:
Federal agency obligation 12,554 (119 ) 11,783 (109 ) 771 (10 )
Residential mortgage
       pass-through securities 2,480 (6 ) 2,480 (6 ) - -
Commercial mortgage-backed
       securities 1,331 (2 ) 1,331 (2 ) - -
Obligations of U.S. states
       and political subdivisions 981 (3 ) 981 (3 ) - -
Corporate bonds and notes 5,536 (161 ) 5,536 (161 ) - -
Total $ 22,882 $ (291 ) $ 22,111 $ (281 ) $ 771 $ (10 )
 
Total Temporarily Impaired
       Securities $ 85,448 $ (1,411 ) $ 70,289 $ (749 ) $ 15,159 $ (662 )

Investment securities having a carrying value of approximately $165.6 million and $142.5 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public deposits, borrowings, Federal Reserve Discount Window and Federal Home Loan Bank advances and for other purposes required or permitted by law.

As of June 30, 2016 and December 31, 2015, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Note 5 - Derivatives

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest rate swaps were entered into on August 24, 2015, December 30, 2014 and October 15, 2014 each with a respective notional amount of $25.0 million and were designated as cash flow hedges of a Federal Home Loan Bank advance. The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income while the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

16



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 5 – Derivatives – (continued)

Summary information about the interest rate swaps designated as cash flow hedges as of June 30, 2016, December 31, 2015 and June 30, 2015 are presented in the following table.

June 30, December 31, June 30,
(dollars in thousands)       2016       2015       2015
Notional amount $      75,000 $      75,000 $      50,000
Weighted average pay rates 1.58 % 1.56 % 1.58 %
Weighted average receive rates 0.65 % 0.44 % 0.26 %
Weighted average maturity 3.3 years 3.8 years 3.9 years
Fair value $ (1,856 ) $ (131 ) $ (250 )

Interest expense recorded on these swap transactions totaled approximately $176,000 and $367,000 for the three and six months ended June 30, 2016 and approximately $165,000 and $331,000 for the three and six months ended June 30, 2015.

Cash Flow Hedge

The following table presents the net gains (losses), recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:

Six Months Ended June 30, 2016
Amount of loss Amount of loss Amount of loss
recognized reclassified recognized in other
in OCI (Effective from OCI to Non-interest income
(in thousands)       Portion)       interest income       (Ineffective Portion)
Interest rate contracts $      (1,725) $      - $      -
 
Six Months Ended June 30, 2015
Amount of loss Amount of loss Amount of loss
recognized reclassified recognized in other
in OCI (Effective from OCI to Non-interest income
(in thousands) Portion) interest income (Ineffective Portion)
Interest rate contracts $ (298) $ - $ -

The following table reflects the cash flow hedges included in the consolidated statements of condition as of June 30, 2016 and December 31, 2015:

2016 2015
      Notional             Notional      
(in thousands) Amount Fair Value Amount Fair Value
Included in other assets/(liabilities):
       Interest rate swaps related to FHLB Advances $      75,000 $      (1,856 ) $      75,000 $        (131 )

17



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, premiums and discounts related to purchase accounting and an allowance for loan and lease losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

Loan segments are defined as a group of loans and leases, which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Company has five segments of loans and leases: commercial (including lease financing), commercial real estate, commercial construction, residential real estate (including home equity) and consumer.

Interest income on commercial, commercial real estate, commercial construction and residential loans are discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. A loan is moved to nonaccrual status in accordance with the Company’s policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The policy of the Company is to generally grant commercial, residential and consumer loans to residents and businesses within its market area. The borrowers’ abilities to repay their obligations are dependent upon various factors including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for a large majority of the Company’s loans.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is a valuation allowance for probable incurred credit losses. Losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan and lease loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired. As part of the evaluation of impaired loans, the Company individually reviews for impairment all non-homogeneous loans internally classified as substandard or below. Generally, smaller impaired non-homogeneous loans and impaired homogeneous loans are collectively evaluated for impairment.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

18



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan and lease losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience, the primary factor, is determined by loan class and is based on the actual loss history experienced by the Bank over an actual three year rolling calculation. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. This actual loss experience is supplemented with the exogenous factor adjustments based on the risks present for each loan category. These exogenous factors (nine total) include consideration of the following: concentrations of credit; delinquency & nonaccrual trends; economic & business conditions including evaluation of the national and regional economies and industries with significant loan concentrations; external factors including legal, regulatory or competitive pressures that may impact the loan portfolio; changes in the experience, ability, or size of the lending staff, management, or board of directors that may impact the loan portfolio; changes in underwriting standards, collection procedures, charge-off practices, or other changes in lending policies and procedures that may impact the loan portfolio; loss and recovery trends; changes in portfolio size and mix; and trends in problem loans.

Purchased Credit-Impaired Loans

The Company purchases groups of loans in conjunction with mergers, some of which have shown evidence of credit deterioration since origination. These purchased credit impaired loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan and lease losses. After acquisition, losses are recognized by an increase in the allowance for loan and lease losses.

Such purchased credit-impaired loans (“PCI”) are accounted for individually. The Company estimates the amount and timing of expected cash flows for each loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by short sale of the collateral, or by foreclosure. A gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan.

Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a pool is reduced to zero, any future proceeds, which may include cash or real estate acquired in foreclosure, from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon receipt.

PCI loans that met the criteria for nonaccrual may be considered performing, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans. As such, management may no longer consider the loans to be nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount.

19



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

Composition of Loan Portfolio

The following table sets forth the composition of the Company’s loan portfolio, including net deferred loan fees, at June 30, 2016 and December 31, 2015:

December 31,
      June 30, 2016       2015
(in thousands)
Commercial $      630,425 $      570,116
Commercial real estate 2,071,769 1,966,696
Commercial construction 443,277 328,838
Residential real estate 230,497 233,690
Consumer 1,976 2,454
       Gross loans 3,377,944 3,101,794
Net deferred loan fees (2,324 ) (2,787 )
       Total loans receivable $ 3,375,620 $ 3,099,007

At June 30, 2016 and December 31, 2015 loan balances of approximately $1.6 billion were pledged to secure borrowings from the Federal Home Loan Bank of New York.

Purchased Credit-Impaired Loans

The Company holds purchased loans for which there was, at their acquisition date, evidence of deterioration of credit quality since their origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows at June 30, 2016 and December 31, 2015.

June 30, December 31,
      2016       2015
(in thousands)
Commercial $           7,028 $      7,078
Commercial real estate 1,030 1,775
Residential real estate - 328
       Total carrying amount $ 8,058 $ 9,181

For those purchased loans disclosed above, the Company did not increase the allowance for loan and lease losses for the three and six months ended June 30, 2016.

The accretable yield, or income expected to be collected, on the purchased loans disclosed above for the three and six months ended June 30, 2016 is as follows (in thousands):

Three Months Three Months
      Ended June       Ended June
30, 2016 30, 2015
Beginning balance $               3,416 $              4,250
New loans purchased - -
Accretion of income (183 ) (237 )
Reclassification from nonaccretable differences - -
Disposals - -
Ending balance $ 3,233 $ 4,013

20



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

Six Months Six Months
Ended June Ended June
      30, 2016       30, 2015
Beginning balance $          3,599 $          4,467
New loans purchased - -
Accretion of income (366 ) (454 )
Reclassification from nonaccretable differences - -
Disposals - -
Ending balance $ 3,233 $ 4,013

The following table presents information about the recorded investment in loan receivables on nonaccrual status by segment at June 30, 2016 and December 31, 2015:

Loans Receivable on Nonaccrual Status

June 30, December 31,
      2016       2015
(in thousands)
Commercial $      9,480 $ 6,586
Commercial real estate 9,478 9,112
Commercial construction - 1,479
Residential real estate 2,953 3,559
       Total loans receivable on nonaccrual status $ 21,911 $ 20,736

The Company continuously monitors the credit quality of its loans receivable. In addition to its internal staff, the Company utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention.

Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Company’s credit position at some future date.

Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements.

An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected.

21



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The following table presents information, excluding net deferred loan fees, about the Company’s loan credit quality at June 30, 2016 and December 31, 2015:

June 30, 2016
Special
      Pass       Mention       Substandard       Doubtful       Total
(in thousands)
Commercial $      517,271 $      7,812 $      105,342 $      - $      630,425
Commercial real estate 2,015,082 27,230 29,457 - 2,071,769
Commercial construction 443,277 - - - 443,277
Residential real estate 227,173 - 3,324 - 230,497
Consumer 1,900 - 76 - 1,976
 
       Total loans $ 3,204,703 $ 35,042 $ 138,199 $ - $ 3,377,944
 
December 31, 2015
Special
Pass Mention Substandard Doubtful Total
(in thousands)
Commercial $ 462,358 $ 11,760 $ 95,998 $ - $ 570,116
Commercial real estate 1,919,041 18,990 28,426 239 1,966,696
Commercial construction 326,697 662 1,479 - 328,838
Residential real estate 229,426 - 4,264 - 233,690
Consumer 2,368 - 86 - 2,454
 
       Total loans $ 2,939,890 $ 31,412 $ 130,253 $ 239 $ 3,101,794

22



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The following table provides an analysis of the impaired loans, by loan segment, at June 30, 2016 and December 31, 2015:

June 30, 2016
Unpaid
Recorded Principal Related
      Investment       Balance       Allowance
No related allowance recorded (in thousands)
Commercial $      2,313 $      2,692
Commercial real estate 16,233 16,200
Commercial construction 1,053 1,049
Residential real estate 3,324 3,730
Consumer 76 76
       Total $ 22,999 $ 23,747
 
With an allowance recorded
Commercial $ 96,901 $ 96,664 $      9,576
Commercial real estate 153 153 98
       Total $ 97,504 $ 96,817 $ 9,674
 
Total
Commercial $ 99,214 $ 99,356 $ 9,576
Commercial real estate 16,386 16,353 98
Commercial construction 1,053 1,049 -
Residential real estate 3,324 3,730 -
Consumer 76 76 -
       Total $ 120,053 $ 120,564 $ 9,674
 
December 31, 2015
Unpaid
Recorded Principal Related
Investment Balance Allowance
No related allowance recorded (in thousands)
Commercial $ 610 $ 645
Commercial real estate 15,517 16,512
Commercial construction 2,149 2,141
Residential real estate 3,954 4,329
Consumer 87 86
       Total $ 22,317 $ 23,713
 
With an allowance recorded
Commercial $ 84,787 $ 84,449 $ 6,725
 
Total
Commercial $ 85,397 $ 85,094 $ 6,725
Commercial real estate 15,517 16,512 -
Commercial construction 2,149 2,141 -
Residential real estate 3,954 4,329 -
Consumer 87 86 -
       Total $ 107,104 $ 108,162 $ 6,725

23



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by segment as of and for the three and six months ended June 30, 2016 and 2015 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015  
Average Interest Average Interest Average Interest Average Interest
Recorded Income Recorded Income Recorded Income Recorded Income
    Investment    Recognized    Investment    Recognized    Investment    Recognized    Investment    Recognized
Impaired loans with no
related allowance
recorded:
 
Commercial $      2,370 $      20 $      76,744 $      484 $      2,337 $      20 $      37,855 $      484
Commercial real estate 16,072 27 3,898 13 15,623 53 3,935 32
Commercial      
construction 1,426 16 - - 1,911 33 - -
Residential real estate 3,947 5 3,481 2 4,021 10 3,512 4
Consumer 79 1 102 2 82 2 105 2
Total $ 23,894 $ 69 $ 84,225 $ 501 $ 23,974 $ 118 $ 45,407 $ 522
 
Impaired loans with an
allowance recorded:
 
Commercial $ 93,260 $ 784 $ 1,559 $ - $ 88,691 $ 1,522 $ 1,569 $ -
Commercial real estate 153 - 4,298 - 153 - 4,268 -
Total $ 93,413 $ 784 $ 5,857 $ - $ 88,844 $ 1,522 $ 5,837 $ -
 
Total impaired loans:
 
Commercial $ 95,630 $ 804 $ 78,303 $ 484 $ 91,028 $ 1,542 $ 39,424 $ 484
Commercial real estate 16,225 27 8,196 13 15,776 53 8,203 32
Commercial
construction     1,426     16     -     -     1,911     33     -     -
Residential mortgage 3,947 5 3,481 2 4,021 10 3,512 4
Consumer     79     1     102     2     82     2     105     2
Total $ 117,307 $ 853 $ 90,082 $ 501 $ 112,818 $ 1,640 $ 51,244 $ 522

Included in impaired loans at June 30, 2016 and December 31, 2015 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower. Cash basis interest and interest income recognized on accrual basis approximate each other.

24



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The following table provides an analysis of the aging of gross loans that are past due at June 30, 2016 and December 31, 2015 by segment:

Aging Analysis

June 30, 2016
Loans
Receivable 90
90 Days or Days or Greater
30-59 Days 60-89 Days Greater Past Total Past Total Loans Past Due and
     Past Due      Past Due      Due      Due      Current      Receivable      Accruing
(in thousands)
Commercial $      375 $      1,726 $      8,677 $      10,778 $      619,647 $      630,425 $      -
Commercial real  
estate 150 1,729 9,327 11,206 2,060,563 2,071,769 -
Commercial      
construction - - - - 443,277 443,277 -
Residential real  
estate 609 802 2,100 3,511 226,986 230,497 -
Consumer 8 - - 8 1,968 1,976
       Total $ 1,142 $ 4,257 $ 20,104 $ 25,503 $ 3,352,441 $ 3,377,944 $ -
 
December 31, 2015
Loans
Receivable 90
90 Days or Days or Greater
  30-59 Days 60-89 Days Greater Past Total Past Total Loans Past Due and
Past Due Past Due Due Due Current Receivable Accruing
(in thousands)
Commercial $ 6,887 $ 3,505 $ 6,865 $ 17,257 $ 552,859 $ 570,116 $ -
Commercial real
estate 1,998 988 9,561 12,547 1,954,149 1,966,696 -
Commercial
construction - - 1,479 1,479 327,359 328,838 -
Residential real
estate - - 2,122 2,122 231,568 233,690 -
Consumer 4 9 - 13 2,441 2,454 -
       Total $ 8,889 $ 4,502 $ 20,027 $ 33,418 $ 3,068,376 $ 3,101,794 $ -

25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The following tables detail, at the period-end presented, the amount of gross loans that are evaluated individually, and collectively, for impairment, those acquired with deteriorated quality, and the related portion of the allowance for loan and lease losses that are allocated to each loan portfolio segment:

June 30, 2016
Commercial Commercial Residential
      Commercial       real estate       construction       real estate       Consumer       Unallocated       Total
(in thousands)
Allowance for loan and lease losses
Individually evaluated for impairment $      9,674 $      - $      - $      - $      - $      - 9,674
Collectively evaluated for impairment 5,874 11,371 4,040 1,091 4 709 23,089
Acquired portfolio - - - - - - -
Acquired with deteriorated credit quality - - - - - - -
       Total $ 15,548 $ 11,371 $ 4,040 $ 1,091 $ 4 $ 709 $ 32,763
 
Gross loans
Individually evaluated for impairment $ 99,214 $ 16,386 $ 1,053 $ 3,324 $ 76 $ - $ 120,053
Collectively evaluated for impairment 464,080 1,406,028 434,402 144,204 1,268 - 2,449,982
Acquired portfolio 60,103 648,325 7,822 82,969 632 - 799,851
Acquired with deteriorated credit quality 7,028 1,030 - - - - 8,058
       Total $ 630,425 $ 2,071,769 $ 443,277 $ 230,497 $ 1,976 $ - $ 3,377,944
 
December 31, 2015
Commercial Commercial Residential
Commercial real estate construction real estate Consumer Unallocated Total
(in thousands)
Allowance for loan and lease losses
Individually evaluated for impairment $ 6,725 $ - $ - $ - $ - $ - $ 6,725
Collectively evaluated for impairment 4,224 10,926 3,253 976 4 464 19,847
Acquired portfolio - - - - - - -
Acquired with deteriorated credit quality - - - - - - -
       Total $ 10,949 $ 10,926 $ 3,253 $ 976 $ 4 $ 464 $ 26,572
 
Gross loans
Individually evaluated for impairment $ 85,397 $ 15,517 $ 2,149 $ 3,954 $ 87 $ - $ 107,104
Collectively evaluated for impairment 395,424 1,269,140 315,785 136,633 1,649 - 2,118,631
Acquired portfolio 82,217 680,264 10,904 92,775 718 866,878
Acquired with deteriorated credit quality 7,078 1,775 - 328 - - 9,181
       Total $ 570,116 $ 1,966,696 $ 328,838 $ 233,690 $ 2,454 $ - $ 3,101,794

26



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The Company’s allowance for loan and lease losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan and lease losses methodology as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

A summary of the activity in the allowance for loan and lease losses is as follows:

Three Months Ended June 30, 2016
Commercial Commercial Residential
    Commercial     real estate     construction     real estate     Consumer     Unallocated     Total
(in thousands)
Balance at March 31, 2016 $       13,097 $       10,941 $      3,617 $      1,074 $             4 $            341 $      29,074
 
Charge-offs (72 ) - - - (5 ) - (77 )
 
Recoveries 1 12 - 2 1 - 16
 
Provision 2,522 418 423 15 4 368 3,750
 
Balance at June 30, 2016 $ 15,548 $ 11,371 $ 4,040 $ 1,091 $ 4 $ 709 $ 32,763
 
Three Months Ended June 30, 2015
Commercial Commercial Residential
Commercial real estate construction real estate Consumer Unallocated Total
(in thousands)
Balance at March 31, 2015 $ 3,927 $ 8,846 $ 1,518 $ 981 $ 4 $ 657 $ 15,933
 
Charge-offs (55 ) (278 ) - - (1 ) - (334 )
 
Recoveries 3 327 - - 1 - 331
 
Provision 758 300 427 180 3 (118 ) 1,550
 
Balance at June 30, 2015 $ 4,633 $ 9,195 $ 1,945 $ 1,161 $ 7 $ 539 $ 17,480

27



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

Six Months Ended June 30, 2016
Commercial Commercial Residential
    Commercial     real estate     construction     real estate     Consumer     Unallocated     Total
(in thousands)
Balance at December 31,
2015 $       10,949 $       10,926 $      3,253 $         976 $           4 $             464 $      26,572
 
Charge-offs (517 ) - - (67 ) (5 ) - (589 )
 
Recoveries 2 25 - 2 1 - 30
 
Provision 5,114 420 787 180 4 245 6,750
 
Balance at June 30, 2016 $ 15,548 $ 11,371 $ 4,040 $ 1,091 $ 4 $ 709 $ 32,763
 
Six Months Ended June 30, 2015
Commercial Commercial Residential
Commercial real estate construction real estate Consumer Unallocated Total
(in thousands)
Balance at December 31,
2014 $ 3,083 $ 7,799 $ 1,239 $ 1,113 $ 7 $ 919 $ 14,160
 
Charge-offs (100 ) (282 ) - - (13 ) - (395 )
 
Recoveries 10 327 - 2 1 - 340
 
Provision 1,640 1,351 706 46 12 (380 ) 3,375
 
Balance at June 30, 2015 $ 4,633 $ 9,195 $ 1,945 $ 1,161 $ 7 $ 539 $ 17,480

Troubled Debt Restructurings

At June 30, 2016, there were no commitments to lend additional funds to borrowers whose loans were on nonaccrual status or were contractually past due in excess of 90 days and still accruing interest, or whose terms have been modified in troubled debt restructurings.

The policy of the Company generally is to grant commercial, mortgage and consumer loans to residents and businesses within its market area. The ability of borrowers abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Company. The Company is therefore subject to risk of loss. The Company believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan and lease losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

28



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

Loans modified in troubled debt restructurings totaled $99.2 million at June 30, 2016, of which $1.4 million were on nonaccrual status and $97.8 million were performing troubled debt restructurings. At December 31, 2015, loans modified in troubled debt restructurings totaled $86.6 million, of which $0.7 million were on nonaccrual status and $85.9 million were performing troubled debt restructurings. The Company has allocated $7.8 and $4.5 million in specific allocations with respect to loans whose loan terms had been modified in troubled debt restructurings as of June 30, 2016 and December 31, 2015, respectively. Performing TDRs as of June 30, 2016 increased the allowance for loan and lease losses by $1.5 and $3.3 million during the three and six months ended June 30, 2016, respectively. Performing TDRs as of December 31, 2015 did not increase the allowance for loan and lease losses during the year ended December 31, 2015.

The $7.8 million in specific allocations referenced above were associated with taxi medallion lending and were calculated based on the present value of estimated cash flows, including contractual debt interest service through maturity, and principal repayments based on the estimated fair value of the collateral excluding any consideration for personal guarantees of borrowers, which provide an additional source of repayment but cannot be relied upon. The valuation per corporate medallion used for the calculation at June 30, 2016 was approximately $750,000. An additional $3.3 million specific allocation was required at June 30, 2016 due to a decline in the Company’s estimated valuation of taxi medallions since December 31, 2015, when the specific allocation was $4.5 million.

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2016 (dollars in thousands):

Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
      Loans       Investment       Investment
Troubled debt restructurings:
       Commercial 12 $ 12,018 $ 12,018
       Commercial real estate 1 575 575
       Commercial construction - - -
       Residential real estate - - -
       Consumer - - -
 
              Total 13 $ 12,593 $ 12,593

Included in the above troubled debt restructurings were eight loans secured by 15 New York City taxi medallions totaling $10.1 million. These loan modifications included interest rate reductions and maturity extensions. All eight loans were accruing prior to modification, while seven remained in accrual status post-modification.

The troubled debt restructurings described above increased the allowance for loan and leases losses by $108 thousand during the six months ended June 30, 2016. There were no charge-offs in connection with a loan modification at the time of modification during the six months ended June 30, 2016. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ended June 30, 2016.

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2015 (dollars in thousands):

Pre-Modification Post-Modification
Outstanding Outstanding
Number of Recorded Recorded
      Loans       Investment       Investment
Troubled debt restructurings:
       Commercial 47 $ 75,375 $ 75,375
       Commercial real estate - - -
       Commercial construction - - -
       Residential real estate - - -
       Consumer - - -
 
              Total 47 $ 75,375 $ 75,375

29



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 6. Loans and the Allowance for Loan and Lease Losses – (continued)

The troubled debt restructurings included in the table above were loans secured by New York City taxi medallions that were modified during the second quarter of 2015. The modifications consisted of a deferral of principal amortization from approximately 25-30 year amortization to interest-only. There was no extension of the loans’ contractual maturity dates, there was no forgiveness of principal, and the interest rates on these loans were increased from approximately 3%-3.25% to 3.75%. These loans were accruing prior to modification and remained in accrual status post-modification.

The troubled debt restructurings above did not increase the allowance for loan loss during the six months ended June 30, 2015. There were no charge-offs in connection with a loan modification at the time of modification during the six months ended June 30, 2015. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ended June 30, 2015.

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

FASB ASC 820-10-05 defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurements and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly.

FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820-10-05 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (for example, supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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 assets measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015:

Securities Available-for-Sale

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine the fair value of the instruments and these are classified as Level 3. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Company’s evaluations are based on market data and the Company employs combinations of these approaches for its valuation methods depending on the asset class.

30



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments

Derivatives

The fair value of derivatives are based on valuation models using observable market data as of the measurement date (level 2). Our derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rate, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Loans Held for Sale

Loans held for sale are required to be measured at the lower of cost or fair value. Under FASB ASC 820-10-05, market value is to represent fair value. Management obtains quotes or bids on all or part of these loans directly from the purchasing financial institutions.

Loans Receivable

The fair value of performing loans, except residential mortgages, is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risks inherent in the loan. The estimate of maturity is based on the historical experience of the Bank with prepayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions. For performing residential mortgage loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rate and the committed rates.

The fair value of financial standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties.

31



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 are as follows:

June 30, 2016
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
            (Level 1)       (Level 2)       (Level 3)
(in thousands)
Recurring fair value measurements:
Assets
Investment securities:
       Available-for-sale:
              Federal agency obligations $      30,403 $      - $      30,403 $      -
              Residential mortgage pass-
                     through securities 47,030 - 47,030 -
              Commercial mortgage pass-
                     through securities 3,074 - 3,074 -
              Obligations of U.S. states and
                     political subdivision 38,421 - 38,421 -
              Trust preferred securities 16,327 - 16,327 -
              Corporate bonds and notes 34,919 - 34,919 -
              Asset-backed securities 16,712 - 16,712 -
              Certificates of deposit 1,217 - 1,217 -
              Equity securities 381 381 - -
              Other securities 19,782 19,782 - -
       Total available-for-sale $ 208,266 $ 20,163 $ 188,103 $ -
Loans held-for-sale 360 - 360 -
       Total assets $ 208,586 $ 20,163 $ 188,463 -
Liabilities
Derivatives $ 1,856 $ - $ 1,856 $ -
 
Total liabilities $ 1,856 $ - $ 1,856 $ -

There were no transfers between Level 1, Level 2 and Level 3 during the three months ended June 30, 2016.

32



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments – (continued)

December 31, 2015
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
          (Level 1)      (Level 2)      (Level 3)
(in thousands)
Recurring fair value measurements:  
Assets
Investment securities:
       Available-for-sale:
              Federal agency obligations $ 29,146 $ - $ 29,146 $ -
              Residential mortgage pass-  
                     through securities 44,910 - 44,910 -
              Commercial mortgage pass-
                     through securities   2,972 - 2,972   -
              Obligations of U.S. states and
                     political subdivision   8,357 - 8,357 -
              Trust preferred securities 16,255 -   16,255 -
              Corporate bonds and notes 53,976 -   53,976 -
              Asset-backed securities 19,725 - 19,725 -
              Certificates of deposit 1,905 - 1,905 -
              Equity securities 374   374 - -
              Other securities 18,150   18,150 - -
       Total available-for-sale $ 195,770 $ 18,524 $ 177,246 $ -
       Liabilities
       Derivatives $      131 $      - $      131 $      -
       Total liabilities $ 131 $ - $ 131 $ -

There were no transfers between Level 1, Level 2 and Level 3 during the year ended December 31, 2015.

Assets Measured at Fair Value on a Non-Recurring Basis

The Company may be required periodically to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or impairment write-downs of individual assets. The Company primarily utilized appraisal value less cost to sell and other unobservable market inputs to determine fair value of assets, and therefore, these valuations are classified as a Level 3 measurement. For assets measured at fair value on a non-recurring basis, the fair value measurements at June 30, 2016 and December 31, 2015 are as follows:

Impaired loans       Valuation Techniques       Range of Unobservable Inputs
Commercial Appraisals of collateral value Adjustment for age of comparable sales, generally a decline of 0% to 15%. Adjustment for age of lease payments. Market capitalization rates between 4% and 8%

33



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Fair Value Measurements at Reporting Date Using
Quoted
Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Assets measured at fair value on a nonrecurring basis:       June 30, 2016       (Level 1)      (Level 2)      (Level 3)
Impaired loans (in thousands)
Commercial $ 3,626 $ - $ - $ 3,626
 
Fair Value Measurements at Reporting Date Using
Quoted
Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
December 31, Assets Inputs Inputs
Assets measured at fair value on a nonrecurring basis: 2015 (Level 1) (Level 2)   (Level 3)
Impaired loans (in thousands)
Commercial $ 3,751   $ -   $ - $ 3,751

The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis at June 30, 2016 and December 31, 2015.

Impaired loans - The value of the impaired loans above were measured based upon the fair value of the collateral of the loans. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and consumer loans, are specifically excluded from the impaired loan portfolio. Collateral dependent impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral. Collateral dependent impaired loans at June 30, 2016 that required a valuation allowance were $5.6 million with a related valuation allowance of $1.9 million compared to $6.0 million with a related valuation allowance of $2.2 million at December 31, 2015.

Fair Value of Financial Instruments

FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Company’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Company for the purposes of this disclosure.

Cash and cash equivalents. The carrying amounts of cash and short-term instruments approximate fair values.

FHLB stock. It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

Investment Securities Held-to-Maturity. The fair value of the Company’s investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

34



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments – (continued)

Loans. The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation purposes under ASC 825-10, do not conform to ASC 820-10.

Interest-Bearing Deposits. The fair values of the Company’s interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Company’s interest-bearing deposits do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Term Borrowings and Subordinated Debentures. The fair value of the Company’s long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.

Accrued Interest Receivable/Payable. The carrying amounts of accrued interest approximate fair value resulting in a level 2 or level 3 classification based on the level of the asset or liability with which the accrual is associated.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2016 and December 31, 2015.

Fair Value Measurements
Quoted
Prices in
Active Significant
Markets for Other Significant
Identical Observable Unobservable
Carrying Fair Assets Inputs Inputs
Amount Value (Level 1) (Level 2) (Level 3)
(in thousands)
June 30, 2016
Financial assets
       Cash and due from banks      $     175,113      $     175,113      $     175,113      $     -      $     -
       Investment securities available-for-sale 208,266 208,266 18,524 177,246 -
       Investment securities held-to-maturity   214,718 227,427 30,947   178,030 18,450
       Restricted investment in bank stocks 25,210 n/a   n/a n/a   n/a
       Net loans 3,342,857 3,365,251 - - 3,365,251
       Loans held-for-sale 360 360 - 360 -
       Accrued interest receivable 12,726 12,726 141 2,485 10,100
 
Financial liabilities
       Noninterest-bearing deposits 648,664 648,664 648,664 - -
       Interest-bearing deposits 2,552,329 2,545,465 - 2,545,465 -
       Borrowings 496,414 502,496 - 502,496 -
       Subordinated debentures, net 54,441 53,367 - 53,367 -
       Derivatives 1,856 1,856 - 1,856 -
       Accrued interest payable $ 4,617 $ 4,617 $ - $ 4,617 $ -
 
December 31, 2015
Financial assets
       Cash and due from banks $ 200,895 $ 200,895 $ 200,895 $ - $ -
       Investment securities available-for-sale 195,770 195,770 18,524 177,246 -
       Investment securities held-to-maturity 224,056 230,558 29,226 182,774 18,558
       Restricted investment in bank stocks 32,612 n/a n/a n/a n/a
       Net loans 3,072,435 3,059,343 - - 3,059,343
       Accrued interest receivable 12,545 12,545 68 2,699 9,778
 
Financial liabilities
       Noninterest-bearing deposits 650,775 650,775 650,775 - -
       Interest-bearing deposits 2,140,191 2,137,149 - 2,137,149 -
       Borrowings 671,587 674,131 - 674,131 -
       Subordinated debentures, net 54,343 55,209 - 55,209 -
       Derivatives 131 131 - 131 -
       Accrued interest payable $ 4,387 $ 4,387 $ - $ 4,387 $ -

35



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 7 - Fair Value Measurements and Fair Value of Financial Instruments – (continued)

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date.

Changes in assumptions or estimation methodologies may have a material effect on these estimated fair values.

The Company’s remaining assets and liabilities, which are not considered financial instruments, have not been valued differently than has been customary with historical cost accounting. No disclosure of the relationship value of the Company’s core deposit base is required by FASB ASC 825-10.

Fair value estimates are based on existing balance sheet financial instruments, without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, there are certain significant assets and liabilities that are not considered financial assets or liabilities, deferred taxes, premises and equipment, and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Management believes that reasonable comparability between financial institutions may not be likely, due to the wide range of permitted valuation techniques and numerous estimates which must be made, given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Note 8. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (net of tax) at June 30, 2016 and December 31, 2015 consisted of the following:

June 30, December 31,
2016       2015
(in thousands)
Net unrealized gain on investment securities available-for-sale $      1,905 $           713
Cash flow hedge (1,098 ) (77 )
Unamortized component of securities transferred from available-for-sale to held-to-maturity (1,116 ) (1,173 )
Defined benefit pension and post-retirement plans   (4,012 ) (4,072 )
       Total accumulated other comprehensive loss $ (4,321 ) $ (4,609 )

Note 9. Stock-Based Compensation

The Company maintains three stock-based compensation plans from which new grants could be issued. The Company’s stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Company and its subsidiaries. Grants under the existing plans can be in the form of stock options (qualified or non-qualified), restricted shares, or performance units. Shares available for grant and issuance under the existing plans as of June 30, 2016 are 68,516 under the 2009 Equity Incentive Plan and 234,090 shares under the North Jersey Community Bancorp Equity Compensation Plan. The Company intends to issue all shares under these plans in the form of newly issued shares.

Restricted stock and option awards typically have a three-year vesting period starting one year after the date of grant with one-third vesting each year. The options generally expire ten years from the date of grant. Restricted stock awards granted to new employees and board members may be granted with shorter vesting periods. Grants of performance units typically have a cliff vesting after 3 years. All issuances are subject to forfeiture if the recipient leaves or is terminated prior to the awards vesting. Restricted shares have the same dividend and voting rights as common stock while options and performance units do not.

All awards are issued at fair value of the underlying shares at the grant date. The Company expenses the cost of the awards, which is determined to be the fair market value of the awards at the date of grant, ratably over the vesting period.

No options were granted during the three and six months ended June 30, 2016 or 2015.

36



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 9. Stock-Based Compensation – (continued)

During the three months ended June 30, 2016 and 2015 a total of 1,000 and 0 restricted shares were awarded, respectively. The compensation expense related to restricted stock awards during the quarter ended June 30, 2016 was $167,000.

During 2016 and 2015, the Company granted to various key employees performance unit awards, with each unit entitling the holder to one share of the Company’s common stock contingent upon the Company meeting or exceeding certain return on asset targets over the course of a three-year period commencing on January 1 of the year of issuance. Under the grant agreement, and assuming the Company has met or exceeded the applicable targets, grants of performance unit awards will vest on the third anniversary of the grant date or on an earlier date in the event of a change in control, as defined in the agreements. At June 30, 2016, the specific number of shares related to performance unit awards that were expected to vest was 132,304, determined by actual performance in consideration of the established range of the performance targets, which is consistent with the level of expense currently being recognized over the vesting period. Should this expectation change, additional compensation expense could be recorded in future periods or previously recognized expense could be reversed. The maximum amount of performance unit awards is 181,892 shares. The total amount of compensation cost related to performance unit awards included in salary expense during the quarter ended June 30, 2016 and 2015 was $267,000 and $102,000, respectively.

Option activity under the principal option plans as of June 30, 2016 and changes during the six months ended June 30, 2016 were as follows:

Weighted-
Average
Weighted- Remaining
Average Contractual
            Exercise       Term       Aggregate
Shares Price (In Years) Intrinsic Value
Outstanding at December 31, 2015 535,906     $     6.48
Granted -   -  
Exercised (38,735 )