Schedule H, line 4i – Schedule of
Assets (Held at End of Year) at December 31, 2015
Ocean City Home Bank Savings and Investment
Plan (the “Plan”) is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). Therefore,
in lieu of the requirements of Items 1-3 of Form 11-K, the following financial statements and supplemental schedule have been
prepared in accordance with the financial reporting requirements of ERISA.
The following financial statements and
supplemental schedule are filed as a part of this Annual Report on Form 11-K.
NOTES TO FINANCIAL STATEMENTS
|
1 -
|
DESCRIPTION
OF THE PLAN
|
The following description of
the Ocean City Home Bank Savings and Investment Plan (the “Plan”) is provided for general information purposes only.
Participants should refer to the Plan document for more complete information.
General
The Plan is a defined contribution
plan covering all eligible non-union and resident full- time salaried and hourly employees of Ocean City Home Bank, Inc. (the
“Employer”). Newport Retirement Services (“Newport”) serves as the non-discretionary trustee of the Plan.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Contributions
Participants can elect to invest
their account balances and future contributions in any or all of the investment programs administered by Newport. Eligible employees
are automatically enrolled in the Plan thirty days after the quarter following their employment. On January 1, 2013, the Plan
was amended, and as of January 1, 2013, a participant who makes an affirmative election to defer, or who was automatically enrolled
into the Plan, shall have his or her elective deferral amount increased by 1% of compensation each year as of January 1, 2013,
and each January 1st thereafter, unless the participant specifically elects otherwise. The increase will continue each year until
the participant has reached a maximum deferral rate of 6%. All eligible employees who have attained age 18 may elect, by means
of a pretax salary deferral, to contribute up to the maximum amount allowable, not to exceed the Internal Revenue Code (“IRC”)
prescribed maximum. Employer matching contributions are made by the Employer equal to 50% of a participant’s deferral contributions,
and are limited to deferral contributions that do not exceed certain percentage of a participant’s eligible compensation.
On January 1, 2013, the Plan was amended to change employer matching contributions limitation from 4% to 3% of a participant’s
eligible compensation. The Company may also elect to make an employer discretionary contribution which is annually determined
by the Employer. There were no employer discretionary contributions for the year ended December 31, 2015.
The Plan allows for rollover
contributions by eligible participants.
The Plan also permits eligible employees who are
age fifty or older by the end of the calendar year to make catch-up contributions. Matching contributions do not apply to catch-up
contributions.
OCEAN CITY HOME BANK SAVINGS
AND INVESTMENT PLAN
NOTES TO
FINANCIAL STATEMENTS
|
1 -
|
DESCRIPTION
OF THE PLAN
(Continued)
|
Participant Accounts
Individual accounts are maintained
for each Plan participant. Each participant’s account is credited with the participant’s contribution, the Employer’s
matching contribution, and Plan earnings. Each participant’s account is charged with withdrawals and Plan losses and an
allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit
to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Investments
Participants direct the investment
of contributions into various investment options offered by the Plan. The Plan currently offers a common collective trust, Employer
securities and mutual funds as investment options for participants.
The Pension Protection Act
created the Qualified Default Investment Alternative (QDIA) which provides employers a safe harbor from fiduciary risk when selecting
an investment for a participant or beneficiary who fails to elect his or her own investment and who is automatically enrolled.
The Plan has not designated any investment as its QDIA. The Plan has designated the Stable Value Fund as the default investment.
Participant Loans
Participants may borrow from
their employee elective deferral accounts up to a maximum of $50,000 or 50 percent of their account balance, whichever is less.
The loans are secured by the balance in the participant’s account and bear interest at rates commensurate with prevailing
rates as determined quarterly by the plan administrator. Loan terms range from 1-5 years or up to a reasonable amount of time
for the purchase of a primary residence. Principal and interest are paid ratably through payroll deductions. Loans to participants
are reported at their unpaid principal and interest balances plus accrued interest, which approximates fair value.
Hardship Withdrawals
The Plan provides for hardship
withdrawals, not to exceed an amount required to meet the immediate need created by the hardship, and then only to the extent
such immediate need cannot be satisfied by other sources readily available to the participant. Permissible circumstances for hardship
withdrawals include education expenses, costs directly related to the purchase of a principal residence, and costs necessary to
prevent eviction from the participant’s personal residence and such other circumstances as the Plan Administrator may determine,
based on rules set forth in the Internal Revenue Service regulations. Salary deferral contributions are suspended for six months
after withdrawal.
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
|
1 -
|
DESCRIPTION
OF THE PLAN
(Continued)
|
Payment of Benefits
On
termination of service due to death, disability, retirement or other reasons, a participant or beneficiary may elect to receive
his or her vested value in the form of either a lump-sum or annual installments for a period not to exceed the life expectancy
of the participant and designated beneficiary. There is a mandatory lump-sum distribution if the total value of the account is
less than $1,000. Valuation of accounts is made as of the last day of the month in which the participant’s employment is
terminated. Benefit claims are recorded as expenses when they have been approved for payment and paid by the Plan.
Vesting
Participants are immediately
vested in their contributions plus actual earnings thereon. Vesting in the Employer’s contribution portion of their accounts
is based on years of continuous service. A participant vests 20 percent per year and is 100 percent vested after five years of
credited service.
Forfeited Accounts
Forfeitures used to reduce
matching employer contributions totaled $13,814 for the year ended December 31, 2015. Forfeiture balances at December 31, 2015
and 2014 were $94 and $2,173, respectively.
|
2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Accounting
The
Plan prepares its financial statements on the accrual basis of accounting consistent with accounting principles generally accepted
in the United States of America (“GAAP”).
Use of Estimates
Management uses estimates and
assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of net assets available
for benefits and changes in net assets available for benefits, and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
Investment Valuation
Investments are reported at
fair value which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Plan's Investment Committee determines the Plan's valuation policies
utilizing information provided by the investment advisers, custodians and insurance company.
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
|
2 -
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
Notes Receivable
from Participants
Notes receivable from participants
represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest
income on notes receivable from participants is recorded when earned. Related fees are recorded as administration expense
and expensed when incurred. If a participant ceases to make a loan repayment and the plan administrator deems the loan to
be a distribution, the principal loan balance is reduced and a deemed distribution is recorded.
Fully Benefit-Responsive
Investment Contracts
Common collective trusts relating
to fully benefit-responsive investment contracts held by a defined contribution plan are to be reported at fair value. However,
contract value is the relevant measurement criteria for that portion of the net assets available for benefits of a defined contribution
plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive
if they were to initiate permitted transactions under the terms of the Plan. The statements of net assets available for benefits
represent the fair value of the common collective trust and an adjustment from fair value to contract value. The Plan invests
in investment contracts through a common collective trust, the Stable Value Fund offered by Newport. Fair value of the Plan’s
interest in the Stable Value Fund is based upon information reported by the issuer of the common collective trust at year-end.
Contract value of the Stable Value Fund represents contributions plus earnings, less participant withdrawals, the net effect of
transfers in and out of funds and administrative expenses.
Income Recognition
Purchases and sales of securities
are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend
date. Capital gain distributions are included in dividend income. Net appreciation (depreciation) in the fair value of investments
includes both gains and losses in investments sold during the year as well as appreciation (depreciation) of investments held
at the end of the year.
Administrative Expenses
and Management Fees
Certain costs and expenses
of administering the Plan, such as trustee fees, are paid by the Employer.
Management fees and operating
expenses charged to the Plan for investments in the mutual funds and the Stable Value Fund are deducted from income earned on
a daily basis and are reflected in net appreciation (depreciation) in fair value of such investments.
Subsequent Events
The financial statements were
approved by management and available for issuance on June 16, 2016. Management has evaluated subsequent events through this date.
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
|
3-
|
FAIR
VALUE MEASUREMENTS
|
The framework for measuring
fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 are
described as follows:
Level 1 - Inputs to the valuation
methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to
access.
Level 2 - Inputs to the valuation
methodology include
• quoted prices for similar
assets or liabilities in active markets;
• quoted prices for identical
or similar assets or liabilities in inactive markets;
• inputs other than quoted
prices that are observable for the asset or liability;
• inputs that are derived
principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has
a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation
methodology are unobservable and significant to the fair value measurement.
The asset or liability’s
fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to
the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of
unobservable inputs.
The following is a description
of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments
pursuant to the valuation hierarchy.
Mutual Funds
Shares of mutual funds are valued
at quoted market prices, which represent the net asset value (“NAV”) of shares held by the Plan at year end. Investments
in mutual funds are classified as Level 1.
Employer Securities
Shares of Employer securities
are valued at quoted market prices, which represent the value of shares of common stock held by the Plan at year-end. Investments
in Employer securities are classified as Level 1.
OCEAN CITY HOME BANK SAVINGS
AND INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
|
3 -
|
FAIR
VALUE MEASUREMENTS
(Continued)
|
Stable Value Fund
The Stable Value Fund is not
traded on an exchange. Fair value of the Stable Value Fund is determined by the issuer of the common collective trust.
The estimated fair value of unit interests in the common collective trust is NAV, exclusive of the adjustment to contract value
and is considered Level 2. Use of NAV as fair value is deemed appropriate as the common collective trust does not have a
finite life, unfunded commitments relating to these types of investments or significant restrictions on redemptions.
The following tables summarize
investment assets measured at fair value:
|
|
Investments at Fair Value
|
|
|
|
|
December 31, 2015
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blended funds
|
|
$
|
3,320,311
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,320,311
|
|
Growth funds
|
|
|
2,025,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,025,851
|
|
Balanced fund
|
|
|
1,265,771
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,265,771
|
|
Value funds
|
|
|
706,371
|
|
|
|
-
|
|
|
|
-
|
|
|
|
706,371
|
|
Fixed income funds
|
|
|
618,521
|
|
|
|
-
|
|
|
|
-
|
|
|
|
618,521
|
|
Employer securities
|
|
|
2,585,851
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,585,851
|
|
Common collective trust
|
|
|
-
|
|
|
|
1,912,321
|
|
|
|
-
|
|
|
|
1,912,321
|
|
|
|
$
|
10,522,676
|
|
|
$
|
1,912,321
|
|
|
$
|
-
|
|
|
$
|
12,434,997
|
|
|
|
Investments at Fair Value
|
|
|
|
|
December 31, 2014
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blended funds
|
|
$
|
3,121,379
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,121,379
|
|
Growth funds
|
|
|
1,933,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,933,955
|
|
Balanced fund
|
|
|
1,207,971
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,207,971
|
|
Value funds
|
|
|
766,340
|
|
|
|
-
|
|
|
|
-
|
|
|
|
766,340
|
|
Fixed income funds
|
|
|
676,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
676,877
|
|
Employer securities
|
|
|
2,049,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,049,124
|
|
Common collective trust
|
|
|
-
|
|
|
|
1,772,579
|
|
|
|
-
|
|
|
|
1,772,579
|
|
|
|
$
|
9,755,646
|
|
|
$
|
1,772,579
|
|
|
$
|
-
|
|
|
$
|
11,528,225
|
|
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
The
Stable Value Fund is 100% invested in the Wells Fargo Stable Value Fund C (“Fund C”), a collective trust fund, reported
as a fully benefit-responsive contract. Fund C invests primarily in investment contracts, including traditional guaranteed investments
contracts (“GICs”) and security-backed contracts issued by insurance companies and other financial institutions.
Wells Fargo Bank, N.A. (the “Bank”) serves as the trustee and custodian for Fund C. Galliard Capital Management,
Inc., a Bank subsidiary, serves as investment advisor for Fund C.
GICs
are backed by the general account of the contract issuer. Fund C deposits a lump sum with the issuer and receives a guaranteed
interest rate for a specified period of time. Interest is accrued on either a simple or fully compounded basis and is paid
either periodically or at the end of the contract term. The issuer guarantees that all qualified participant withdrawals
will be at contract value (principal plus accrued interest). Most GICs provide a fixed rate of interest over the term to
maturity of the contract and, therefore, do not experience fluctuating crediting rates.
A
security-backed contract is an investment contract issued by an insurance company or other financial institution, backed by a
portfolio of bonds. The bond portfolio is either owned directly by Fund C or owned by the contract issuer and segregated
in a separate account for the benefit of Fund C. The portfolio underlying the contract is maintained separately from the contract
issuer’s general assets, usually by a third party custodian. The interest crediting rate of a security-backed contract
is based on contract value, and the fair value, duration, and yield to maturity of the underlying portfolio. These contracts
typically allow for realized and unrealized gains and losses on the underlying assets to be amortized, usually over the duration
of the underlying investments, through adjustments to the future interest crediting rate, rather than reflected immediately in
the net assets of Fund C. The issuer guarantees that all qualified participant withdrawals will be at contract value.
The security-backed contracts are designed to reset their respective crediting rates on a quarterly basis and cannot credit an
interest rate that is less than zero percent.
The
yield earned by Fund C with an adjustment to reflect the actual interest rate credited to participants in Fund C at December 31,
2015 and 2014 was 1.79% and 1.64%, respectively. This represents the annualized earnings credited to participants in Fund
C divided by the fair value of all investments in Fund C at December 31, 2015.
The
yield earned by Fund C at December 31, 2015 and 2014 was 1.83% and 1.40%, respectively. This represents the annualized earnings
of all investments in the Fund.
Participants
may not transfer monies out of the Stable Value Fund to a competing fund directly or indirectly within 90 days after being withdrawn
from the Stable Value Fund.
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
The
Plan’s investments that represented five percent or more of the Plan’s net assets available for benefits are presented
below at fair value:
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
American Balanced Fund
|
|
$
|
1,265,771
|
|
|
$
|
1,207,971
|
|
|
|
|
|
|
|
|
|
|
John Hancock Disciplined Value
|
|
|
*
|
|
|
|
664,054
|
|
|
|
|
|
|
|
|
|
|
JP Morgan Disciplined Equity
|
|
|
793,822
|
|
|
|
767,815
|
|
|
|
|
|
|
|
|
|
|
Vanguard Index 500
|
|
|
699,886
|
|
|
|
640,572
|
|
|
|
|
|
|
|
|
|
|
Ocean Shore Holding Co., Common Stock
|
|
|
2,585,851
|
|
|
|
2,049,124
|
|
|
|
|
|
|
|
|
|
|
T. Rowe Price Instl Large Capital Group
|
|
|
984,429
|
|
|
|
914,029
|
|
|
|
|
|
|
|
|
|
|
Stable Value Fund
|
|
|
1,912,321
|
|
|
|
1,722,579
|
|
|
*
|
Investment is less than 5%
|
The
Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated
in value by $165,153 during the year ended December 31, 2015, as summarized below:
Common collective trust
|
|
$
|
32,846
|
|
Employer securities
|
|
|
418,481
|
|
Mutual funds
|
|
|
(286,174
|
)
|
|
|
$
|
165,153
|
|
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
|
6 -
|
RELATED PARTY TRANSACTIONS
|
Newport
is the nondiscretionary trustee as defined by the Plan and, therefore, investments in Newport and its related entities qualify
as non-discriminatory party-in-interest transactions. The balance of investments sponsored by Newport was $7,936,825 and $7,706,522
as of December 31, 2015 and 2014, respectively.
Certain
officers and employees of the Employer (who may also be participants in the Plan) perform administrative services related to the
operation, record keeping and financial reporting of the Plan.
The
Employer pays for a majority of the Plan’s administrative expenses, including the annual audit and third party administrative
fees. For the year ended December 31, 2015, the Employer incurred audit and third party administrative fees of $17,510.
The
Plan invests in shares of common stock of the Employer’s parent company, Ocean Shore Holding Co. At December 31, 2015 and
2014, the Plan held common stock valued at $2,585,851 and $2,049,124, respectively.
Although it has not expressed
any intention to do so, the Employer has the right under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions set forth in ERISA. In the event that the Plan is terminated, participants would become 100
percent vested in their accounts.
|
8 -
|
RISKS AND UNCERTAINTIES
|
The Plan invests in various
investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due
to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values
of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the
statement of net assets available for benefits.
The Plan may invest in securities
with contractual cash flows, such as asset-backed securities, collateralized mortgage obligations and commercial mortgage-backed
securities, including securities backed by subprime mortgage loans. The value, liquidity and related income of these securities
are sensitive to changes in economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely
affected by shifts in the market’s perception of the issuers and changes in interest rates.
At December 31, 2015 and 2014,
approximately 21% and 17%, respectively, of the Plan’s net assets available for benefits were invested in the common stock
of the Employer. The underlying values of the Employer common stock are entirely dependent upon the performance of the Employer
and the market’s evaluation of such performance.
OCEAN CITY HOME BANK SAVINGS AND INVESTMENT
PLAN
NOTES TO FINANCIAL STATEMENTS
The Company adopted a pre-approved
prototype plan. The Internal Revenue Service determined that the prototype plan, by a letter dated March 31, 2008, is designed
in accordance with applicable sections of the Internal Revenue Code. Although the Plan has been amended since receiving the opinion
letter, the plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable
requirements of the IRC.
GAAP requires Plan management
to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position
that more likely than not would not be sustained upon examination by the Internal Revenue Service and U.S. Department of Labor.
The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2015, there
are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure
in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits
for any tax periods in progress. The plan administrator believes it is no longer subject to income tax examinations for years
prior to 2013.
|
10 -
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
|
The following is a reconciliation
of the net assets available for benefits per the financial statements to Form 5500 at December 31, 2015 and 2014:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Net assets available for benefits per financial statements
|
|
$
|
12,779,002
|
|
|
$
|
11,860,353
|
|
Adjustment from contract value to fair value for fully benefit-responsive investment contracts
|
|
|
37,127
|
|
|
|
43,871
|
|
Net assets available for benefits per Form 5500
|
|
$
|
12,816,129
|
|
|
$
|
11,904,224
|
|
The following is a reconciliation
of the increase in net assets per the financial statements to Form 5500 for the year ended December 31, 2015:
Total investment income per the financial statements
|
|
$
|
165,153
|
|
Adjustment from contract value to fair value for fully benefit-responsive investment contracts – prior year
|
|
|
(43,871
|
)
|
Adjustment from contract value to fair value for fully benefit-responsive investment contracts – current year
|
|
|
37,127
|
|
Net investment income per the Form 5500
|
|
$
|
158,409
|
|
SUPPLEMENTAL INFORMATION