Independent Bank Earnings 2019-03-31

IBCP 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 form10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2019

Commission file number 0-7818

INDEPENDENT BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan		38-2032782
(State or jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

4200 East Beltline, Grand Rapids, Michigan 49525

(Address of principal executive offices)

(616) 527-5820

(Registrant’s telephone number, including area code)

NONE

Former name, address and fiscal year, if changed since last report.

Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 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 ☒ NO ☐

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

YES ☒ NO ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company or an emerging growth company.

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act. Yes ☐ No ☐

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

YES ☐ NO ☒

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, 23,472,914 as of May 1, 2019.

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class		Trading Symbol		Name of each exchange on which registered
Common stock, no par value		IBCP		The Nasdaq Stock Market LLC

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

INDEX

PART I -	Financial Information	Number(s)
Item 1.	Condensed Consolidated Statements of Financial Condition March 31, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations Three-month periods ended March 31, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income Three-month periods ended March 31, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows Three-month periods ended March 31, 2019 and 2018	6
	Condensed Consolidated Statements of Shareholders’ Equity Three-month periods ended March 31, 2019 and 2018	7
	Notes to Interim Condensed Consolidated Financial Statements	8-56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57-77
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	78
Item 4.	Controls and Procedures	78

PART II -	Other Information
Item 1A	Risk Factors	79
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 6.	Exhibits	80

Index

FORWARD-LOOKING STATEMENTS

Statements in this report that are not statements of historical fact, including statements that include terms such as ‘‘will,’’ ‘‘may,’’ ‘‘should,’’ ‘‘believe,’’ ‘‘expect,’’ ‘‘forecast,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘project,’’ ‘‘intend,’’ ‘‘likely,’’ ‘‘optimistic’’ and ‘‘plan’’ and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions, are forward-looking statements. Forward-looking statements include, but are not limited to, descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; statements about our business and growth strategies; and expectations about economic and market conditions and trends. These forward-looking statements express our current expectations, forecasts of future events, or long-term goals. They are based on assumptions, estimates, and forecasts that, although believed to be reasonable, may turn out to be incorrect. Actual results could differ materially from those discussed in the forward-looking statements for a variety of reasons, including:

•

economic, market, operational, liquidity, credit, and interest rate risks associated with our business;

•

economic conditions generally and in the financial services industry, particularly economic conditions within Michigan and the regional and local real estate markets in which our bank operates;

•

the failure of assumptions underlying the establishment of, and provisions made to, our allowance for loan losses;

•

increased competition in the financial services industry, either nationally or regionally;

•

our ability to achieve loan and deposit growth;

•

volatility and direction of market interest rates;

•

the continued services of our management team; and

•

implementation of new legislation, which may have significant effects on us and the financial services industry.

This list provides examples of factors that could affect the results described by forward-looking statements contained in this report, but the list is not intended to be all-inclusive. The risk factors disclosed in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as updated by any new or modified risk factors disclosed in Part II – Item 1A of any subsequently filed Quarterly Report on Form 10-Q, include all known risks our management believes could materially affect the results described by forward-looking statements in this report. However, those risks may not be the only risks we face. Our results of operations, cash flows, financial position, and prospects could also be materially and adversely affected by additional factors that are not presently known to us that we currently consider to be immaterial, or that develop after the date of this report. We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this report are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to update or alter any statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

Index

Part I - Item 1.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

	March 31, 2019			December 31, 2018
	(unaudited)
	(In thousands, except share amounts)
Assets
Cash and due from banks	$	33,247		$	23,350
Interest bearing deposits		38,376			46,894
Cash and Cash Equivalents		71,623			70,244
Interest bearing deposits - time		496			595
Equity securities at fair value		-			393
Securities available for sale		461,531			427,926
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		18,359			18,359
Loans held for sale, carried at fair value		43,098			44,753
Loans held for sale, carried at lower of cost or fair value		-			41,471
Loans
Commercial		1,168,404			1,144,481
Mortgage		1,043,745			1,042,890
Installment		406,646			395,149
Total Loans		2,618,795			2,582,520
Allowance for loan losses		(25,254	)		(24,888	)
Net Loans		2,593,541			2,557,632
Other real estate and repossessed assets, net		1,338			1,299
Property and equipment, net		37,985			38,777
Bank-owned life insurance		55,310			55,068
Deferred tax assets, net		2,866			5,779
Capitalized mortgage loan servicing rights		19,909			21,400
Other intangibles		6,143			6,415
Goodwill		28,300			28,300
Accrued income and other assets		43,107			34,870
Total Assets	$	3,383,606		$	3,353,281

Liabilities and Shareholders’ Equity
Deposits
Non-interest bearing	$	858,261		$	879,549
Savings and interest-bearing checking		1,207,965			1,194,865
Reciprocal		267,178			182,072
Time		388,729			385,981
Brokered time		212,092			270,961
Total Deposits		2,934,225			2,913,428
Other borrowings		25,714			25,700
Subordinated debentures		39,405			39,388
Accrued expenses and other liabilities		39,536			35,771
Total Liabilities		3,038,880			3,014,287
Commitments and contingent liabilities
Shareholders’ Equity
Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding		-			-
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 23,560,179 shares at March 31, 2019 and 23,579,725 shares at December 31, 2018		374,678			377,372
Accumulated deficit		(23,135	)		(28,270	)
Accumulated other comprehensive loss		(6,817	)		(10,108	)
Total Shareholders’ Equity		344,726			338,994
Total Liabilities and Shareholders’ Equity	$	3,383,606		$	3,353,281

See notes to interim condensed consolidated financial statements (unaudited)

Index

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

	Three months ended March 31,
	2019			2018
	(unaudited)
	(In thousands, except per share amounts)
Interest Income
Interest and fees on loans	$	32,681		$	23,353
Interest on securities
Taxable		3,006			2,635
Tax-exempt		374			479
Other investments		575			330
Total Interest Income		36,636			26,797
Interest Expense
Deposits		5,681			2,287
Other borrowings and subordinated debentures		712			574
Total Interest Expense		6,393			2,861
Net Interest Income		30,243			23,936
Provision for loan losses		664			315
Net Interest Income After Provision for Loan Losses		29,579			23,621
Non-interest Income
Service charges on deposit accounts		2,640			2,905
Interchange income		2,355			2,246
Net gains (losses) on assets
Mortgage loans		3,611			2,571
Securities		304			(173	)
Mortgage loan servicing, net		(1,215	)		2,221
Other		2,264			1,943
Total Non-interest Income		9,959			11,713
Non-interest Expense
Compensation and employee benefits		16,351			14,468
Occupancy, net		2,505			2,264
Data processing		2,144			1,878
Furniture, fixtures and equipment		1,029			967
Communications		769			680
Interchange expense		688			598
Loan and collection		634			677
Advertising		672			441
Legal and professional		369			378
FDIC deposit insurance		368			230
Merger related expenses		-			174
Other		2,461			1,380
Total Non-interest Expense		27,990			24,135
Income Before Income Tax		11,548			11,199
Income tax expense		2,167			2,038
Net Income	$	9,381		$	9,161
Net Income Per Common Share
Basic	$	0.40		$	0.43
Diluted	$	0.39		$	0.42

See notes to interim condensed consolidated financial statements (unaudited)

Index

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

	Three months ended March 31,
	2019			2018
	(unaudited – In thousands)

Net income	$	9,381		$	9,161
Other comprehensive income (loss)
Securities available for sale
Unrealized gains (losses) arising during period		5,364			(3,865	)
Change in unrealized gains (losses) for which a portion of other than temporary impairment has been recognized in earnings		(2	)		(1	)
Reclassification adjustments for (gains) losses included in earnings		(137	)		19
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale		5,225			(3,847	)
Income tax expense (benefit)		1,097			(808	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale, net of tax		4,128			(3,039	)
Derivative instruments
Unrealized gain (loss) arising during period		(912	)		684
Reclassification adjustment for (income) expense recognized in earnings		(149	)		(6	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on derivative instruments		(1,061	)		678
Income tax expense (benefit)		(224	)		142
Unrealized gains (losses) recognized in other comprehensive income (loss) on derivative instruments, net of tax		(837	)		536
Other comprehensive income (loss)		3,291			(2,503	)
Comprehensive income	$	12,672		$	6,658

See notes to interim condensed consolidated financial statements (unaudited)

Index

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

	Three months ended March 31,
	2019			2018
	(unaudited - In thousands)
Net Income	$	9,381		$	9,161
Adjustments to Reconcile Net Income to Net Cash From Operating Activities
Proceeds from the sale of equity securities at fair value		560			-
Proceeds from sales of loans held for sale		87,496			92,607
Disbursements for loans held for sale		(82,230	)		(84,748	)
Provision for loan losses		664			315
Deferred income tax expense		2,039			2,039
Deferred loan fees and costs		(111	)		(638	)
Net depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearing deposits - time		1,479			1,819
Net gains on mortgage loans		(3,611	)		(2,571	)
Net (gains) losses on securities		(304	)		173
Share based compensation		420			407
Increase in accrued income and other assets		(8,107	)		(5,965	)
Increase (decrease) in accrued expenses and other liabilities		2,455			(5,711	)
Total Adjustments		750			(2,273	)
Net Cash From Operating Activities		10,131			6,888
Cash Flow Used in Investing Activities
Proceeds from the sale of securities available for sale		42,236			22,277
Proceeds from maturities, prepayments and calls of securities available for sale		32,533			34,067
Purchases of securities available for sale		(71,693	)		(23,637	)
Proceeds from the maturity of interest bearing deposits - time		100			1,000
Net increase in portfolio loans (loans originated, net of principal payments)		(65,653	)		(68,611	)
Proceeds from the sale of portfolio loans		40,630			16,460
Proceeds from bank-owned life insurance		-			474
Proceeds from the sale of other real estate and repossessed assets		167			608
Capital expenditures		(511	)		(921	)
Net Cash Used in Investing Activities		(22,191	)		(18,283	)
Cash Flow From (Used in) Financing Activities
Net increase in total deposits		20,797			29,867
Net increase (decrease) in other borrowings		2			(6,753	)
Proceeds from Federal Home Loan Bank Advances		-			40,000
Payments of Federal Home Loan Bank Advances		-			(60,000	)
Dividends paid		(4,246	)		(3,206	)
Proceeds from issuance of common stock		282			13
Repurchase of common stock		(2,530	)		-
Share based compensation withholding obligation		(866	)		(888	)
Net Cash From (Used in) Financing Activities		13,439			(967	)
Net Increase (Decrease) in Cash and Cash Equivalents		1,379			(12,362	)
Cash and Cash Equivalents at Beginning of Period		70,244			54,738
Cash and Cash Equivalents at End of Period	$	71,623		$	42,376
Cash paid during the period for
Interest	$	6,253		$	2,656
Income taxes		-			-
Operating leases		563			-
Transfers to other real estate and repossessed assets		325			322
Purchase of securities available for sale not yet settled		1,500			3,220
Securitization of portfolio loans		29,790			-
Right of use assets obtained in exchange for lease obligations		7,703			-

See notes to interim condensed consolidated financial statements (unaudited)

Index

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

	Common Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	(Dollars in thousands, except per share amounts)
Balances at January 1, 2019	$	377,372		$	(28,270	)	$	(10,108	)	$	338,994
Net income, three months ended March 31, 2019		-			9,381			-			9,381
Cash dividends declared, $.18 per share		-			(4,246	)		-			(4,246	)
Repurchase of 115,787 shares of common stock		(2,530	)		-			-			(2,530	)
Issuance of 68,399 shares of common stock		282			-			-			282
Share based compensation (issuance of 84,128 shares of common stock)		420			-			-			420
Share based compensation withholding obligation (withholding of 56,286 shares of common stock)		(866	)		-			-			(866	)
Other comprehensive income		-			-			3,291			3,291
Balances at March 31, 2019	$	374,678		$	(23,135	)	$	(6,817	)	$	344,726

Balances at January 1, 2018	$	324,986		$	(54,054	)	$	(5,999	)	$	264,933
Net income, three months ended March 31, 2018		-			9,161			-			9,161
Cash dividends declared, $.15 per share		-			(3,206	)		-			(3,206	)
Issuance of 3,800 shares of common stock		13			-			-			13
Share based compensation (issuance of 74,475 shares of common stock)		407			-			-			407
Share based compensation withholding obligation (withholding of 37,328 shares of common stock)		(888	)		-			-			(888	)
Other comprehensive loss		-			-			(2,503	)		(2,503	)
Balances at March 31, 2018	$	324,518		$	(48,099	)	$	(8,502	)	$	267,917

See notes to interim condensed consolidated financial statements (unaudited)

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Preparation of Financial Statements

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2018 included in our Annual Report on Form 10-K.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary to present fairly our consolidated financial condition as of March 31, 2019 and December 31, 2018, and the results of operations for the three month periods ended March 31, 2019 and 2018. The results of operations for the three month period ended March 31, 2019, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. Our critical accounting policies include the determination of the allowance for loan losses and the valuation of capitalized mortgage loan servicing rights. Refer to our 2018 Annual Report on Form 10-K for a disclosure of our accounting policies.

2. New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This ASU will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For securities available for sale, allowances will be recorded rather than reducing the carrying amount as is done under the current other-than-temporary impairment model. This ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. This amended guidance is effective for us on January 1, 2020. We began evaluating this ASU in 2016 and have formed a committee that includes personnel from various areas of the Bank that meets regularly to discuss the implementation of the ASU. We have completed historical data validation and are currently in the process of reviewing credit loss estimation methodologies and performing test calculations. We have not yet determined what the impact will be on our consolidated operating results or financial condition, which will be impacted by several variables, including the economic environment and forecast at adoption. Though, by the nature of the implementation of an expected loss model compared to an incurred loss approach, we would anticipate our allowance for loan losses (“AFLL”) to increase under this ASU. The Bank expects to begin full parallel runs mid-2019, with a goal of providing an estimated impact range in our 2019 second quarter Form 10-Q.

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

In August 2018, the FASB issued ASU 2018-13, ‘‘Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement’’. This new ASU amends disclosure requirements in Topic 820 to eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The amended guidance eliminates the requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the entity’s policy for the timing of transfers between levels of the fair value hierarchy and the entity’s valuation processes for Level 3 fair value measurements. The amended guidance adds the requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements of instruments held at the end of the reporting period and for recurring and nonrecurring Level 3 fair value measurements, the range and weighted average used to develop significant unobservable inputs and how the weighted average was calculated, with certain exceptions. This amended guidance is effective for us on January 1, 2020, and is not expected to have a material impact on our consolidated operating results or financial condition.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. This ASU amends existing guidance related to the accounting for leases. These amendments, among other things, require lessees to account for most leases on the balance sheet while recognizing expense on the income statement in a manner similar to existing guidance. For lessors the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. This amended guidance was effective for us on January 1, 2019 and did not have a material impact on our consolidated operating results or financial condition. Based on our operating leases that we currently have in place we do not expect a material change in the recognition, measurement and presentation of lease expense or impact on cash flow. The primary impact was the recognition of certain operating leases on our Condensed Consolidated Statements of Financial Condition which resulted in the recording of right of use (“ROU”) assets and offsetting lease liabilities each totaling approximately $7.7 million at January 1, 2019. See note #16.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities”. This new ASU amends the hedge accounting model in Topic 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments expand an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This amended guidance was effective for us on January 1, 2019, and did not have a material impact on our consolidated operating results or financial condition.

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

3. Securities

Securities available for sale consist of the following:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
March 31, 2019
U.S. agency	$	18,143	$	57	$	71	$	18,129
U.S. agency residential mortgage-backed		141,886		1,067		915		142,038
U.S. agency commercial mortgage-backed		11,418		10		115		11,313
Private label mortgage-backed		32,984		355		247		33,092
Other asset backed		110,372		115		197		110,290
Obligations of states and political subdivisions		108,749		707		1,071		108,385
Corporate		34,048		444		112		34,380
Trust preferred		1,964		-		81		1,883
Foreign government		2,040		-		19		2,021
Total	$	461,604	$	2,755	$	2,828	$	461,531

December 31, 2018
U.S. agency	$	20,198	$	9	$	193	$	20,014
U.S. agency residential mortgage-backed		124,777		817		1,843		123,751
U.S. agency commercial mortgage-backed		5,909		1		184		5,726
Private label mortgage-backed		29,735		321		637		29,419
Other asset backed		83,481		86		248		83,319
Obligations of states and political subdivisions		130,244		257		2,946		127,555
Corporate		34,866		29		586		34,309
Trust preferred		1,964		-		145		1,819
Foreign government		2,050		-		36		2,014
Total	$	433,224	$	1,520	$	6,818	$	427,926

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position follows:

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)

March 31, 2019
U.S. agency	$	96	$	1	$	10,904	$	70	$	11,000	$	71
U.S. agency residential mortgage-backed		5,232		10		50,813		905		56,045		915
U.S. agency commercial mortgage-backed		2,215		1		5,434		114		7,649		115
Private label mortgage-backed		10,468		12		14,496		235		24,964		247
Other asset backed		40,490		128		10,619		69		51,109		197
Obligations of states and political subdivisions		2,173		2		65,191		1,069		67,364		1,071
Corporate		1,795		6		8,376		106		10,171		112
Trust preferred		963		37		920		44		1,883		81
Foreign government		-		-		2,021		19		2,021		19
Total	$	63,432	$	197	$	168,774	$	2,631	$	232,206	$	2,828

December 31, 2018
U.S. agency	$	7,150	$	46	$	11,945	$	147	$	19,095	$	193
U.S. agency residential mortgage-backed		18,374		180		48,184		1,663		66,558		1,843
U.S. agency commercial mortgage-backed		566		3		5,094		181		5,660		184
Private label mortgage-backed		8,273		57		16,145		580		24,418		637
Other asset backed		53,043		160		10,235		88		63,278		248
Obligations of states and political subdivisions		25,423		262		80,701		2,684		106,124		2,946
Corporate		17,758		343		9,222		243		26,980		586
Trust preferred		939		61		880		84		1,819		145
Foreign government		-		-		2,014		36		2,014		36
Total	$	131,526	$	1,112	$	184,420	$	5,706	$	315,946	$	6,818

Our portfolio of securities available for sale is reviewed quarterly for impairment in value. In performing this review management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income (loss).

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at March 31, 2019, we had 38 U.S. agency, 120 U.S. agency residential mortgage-backed and 15 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to increases in interest rates since acquisition and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label mortgage backed securities — at March 31, 2019, we had 31 of this type of security whose fair value is less than amortized cost. Unrealized losses are primarily due to credit spread widening and increases in interest rates since their acquisition.

Two private label mortgage-backed securities (including two of the three securities discussed further below) were reviewed for other than temporary impairment (‘‘OTTI’’) utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization. See further discussion below.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

Other asset backed — at March 31, 2019, we had 85 other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at March 31, 2019, we had 212 municipal securities whose fair value is less than amortized cost. The unrealized losses are primarily due to wider benchmark pricing spreads and increases in interest rates since acquisition. Tax exempt securities have been negatively impacted by lower federal tax rates signed into law in December, 2017. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at March 31, 2019, we had 13 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and increases in interest rates since acquisition. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Trust preferred securities — at March 31, 2019, we had two trust preferred securities whose fair value is less than amortized cost. Both of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities has suffered from credit spread widening. One of the securities is rated by a major rating agency as investment grade while the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.96 million as of March 31, 2019, continues to have satisfactory credit metrics and make interest payments. As management does not intend to liquidate this security and it is more likely than not that we will not be required to sell this security prior to recovery of the unrealized loss, this decline is not deemed to be other than temporary.

Foreign government — at March 31, 2019, we had two foreign government securities whose fair value is less than amortized cost. The unrealized losses are primarily due to increases in interest rates since acquisition. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

We recorded no credit related OTTI charges in our Condensed Consolidated Statements of Operations related to securities available for sale during the three month periods ended March 31, 2019 and 2018, respectively.

At March 31, 2019, three private label mortgage-backed securities had credit related OTTI and are summarized as follows:

	Senior Security		Super Senior Security		Senior Support Security		Total
	(In thousands)

Fair value	$	756	$	714	$	19	$	1,489
Amortized cost		629		546		-		1,175
Non-credit unrealized loss		-		-		-		-
Unrealized gain		127		168		19		314
Cumulative credit related OTTI		757		457		380		1,594

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral. All three of these securities have unrealized gains at March 31, 2019. The original amortized cost (current amortized cost excluding cumulative credit related OTTI) for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI. The unrealized loss (based on original amortized cost) for these securities is now less than previously recorded credit related OTTI amounts.

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A roll forward of credit losses recognized in earnings on securities available for sale follows:

	Three months ended March 31,
	2019		2018
	(In thousands)
Balance at beginning of period	$	1,594	$	1,594
Additions to credit losses on securities for which no previous OTTI was recognized		-		-
Increases to credit losses on securities for which OTTI was previously recognized		-		-
Balance at end of period	$	1,594	$	1,594

The amortized cost and fair value of securities available for sale at March 31, 2019, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	10,674	$	10,664
Maturing after one year but within five years		60,499		60,455
Maturing after five years but within ten years		52,841		52,862
Maturing after ten years		40,930		40,817
		164,944		164,798
U.S. agency residential mortgage-backed		141,886		142,038
U.S. agency commercial mortgage-backed		11,418		11,313
Private label mortgage-backed		32,984		33,092
Other asset backed		110,372		110,290
Total	$	461,604	$	461,531

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis. A summary of proceeds from the sale of securities available for sale and gains and losses for the three month periods ending March 31, follows:

			Realized
	Proceeds		Gains		Losses
	(In thousands)
2019	$	42,236	$	169	$	32
2018		22,277		76		95

Certain preferred stocks which were all sold during the first quarter of 2019 had been classified as equity securities at fair value in our Condensed Consolidated Statement of Financial Condition. During the three months ended March 31, 2019 and 2018 we recognized gains (losses) on these preferred stocks of $0.167 million and $(0.154) million, respectively, that are included in net gains (losses) on securities in the Condensed Consolidated Statements of Operations. Zero and $(0.154) million of these gains (losses) during the three months ended March 31, 2019 and 2018, respectively relate to preferred stock still held at each respective period end.

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4. Loans

Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent and historical loss experience, current economic conditions and other pertinent factors.

An analysis of the allowance for loan losses by portfolio segment for the three months ended March 31, follows:

	Commercial			Mortgage			Installment			Subjective Allocation			Total
	(In thousands)
2019
Balance at beginning of period	$	7,090		$	7,978		$	895		$	8,925		$	24,888
Additions (deductions)
Provision for loan losses		420			573			523			(852	)		664
Recoveries credited to the allowance		127			224			217			-			568
Loans charged against the allowance		(119	)		(363	)		(384	)		-			(866	)
Balance at end of period	$	7,518		$	8,412		$	1,251		$	8,073		$	25,254

2018
Balance at beginning of period	$	5,595		$	8,733		$	864		$	7,395		$	22,587
Additions (deductions)
Provision for loan losses		(135	)		147			69			234			315
Recoveries credited to the allowance		606			180			228			-			1,014
Loans charged against the allowance		(40	)		(439	)		(366	)		-			(845	)
Balance at end of period	$	6,026		$	8,621		$	795		$	7,629		$	23,071

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Subjective Allocation		Total
	(In thousands)
March 31, 2019
Allowance for loan losses:
Individually evaluated for impairment	$	1,204	$	5,159	$	323	$	-	$	6,686
Collectively evaluated for impairment		6,314		3,253		928		8,073		18,568
Loans acquired with deteriorated credit quality		-		-		-		-		-
Total ending allowance for loan losses balance	$	7,518	$	8,412	$	1,251	$	8,073	$	25,254

Loans
Individually evaluated for impairment	$	7,928	$	46,315	$	3,523			$	57,766
Collectively evaluated for impairment		1,162,376		1,001,146		403,881				2,567,403
Loans acquired with deteriorated credit quality		1,537		546		326				2,409
Total loans recorded investment		1,171,841		1,048,007		407,730				2,627,578
Accrued interest included in recorded investment		3,437		4,262		1,084				8,783
Total loans	$	1,168,404	$	1,043,745	$	406,646			$	2,618,795

December 31, 2018
Allowance for loan losses:
Individually evaluated for impairment	$	1,305	$	4,799	$	206	$	-	$	6,310
Collectively evaluated for impairment		5,785		3,179		689		8,925		18,578
Loans acquired with deteriorated credit quality		-		-		-		-		-
Total ending allowance for loan losses balance	$	7,090	$	7,978	$	895	$	8,925	$	24,888

Loans
Individually evaluated for impairment	$	8,697	$	46,394	$	3,370			$	58,461
Collectively evaluated for impairment		1,137,586		1,000,038		392,460				2,530,084
Loans acquired with deteriorated credit quality		1,609		555		349				2,513
Total loans recorded investment		1,147,892		1,046,987		396,179				2,591,058
Accrued interest included in recorded investment		3,411		4,097		1,030				8,538
Total loans	$	1,144,481	$	1,042,890	$	395,149			$	2,582,520

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
March 31, 2019
Commercial
Income producing - real estate	$	-	$	-	$	-
Land, land development and construction - real estate		-		-		-
Commercial and industrial		-		1,705		1,705
Mortgage
1-4 family		-		4,878		4,878
Resort lending		-		508		508
Home equity - 1st lien		-		157		157
Home equity - 2nd lien		-		573		573
Installment
Home equity - 1st lien		-		219		219
Home equity - 2nd lien		-		234		234
Boat lending		-		359		359
Recreational vehicle lending		-		6		6
Other		-		210		210
Total recorded investment	$	-	$	8,849	$	8,849
Accrued interest included in recorded investment	$	-	$	-	$	-
December 31, 2018
Commercial
Income producing - real estate	$	-	$	-	$	-
Land, land development and construction - real estate		-		-		-
Commercial and industrial		-		2,220		2,220
Mortgage
1-4 family		5		4,695		4,700
Resort lending		-		755		755
Home equity - 1st lien		-		159		159
Home equity - 2nd lien		-		419		419
Installment
Home equity - 1st lien		-		178		178
Home equity - 2nd lien		-		226		226
Boat lending		-		166		166
Recreational vehicle lending		-		7		7
Other		-		204		204
Total recorded investment	$	5	$	9,029	$	9,034
Accrued interest included in recorded investment	$	-	$	-	$	-

Index

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

An aging analysis of loans by class follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
March 31, 2019
Commercial
Income producing - real estate	$	-	$	-	$	-	$	-	$	398,191	$

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$21.57	23	$506

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-05-22	Other Events, Exhibits
8-K	2019-04-23	Shareholder Vote
8-K	2019-04-23	Regulation FD, Exhibits
8-K	2019-04-22	Earnings, Exhibits
8-K	2019-01-29	Earnings, Exhibits
8-K	2018-12-18	Other Events, Exhibits
8-K	2018-10-25	Earnings, Exhibits
8-K	2018-07-26	Earnings, Exhibits
8-K	2018-04-24	Exhibits
8-K	2018-04-23	Earnings, Exhibits
8-K	2018-02-15	Other Events, Exhibits
8-K	2018-01-30	Earnings, Exhibits
8-K	2018-01-01

BBT	BB&T	37,910
WIT	Wipro	27,030
PKX	Posco	16,740
KOF	Coca Cola Femsa	13,060
AMH	American Homes 4 Rent	7,070
TRCB	Two River Bancorp	133
MLAF	Aspect Futuresaccess	0
ILAI	International Land Alliance	0
PRAN	Prana Biotechnology	0
CBAK	CBAK Energy Technology	0

EX-10.1	ex10_1.htm
EX-31.1	ex31_1.htm
EX-31.2	ex31_2.htm
EX-32.1	ex32_1.htm
EX-32.2	ex32_2.htm