Company Quick10K Filing
Independent Bank
Price21.73 EPS1
Shares23 P/E15
MCap501 P/FCF83
Net Debt-82 EBIT61
TEV418 TEV/EBIT7
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-03-06
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-03
10-K 2018-12-31 Filed 2019-03-07
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-03-07
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-08-04
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-03-07
10-Q 2016-09-30 Filed 2016-11-03
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-03-07
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-03-06
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-05
10-Q 2014-03-31 Filed 2014-05-05
10-K 2013-12-31 Filed 2014-03-07
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-13
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-03-13
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-03-10
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-11
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-04-30 Earnings, Exhibits
8-K 2020-04-21 Shareholder Vote
8-K 2020-04-21 Regulation FD, Exhibits
8-K 2020-03-10 Officers
8-K 2020-01-23 Earnings, Exhibits
8-K 2019-10-31 Other Events, Exhibits
8-K 2019-10-24 Earnings, Exhibits
8-K 2019-10-22 Exhibits
8-K 2019-08-26 Other Events, Exhibits
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-06-27 Officers, Exhibits
8-K 2019-06-19 Other Events, Exhibits
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 Regulation FD, Exhibits
8-K 2018-04-24 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

IBCP 10Q Quarterly Report

Part I - Item 1. Independent Bank Corporation and Subsidiaries
Item 2.
Item 3.
Item 4.
Part II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Independent Bank Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
3.62.92.21.40.70.02012201420172020
Assets, Equity
0.10.10.10.00.00.02016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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, 2020

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.

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

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

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, 21,892,836 as of May 4, 2020.



INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

INDEX

   
Number(s)
PART I -
Financial Information
 
Item 1.
3

4

5

6

7

8-57
Item 2.
58-80
Item 3.
81
Item 4.
81
     
PART II -
Other Information
 
Item 1A
82
Item 2.
85
Item 6.
86

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 including the impact of the ongoing COVID-19 pandemic on each of these items;

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 including the economic impact of the ongoing COVID-19 pandemic in each of these areas;

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, 2019, 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 the 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.

Part I - Item 1. INDEPENDENT BANK CORPORATION AND SUBSIDIARIES 
Condensed Consolidated Statements of Financial Condition

   
March 31,
2020
   
December 31,
2019
 
   
(unaudited)
 
   
(In thousands, except share amounts)
 
Assets
 
Cash and due from banks
 
$
48,753
   
$
53,295
 
Interest bearing deposits
   
21,538
     
12,009
 
Cash and Cash Equivalents
   
70,291
     
65,304
 
Interest bearing deposits - time
   
-
     
350
 
Securities available for sale
   
594,284
     
518,400
 
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
   
18,359
     
18,359
 
Loans held for sale, carried at fair value
   
64,549
     
69,800
 
Loans
               
Commercial
   
1,181,599
     
1,166,695
 
Mortgage
   
1,069,967
     
1,098,911
 
Installment
   
466,549
     
459,417
 
Total Loans
   
2,718,115
     
2,725,023
 
Allowance for loan losses
   
(32,495
)
   
(26,148
)
Net Loans
   
2,685,620
     
2,698,875
 
Other real estate and repossessed assets, net
   
1,494
     
1,865
 
Property and equipment, net
   
37,776
     
38,411
 
Bank-owned life insurance
   
55,035
     
55,710
 
Deferred tax assets, net
   
4,280
     
2,072
 
Capitalized mortgage loan servicing rights, carried at fair value
   
14,829
     
19,171
 
Other intangibles
   
5,071
     
5,326
 
Goodwill
   
28,300
     
28,300
 
Accrued income and other assets
   
52,499
     
42,751
 
Total Assets
 
$
3,632,387
   
$
3,564,694
 
                 
Liabilities and Shareholders' Equity
 
Deposits
               
Non-interest bearing
 
$
874,935
   
$
852,076
 
Savings and interest-bearing checking
   
1,229,999
     
1,186,745
 
Reciprocal
   
464,574
     
431,027
 
Time
   
359,050
     
376,877
 
Brokered time
   
155,006
     
190,002
 
Total Deposits
   
3,083,564
     
3,036,727
 
Other borrowings
   
101,954
     
88,646
 
Subordinated debentures
   
39,473
     
39,456
 
Accrued expenses and other liabilities
   
71,778
     
49,696
 
Total Liabilities
   
3,296,769
     
3,214,525
 
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: 21,892,001 shares at March 31, 2020 and 22,481,643 shares at December 31, 2019
   
338,528
     
352,344
 
Retained earnings
   
1,944
     
1,611
 
Accumulated other comprehensive loss
   
(4,854
)
   
(3,786
)
Total Shareholders’ Equity
   
335,618
     
350,169
 
Total Liabilities and Shareholders’ Equity
 
$
3,632,387
   
$
3,564,694
 

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations

   
Three months ended
March 31,
 
   
2020
   
2019
 
   
(unaudited)
 
   
(In thousands, except per share amounts)
 
Interest Income
           
Interest and fees on loans
 
$
31,764
   
$
32,681
 
Interest on securities
               
Taxable
   
3,059
     
3,006
 
Tax-exempt
   
390
     
374
 
Other investments
   
366
     
575
 
Total Interest Income
   
35,579
     
36,636
 
Interest Expense
               
Deposits
   
4,700
     
5,681
 
Other borrowings and subordinated debentures
   
688
     
712
 
Total Interest Expense
   
5,388
     
6,393
 
Net Interest Income
   
30,191
     
30,243
 
Provision for loan losses
   
6,721
     
664
 
Net Interest Income After Provision for Loan Losses
   
23,470
     
29,579
 
Non-interest Income
               
Service charges on deposit accounts
   
2,591
     
2,640
 
Interchange income
   
2,457
     
2,355
 
Net gains on assets
               
Mortgage loans
   
8,840
     
3,611
 
Securities
   
253
     
304
 
Mortgage loan servicing, net
   
(5,300
)
   
(1,215
)
Other
   
2,163
     
2,264
 
Total Non-interest Income
   
11,004
     
9,959
 
Non-interest Expense
               
Compensation and employee benefits
   
16,509
     
16,351
 
Occupancy, net
   
2,460
     
2,505
 
Data processing
   
2,355
     
2,144
 
Furniture, fixtures and equipment
   
1,036
     
1,029
 
Communications
   
803
     
769
 
Interchange expense
   
859
     
688
 
Loan and collection
   
805
     
634
 
Advertising
   
683
     
672
 
Legal and professional
   
393
     
369
 
FDIC deposit insurance
   
370
     
368
 
Other
   
2,446
     
2,461
 
Total Non-interest Expense
   
28,719
     
27,990
 
Income Before Income Tax
   
5,755
     
11,548
 
Income tax expense
   
945
     
2,167
 
Net Income
 
$
4,810
   
$
9,381
 
Net Income Per Common Share
               
Basic
 
$
0.22
   
$
0.40
 
Diluted
 
$
0.21
   
$
0.39
 

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income

   
Three months ended
March 31,
 
   
2020
   
2019
 
   
(unaudited - In thousands)
 
Net income
 
$
4,810
   
$
9,381
 
Other comprehensive income (loss)
               
Securities available for sale
               
Unrealized gains (losses) arising during period
   
(598
)
   
5,364
 
Change in unrealized losses for which a portion of other than temporary impairment has been recognized in earnings
   
(169
)
   
(2
)
Reclassification adjustments for gains included in earnings
   
(253
)
   
(137
)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale
   
(1,020
)
   
5,225
 
Income tax expense (benefit)
   
(214
)
   
1,097
 
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale, net of tax
   
(806
)
   
4,128
 
Derivative instruments
               
Unrealized gain (loss) arising during period
   
(406
)
   
(912
)
Reclassification adjustment for income recognized in earnings
   
75
     
(149
)

               
Unrealized gains (losses) recognized in other comprehensive income (loss) on derivative instruments
   
(331
)
   
(1,061
)
Income tax expense (benefit)
   
(69
)
   
(224
)
Unrealized gains (losses) recognized in other comprehensive income (loss) on derivative instruments, net of tax
   
(262
)
   
(837
)
Other comprehensive income (loss)
   
(1,068
)
   
3,291
 
Comprehensive income
 
$
3,742
   
$
12,672
 

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows

   
Three months ended March 31,
 
   
2020
   
2019
 
   
(unaudited - In thousands)
 
Net Income
 
$
4,810
   
$
9,381
 
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
   
241,856
     
87,496
 
Disbursements for loans held for sale
   
(227,765
)
   
(82,230
)
Provision for loan losses
   
6,721
     
664
 
Deferred income tax expense (benefit)
   
(1,925
)
   
2,039
 
Deferred loan fees and costs
   
(358
)
   
(111
)
Net depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearing deposits - time
   
1,795
     
1,479
 
Net gains on mortgage loans
   
(8,840
)
   
(3,611
)
Net gains on securities
   
(253
)
   
(304
)
Share based compensation
   
547
     
420
 
(Increase) decrease in accrued income and other assets
   
5,095
     
(8,107
)
Increase in accrued expenses and other liabilities
   
599
     
2,455
 
Total Adjustments
   
17,472
     
750
 
Net Cash From Operating Activities
   
22,282
     
10,131
 
Cash Flow Used in Investing Activities
               
Proceeds from the sale of securities available for sale
   
21,743
     
42,236
 
Proceeds from maturities, prepayments and calls of securities available for sale
   
42,744
     
32,533
 
Purchases of securities available for sale
   
(103,901
)
   
(71,693
)
Proceeds from the maturity of interest bearing deposits - time
   
350
     
100
 
Net increase in portfolio loans (loans originated, net of principal payments)
   
(22,432
)
   
(65,653
)
Proceeds from the sale of portfolio loans
   
2,395
     
40,630
 
Proceeds from bank-owned life insurance
   
945
     
-
 
Proceeds from the sale of other real estate and repossessed assets
   
328
     
167
 
Capital expenditures
   
(760
)
   
(511
)
Net Cash Used in Investing Activities
   
(58,588
)
   
(22,191
)
Cash Flow From Financing Activities
               
Net increase in total deposits
   
46,837
     
20,797
 
Net increase in other borrowings
   
6,296
     
2
 
Proceeds from Federal Home Loan Bank Advances
   
160,000
     
-
 
Payments of Federal Home Loan Bank Advances
   
(153,000
)
   
-
 
Dividends paid
   
(4,477
)
   
(4,246
)
Proceeds from issuance of common stock
   
11
     
282
 
Repurchase of common stock
   
(13,784
)
   
(2,530
)
Share based compensation withholding obligation
   
(590
)
   
(866
)
Net Cash From Financing Activities
   
41,293
     
13,439
 
Net Increase in Cash and Cash Equivalents
   
4,987
     
1,379
 
Cash and Cash Equivalents at Beginning of Period
   
65,304
     
70,244
 
Cash and Cash Equivalents at End of Period
 
$
70,291
   
$
71,623
 
Cash paid during the period for
               
Interest
 
$
5,489
   
$
6,253
 
Income taxes
   
-
     
-
 
Operating leases
   
476
     
563
 
Transfers to other real estate and repossessed assets
   
66
     
325
 
Purchase of securities available for sale not yet settled
   
10,497
     
1,500
 
Securitization of portfolio loans
   
26,325
     
29,790
 
Right of use assets obtained in exchange for lease obligations
   
116
     
7,703
 

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders' Equity

   
Common
Stock
   
Retained
Earnings
(Accumulated
Deficit)
   
Accumulated
Other
Comprehensive
Loss
   
Total
Shareholders’
Equity
 
   
(Dollars in thousands, except per share amounts)
 
Balances at January 1, 2020
 
$
352,344
   
$
1,611
   
$
(3,786
)
 
$
350,169
 
Net income, three months ended March 31, 2020
   
-
     
4,810
     
-
     
4,810
 
Cash dividends declared, $.20 per share
   
-
     
(4,477
)
   
-
     
(4,477
)
Repurchase of 678,929 shares of common stock
   
(13,784
)
   
-
     
-
     
(13,784
)
Issuance of 11,567 shares of common stock
   
11
     
-
     
-
     
11
 
Share based compensation (issuance of 105,894 shares of common stock)
   
547
     
-
     
-
     
547
 
Share based compensation withholding obligation (withholding of 28,174 shares of common stock)
   
(590
)
   
-
     
-
     
(590
)
Other comprehensive income
   
-
     
-
     
(1,068
)
   
(1,068
)
Balances at March 31, 2020
 
$
338,528
   
$
1,944
   
$
(4,854
)
 
$
335,618
 
                                 
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
 

See notes to interim condensed consolidated financial statements (unaudited)

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, 2019 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, 2020 and December 31, 2019, and the results of operations for the three month periods ended March 31, 2020 and 2019.  The results of operations for the three month period ended March 31, 2020, 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 2019 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:


Replaces the existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost, which will reflect our estimate of credit losses over the full remaining expected life of the financial assets and will consider expected future changes in macroeconomic conditions.

Eliminates existing guidance for purchase credit impaired (‘‘PCI’’) loans, and requires recognition of the nonaccretable difference as an increase to the allowance for expected credit losses on financial assets purchased with more than insignificant credit deterioration since origination, which will be offset by an increase in the recorded investment of the related loans.

Requires inclusion of expected recoveries, limited to the cumulative amount of prior write-offs, when estimating the allowance for credit losses for in scope financial assets (including collateral dependent assets).

Amends existing impairment guidance for securities available for sale to incorporate an allowance, which will allow for reversals of credit impairments in the event that the credit of an issuer improves. Credit losses on securities available for sale are limited to the amount of the decline in fair value regardless of what the credit loss model would show for impairment.

Generally requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

We began evaluating this ASU in 2016 and established a company-wide, cross-discipline governance structure, which provides implementation oversight. We continued to test and refine our current expected credit loss models that satisfied the requirements of this ASU. Oversight and testing, as well as efforts to meet expanded disclosure requirements, extended through the end of 2019.  We currently estimate losses over approximately a two year forecast period using the Federal Open Market Committee median economic projections as well as considering other economic forecast sources, and then revert to longer term historical loss experience to estimate losses over more extended periods.  We were originally required to adopt this ASU on January 1, 2020 but section 4014 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows for temporary relief from applying this ASU.  Under the CARES Act we may delay the adoption of this ASU until the earlier of the termination of the national emergency that President Trump declared on March 13, 2020, or December 31, 2020.  As such, we have chosen to delay the adoption of this ASU and continue to utilize the existing incurred loss impairment methodology to calculate our allowance for loan losses and our provision for loan losses as required under Accounting Standards Codification 310 (Receivables). When we adopt this ASU as required under the CARES act we will do so retrospectively to January 1, 2020.

We expect to recognize a one-time cumulative effect adjustment at January 1, 2020 increasing the allowance for loan losses.  We are estimating an increase to the allowance for loan losses at that time to be in the range of $8.0 million to $10.0 million primarily driven by the longer contractual maturities of our mortgage and consumer installment loan segments. In addition, we currently expect this ASU to increase the allowance for losses related to unfunded loan commitments between $1.0 million and $2.0 million. The ultimate impact of adopting this ASU, and at each subsequent reporting period, is highly dependent on credit quality, economic forecasts and conditions, composition of our loan portfolios and securities available for sale, along with other management judgements. The transition adjustment to record the allowance for credit losses may fall outside of our estimated increase based on the finalization of assumptions including qualitative adjustments and the economic forecast used in calculating the allowance for credit losses upon the adoption of CECL.
 
We do not expect a material allowance for credit losses to be recorded on securities available for sale upon adoption of this ASU.

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 was effective for us on January 1, 2020, and did not have a material impact on our consolidated operating results or financial condition.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

In March 2020, the FASB issued ASU 2020-04, ‘‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting’’. This new ASU provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. Entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. Entities that make such elections would not have to remeasure contracts at the modification date or reassess a previous accounting determination.  Entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.  This amended guidance and our ability to elect its temporary optional expedients and exceptions are effective for us as of March 12, 2020 through December 31, 2022.

3.
Securities

Securities available for sale consist of the following:

   
Amortized
   
Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
   
(In thousands)
 
March 31, 2020
                       
U.S. agency
 
$
12,648
   
$
207
   
$
27
   
$
12,828
 
U.S. agency residential mortgage-backed
   
216,436
     
5,746
     
353
     
221,829
 
U.S. agency commercial mortgage-backed
   
9,665
     
252
     
1
     
9,916
 
Private label mortgage-backed
   
38,188
     
341
     
1,458
     
37,071
 
Other asset backed
   
105,971
     
79
     
2,169
     
103,881
 
Obligations of states and political subdivisions
   
162,805
     
2,477
     
1,341
     
163,941
 
Corporate
   
42,392
     
932
     
513
     
42,811
 
Trust preferred
   
1,968
     
-
     
477
     
1,491
 
Foreign government
   
499
     
17
     
-
     
516
 
Total
 
$
590,572
   
$
10,051
   
$
6,339
   
$
594,284
 
                                 
December 31, 2019
                               
U.S. agency
 
$
14,591
   
$
89
   
$
19
   
$
14,661
 
U.S. agency residential mortgage-backed
   
226,130
     
1,910
     
278
     
227,762
 
U.S. agency commercial mortgage-backed
   
10,671
     
113
     
28
     
10,756
 
Private label mortgage-backed
   
39,248
     
544
     
99
     
39,693
 
Other asset backed
   
94,158
     
103
     
375
     
93,886
 
Obligations of states and political subdivisions
   
94,499
     
1,724
     
121
     
96,102
 
Corporate
   
31,904
     
1,296
     
5
     
33,195
 
Trust preferred
   
1,968
     
-
     
125
     
1,843
 
Foreign government
   
499
     
3
     
-
     
502
 
Total
 
$
513,668
   
$
5,782
   
$
1,050
   
$
518,400
 

10

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, 2020
                                   
U.S. agency
 
$
1,042
   
$
1
   
$
2,473
   
$
26
   
$
3,515
   
$
27
 
U.S. agency residential mortgage-backed
   
37,673
     
289
     
5,166
     
64
     
42,839
     
353
 
U.S. agency commercial mortgage-backed
   
-
     
-
     
372
     
1
     
372
     
1
 
Private label mortgage-backed
   
22,232
     
1,388
     
358
     
70
     
22,590
     
1,458
 
Other asset backed
   
67,012
     
1,442
     
18,910
     
727
     
85,922
     
2,169
 
Obligations of states and political subdivisions
   
50,643
     
1,321
     
2,213
     
20
     
52,856
     
1,341
 
Corporate
   
14,556
     
513
     
-
     
-
     
14,556
     
513
 
Trust preferred
   
-
     
-
     
1,491
     
477
     
1,491
     
477
 
Total
 
$
193,158
   
$
4,954
   
$
30,983
   
$
1,385
   
$
224,141
   
$
6,339
 
                                                 
December 31, 2019
                                               
U.S. agency
 
$
2,782
   
$
8
   
$
2,712
   
$
11
   
$
5,494
   
$
19
 
U.S. agency residential mortgage-backed
   
56,377
     
126
     
13,551
     
152
     
69,928
     
278
 
U.S. agency commercial mortgage-backed
   
3,284
     
24
     
659
     
4
     
3,943
     
28
 
Private label mortgage-backed
   
16,387
     
55
     
343
     
44
     
16,730
     
99
 
Other asset backed
   
34,027
     
233
     
13,839
     
142
     
47,866
     
375
 
Obligations of states and political subdivisions
   
15,666
     
84
     
5,396
     
37
     
21,062
     
121
 
Corporate
   
2,125
     
5
     
-
     
-
     
2,125
     
5
 
Trust preferred
   
-
     
-
     
1,843
     
125
     
1,843
     
125
 
Total
 
$
130,648
   
$
535
   
$
38,343
   
$
515
   
$
168,991
   
$
1,050
 

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).

11

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, 2020, we had 24 U.S. agency, 52 U.S. agency residential mortgage-backed and six U.S. agency commercial mortgage-backed securities whose fair value is less than amortized cost. The  unrealized losses are largely attributed to widening spreads to Treasury bonds since acquisition.
 
Private label mortgage backed, other asset backed and corporate securities — at March 31, 2020, we had 35 private label mortgage backed, 122 other asset backed and 18 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening since acquisition.
 
Two private label mortgage-backed 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.
 
Obligations of states and political subdivisions — at March 31, 2020, we had 36 municipal securities whose fair value is less than amortized cost. The unrealized losses are primarily due to wider benchmark pricing spreads since acquisition.
 
Trust preferred securities — at March 31, 2020, 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 $0.65 million as of March 31, 2020, continues to have satisfactory credit metrics and make interest payments.
 
As management does not intend to liquidate any of the securities discussed above 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 discussed above (other than certain declines related to the two private label mortgage-backed securities currently being reviewed for OTTI) 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, 2020 and 2019, respectively.

At March 31, 2020, two private label mortgage-backed securities had credit related OTTI and are summarized as follows:

   
Senior
Security
   
Super
Senior
Security
   
Total
 
   
(In thousands)
 
                   
Fair value
 
$
469
   
$
513
   
$
982
 
Amortized cost
   
490
     
410
     
900
 
Non-credit unrealized loss
   
21
     
-
     
21
 
Unrealized gain
   
-
     
103
     
103
 
Cumulative credit related OTTI
   
757
     
457
     
1,214
 

12

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Both of these securities are receiving principal and interest payments similar to principal reductions in the underlying collateral and have unrealized gains at March 31, 2020. 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 one of these securities is now less than previously recorded credit related OTTI amounts.

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

   
Three months ended
March 31,
 
   
2020
   
2019
 
   
(In thousands)
 
Balance at beginning of period
 
$
1,214
   
$
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
 
$
1,214
   
$
1,594
 

The amortized cost and fair value of securities available for sale at March 31, 2020, by contractual maturity, follow:

   
Amortized
Cost
   
Fair
Value
 
   
(In thousands)
 
Maturing within one year
 
$
13,075
   
$
13,132
 
Maturing after one year but within five years
   
61,789
     
62,393
 
Maturing after five years but within ten years
   
47,654
     
48,967
 
Maturing after ten years
   
97,794
     
97,095
 
     
220,312
     
221,587
 
U.S. agency residential mortgage-backed
   
216,436
     
221,829
 
U.S. agency commercial mortgage-backed
   
9,665
     
9,916
 
Private label mortgage-backed
   
38,188
     
37,071
 
Other asset backed
   
105,971
     
103,881
 
Total
 
$
590,572
   
$
594,284
 

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)
 
2020
 
$
21,743
   
$
253
   
$
-
 
2019
   
42,236
     
169
     
32
 

13

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 we recognized gains on these preferred stocks of $0.167 million that are included in net gains (losses) on securities in the Condensed Consolidated Statements of Operations.

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)
 
2020
                             
Balance at beginning of period
 
$
7,922
   
$
8,216
   
$
1,283
   
$
8,727
   
$
26,148
 
Additions (deductions)
                                       
Provision for loan losses
   
2,218
     
(508
)
   
129
     
4,882
     
6,721
 
Recoveries credited to the allowance
   
108
     
117
     
174
     
-
     
399
 
Loans charged against the allowance
   
(36
)
   
(409
)
   
(328
)
   
-
     
(773
)
Balance at end of period
 
$
10,212
   
$
7,416
   
$
1,258
   
$
13,609
   
$
32,495
 
                                         
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
 

14

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, 2020
                             
Allowance for loan losses:
                             
Individually evaluated for impairment
 
$
3,467
   
$
4,391
   
$
280
   
$
-
   
$
8,138
 
Collectively evaluated for impairment
   
6,745
     
3,025
     
978
     
13,609
     
24,357
 
Loans acquired with deteriorated credit quality
   
-
     
-
     
-
     
-
     
-
 
Total ending allowance for loan losses balance
 
$
10,212
   
$
7,416
   
$
1,258
   
$
13,609
   
$
32,495
 
                                         
Loans
                                       
Individually evaluated for impairment
 
$
18,048
   
$
42,440
   
$
2,813
           
$
63,301
 
Collectively evaluated for impairment
   
1,164,903
     
1,030,996
     
464,633
             
2,660,532
 
Loans acquired with deteriorated credit quality
   
1,340
     
567
     
311
             
2,218
 
Total loans recorded investment
   
1,184,291
     
1,074,003
     
467,757
             
2,726,051
 
Accrued interest included in recorded investment
   
2,692
     
4,036
     
1,208
             
7,936
 
Total loans
 
$
1,181,599
   
$
1,069,967
   
$
466,549
           
$
2,718,115
 
                                         
December 31, 2019
                                       
Allowance for loan losses:
                                       
Individually evaluated for impairment
 
$
1,031
   
$
4,863
   
$
261
   
$
-
   
$
6,155
 
Collectively evaluated for impairment
   
6,891
     
3,353
     
1,022
     
8,727
     
19,993
 
Loans acquired with deteriorated credit quality
   
-
     
-
     
-
     
-
     
-
 
Total ending allowance for loan losses balance
 
$
7,922
   
$
8,216
   
$
1,283
   
$
8,727
   
$
26,148
 
                                         
Loans
                                       
Individually evaluated for impairment
 
$
9,393
   
$
43,574
   
$
2,925
           
$
55,892
 
Collectively evaluated for impairment
   
1,158,906
     
1,058,917
     
457,370
             
2,675,193
 
Loans acquired with deteriorated credit quality
   
1,394
     
575
     
316
             
2,285
 
Total loans recorded investment
   
1,169,693
     
1,103,066
     
460,611
             
2,733,370
 
Accrued interest included in recorded investment
   
2,998
     
4,155
     
1,194
             
8,347
 
Total loans
 
$
1,166,695
   
$
1,098,911
   
$
459,417
           
$
2,725,023
 

15

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(1):

   
90+ and
Still
Accruing
   
Non-
Accrual
   
Total Non-
Performing
Loans
 
   
(In thousands)
 
March 31, 2020
                 
Commercial
                 
Commercial and industrial (2)
 
$
-
   
$
1,285
   
$
1,285
 
Commercial real estate
   
-
     
7,756
     
7,756
 
Mortgage
                       
1-4 family owner occupied - jumbo
   
-
     
2,356
     
2,356
 
1-4 family owner occupied - non-jumbo (3)
   
-
     
1,804
     
1,804
 
1-4 family non-owner occupied
   
-
     
1,122
     
1,122
 
1-4 family - 2nd lien
   
-
     
1,326
     
1,326
 
Resort lending
   
-
     
438
     
438
 
Installment
                       
Boat lending
   
-
     
150
     
150
 
Recreational vehicle lending
   
-
     
84
     
84
 
Other
   
-
     
457
     
457
 
Total recorded investment
 
$
-
   
$
16,778
   
$
16,778
 
Accrued interest included in recorded investment
 
$
-
   
$
-
   
$
-
 
                         
December 31, 2019
                       
Commercial
                       
Commercial and industrial (2)
 
$
-
   
$
565
   
$
565
 
Commercial real estate
   
-
     
735
     
735
 
Mortgage
                       
1-4 family owner occupied - jumbo
   
-
     
1,179
     
1,179
 
1-4 family owner occupied - non-jumbo (3)
   
-
     
3,540
     
3,540
 
1-4 family non-owner occupied
   
-
     
1,039
     
1,039
 
1-4 family - 2nd lien
   
-
     
979
     
979
 
Resort lending
   
-
     
690
     
690
 
Installment
                       
Boat lending
   
-
     
332
     
332
 
Recreational vehicle lending
   
-
     
3
     
3
 
Other
   
-
     
470
     
470
 
Total recorded investment
 
$
-
   
$
9,532
   
$
9,532
 
Accrued interest included in recorded investment
 
$
-
   
$
-
   
$
-
 

(1)
Non-performing loans exclude purchase credit impaired loans.
(2)
Non-performing commercial and industrial loans exclude $0.053 million and $0.077 million of government guaranteed loans at March 31, 2020 and December 31, 2019, respectively.
(3)
Non-performing 1-4 family owner occupied – non jumbo loans exclude $0.623 million and $0.569 million of government guaranteed loans at March 31, 2020 and December 31, 2019, respectively.

16

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, 2020
                                   
Commercial
                                   
Commercial and industrial
 
$
339
   
$
-
   
$
70
   
$
409
   
$
581,613
   
$
582,022
 
Commercial real estate
   
175
     
-
     
-
     
175
     
602,094
     
602,269
 
Mortgage
                                               
1-4 family owner occupied - jumbo
   
911
     
947
     
1,436
     
3,294
     
434,866
     
438,160
 
1-4 family owner occupied - non-jumbo
   
2,296
     
628
     
584
     
3,508
     
284,956
     
288,464
 
1-4 family non-owner occupied
   
1,039
     
348
     
690
     
2,077
     
164,961
     
167,038
 
1-4 family - 2nd lien
   
980
     
455
     
862
     
2,297
     
111,877
     
114,174
 
Resort lending
   
226
     
-
     
402
     
628
     
65,539
     
66,167
 
Installment
                                               
Boat lending
   
548
     
75
     
75
     
698
     
205,019
     
205,717
 
Recreational vehicle lending
   
242
     
42
     
54
     
338
     
158,336
     
158,674