10-Q

UNITED STATES

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: 001-35302

Entegra Financial Corp.

(Exact name of registrant as specified in its charter)

North Carolina	45-2460660
(State of Incorporation)	(I.R.S. Employer Identification No.)
14 One Center Court,
Franklin, North Carolina	28734
(Address of principal executive offices)	(Zip Code)

(828) 524-7000

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o Emerging growth company x

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. o

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

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, no par value	ENFC	The NASDAQ Stock Market LLC

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On May 7, 2019, 6,919,212 shares of the issuer’s common stock (no par value), were issued and outstanding.

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets – March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Income – Three Months Ended March 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2019 and 2018	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	64
Item 4.	Controls and Procedures	66
PART II. OTHER INFORMATION		67
Item 1.	Legal Proceedings	67
Item 1A.	Risk Factors	67
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3.	Defaults Upon Senior Securities	67
Item 4.	Mine Safety Disclosures	67
Item 5.	Other Information	67
Item 6.	Exhibits	68
	Signatures	69

2

Item 1. Financial Statements

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	March 31,			December 31,
	2019			2018
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	15,494		$	15,409
Interest-earning deposits		82,791			53,710
Cash and cash equivalents		98,285			69,119
Investments - equity securities		6,812			6,178
Investments - available for sale		357,132			359,738
Other investments, at cost		12,092			12,039
Loans held for sale (includes $3,270 and $2,431 at fair value)		9,208			7,570
Loans receivable, net		1,079,837			1,076,069
Allowance for loan losses		(12,043	)		(11,985	)
Fixed assets, net		26,093			26,385
Real estate owned		2,256			2,493
Accrued interest receivable		6,669			6,443
Bank owned life insurance		32,087			32,886
Small Business Investment Company holdings, at cost		4,306			3,839
Net deferred tax asset		5,265			7,551
Loan servicing rights		2,753			2,837
Goodwill		23,903			23,903
Core deposit intangible		3,404			3,577
Other assets		11,092			7,799
Total assets	$	1,669,151		$	1,636,441
Liabilities and Shareholders’ Equity
Liabilities:
Core deposits	$	828,850		$	795,261
Retail certificates of deposit		340,047			349,971
Wholesale deposits		77,322			76,008
Federal Home Loan Bank advances		213,500			213,500
Junior subordinated notes		14,433			14,433
Other borrowings		9,385			9,299
Post employment benefits		9,410			9,305
Accrued interest payable		1,173			1,647
Other liabilities		4,106			4,145
Total liabilities		1,498,226			1,473,569
Commitments and contingencies (Notes 7 and 12)
Shareholders’ Equity:
Preferred stock - no par value, 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock -  no par value, 50,000,000 shares authorized; 6,919,212 and 6,917,703 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively		—			—
Common stock held by Rabbi Trust, at cost; 17,672 shares at both March 31, 2019 and December 31, 2018		(379	)		(379	)
Additional paid in capital		74,320			74,051
Retained earnings		96,439			92,624
Accumulated other comprehensive income (loss)		545			(3,424	)
Total shareholders’ equity		170,925			162,872
Total liabilities and shareholders’ equity	$	1,669,151		$	1,636,441

The accompanying notes are an integral part of the consolidated financial statements.

3

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

	Three Months Ended March 31,
	2019		2018
	(Unaudited)		(Unaudited)
Interest income:
Interest and fees on loans	$	12,916	$	11,892
Interest on tax exempt loans		108		92
Taxable securities		2,081		1,789
Tax-exempt securities		760		550
Interest-earning deposits		472		349
Other		205		170
Total interest income		16,542		14,842
Interest expense:
Deposits		2,926		1,382
Federal Home Loan Bank advances		1,396		820
Junior subordinated notes		139		138
Other borrowings		128		109
Total interest expense		4,589		2,449
Net interest income		11,953		12,393
Provision for loan losses		116		361
Net interest income after provision for loan losses		11,837		12,032
Noninterest income:
Servicing income, net		89		94
Mortgage banking		263		239
Gain on sale of SBA loans		80		61
Loss on sale of investments, net		—		(12	)
Equity securities gains (losses)		418		(53	)
Service charges on deposit accounts		398		431
Interchange fees, net		246		248
Bank owned life insurance		180		200
Legal settlement income		1,750		—
Other		278		208
Total noninterest income		3,702		1,416
Noninterest expenses:
Compensation and employee benefits		6,020		5,617
Net occupancy		1,120		1,092
Federal deposit insurance		142		279
Professional and advisory		325		277
Data processing		493		509
Marketing and advertising		279		209
Merger-related expenses		1,350		196
Net cost of operation of real estate owned		7		50
Other		1,002		894
Total noninterest expenses		10,738		9,123
Income before taxes		4,801		4,325
Income tax expense		986		743
Net income	$	3,815	$	3,582
Earnings per common share:
Basic	$	0.55	$	0.52
Diluted	$	0.55	$	0.51
Weighted average common shares outstanding:
Basic		6,918,769		6,885,911
Diluted		6,943,267		7,027,884

The accompanying notes are an integral part of the consolidated financial statements.

4

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

	Three Months Ended March 31,
	2019			2018
Net income	$	3,815		$	3,582
Other comprehensive income (loss):
Change in unrealized holding gains and (losses) on securities available for sale		5,390			(4,505	)
Reclassification adjustment for securities (gains) losses realized in net income		—			12
Change in unrealized holding gains and losses on cash flow hedge		(159	)		202
Reclassification adjustment for cash flow hedge effectiveness		(65	)		(56	)
Other comprehensive income (loss), before tax		5,166			(4,347	)
Income tax effect related to items of other comprehensive income (loss)		(1,197	)		965
Other comprehensive income (loss), after tax		3,969			(3,382	)
Comprehensive income	$	7,784		$	200

The accompanying notes are an integral part of the consolidated financial statements.

5

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three Months Ended March 31, 2019 and 2018

(Dollars in thousands)

	Common Stock
	Shares		Additional Paid in Capital			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Common Stock held by Rabbi Trust			Total
Balances at December 31, 2018		6,917,703	$	74,051		$	92,624		$	(3,424	)	$	(379	)	$	162,872
Net income		—		—			3,815			—			—			3,815
Other comprehensive income, net of tax		—		—			—			3,969			—			3,969
Stock compensation expense		—		290			—			—			—			290
Vesting of restricted stock units, net of 931 shares surrendered		1,509		(21	)		—			—			—			(21	)
Balances at March 31, 2019		6,919,212	$	74,320		$	96,439		$	545		$	(379	)	$	170,925
Balance, December 31, 2017		6,879,191	$	72,997		$	78,718		$	(23	)	$	(379	)	$	151,313
Net income		—		—			3,582			—			—			3,582
Other comprehensive loss, net of tax		—		—			—			(3,382	)		—			(3,382	)
Stock compensation expense		—		257			—			—			—			257
Stock options exercised		8,081		117			—			—			—			117
Vesting of restricted stock units, net of 397 shares surrendered		1,143		(11	)		—			—			—			(11	)
Cumulative effect of change in accounting principle		—		—			(9	)		9			—			—
Balance, March 31, 2018		6,888,415	$	73,360		$	82,291		$	(3,396	)	$	(379	)	$	151,876

The accompanying notes are an integral part of the consolidated financial statements

6

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	For the Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	3,815		$	3,582
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation, amortization and accretion		220			173
Investment amortization, net		820			813
Equity securities (income) loss		(418	)		53
Provision for loan losses		116			361
Provision for real estate owned		—			18
Share-based compensation expense		290			257
Deferred tax expense		1,045			895
Loss on sales of investments		—			12
Income on bank owned life insurance, net		(180	)		(200	)
Mortgage banking income, net		(263	)		(239	)
Gain on sales of SBA loans		(80	)		(61	)
Net realized (gain) loss on sale of real estate owned		(6	)		16
Loans originated for sale		(9,510	)		(9,745	)
Proceeds from sale of loans originated for sale		8,215			9,866
Net change in operating assets and liabilities:
Accrued interest receivable		(226	)		(134	)
Loan servicing rights		84			30
Other assets		(3,711	)		(1,135	)
Postemployment benefits		105			(163	)
Accrued interest payable		(474	)		(170	)
Other liabilities		(170	)		(428	)
Net cash (used in) provided by operating activities		(328	)		3,801
Cash flows from investing activities:
Activity for investment securities available for sale:
Purchases		—			(21,758	)
Maturities/calls and principal repayments		7,177			8,858
Sales		—			10,009
Net increase in loans		(3,474	)		(31,241	)
Proceeds from sale of real estate owned		34			355
Proceeds from settlement of BOLI policies		1,115			—
Purchase of fixed assets		(39	)		(345	)
Purchase of Small Business Investment Company Holdings, at cost		(467	)		(68	)
Purchase of other investments, at cost		(53	)		(78	)
Net cash provided by (used in) investing activities		4,293			(34,268	)
Cash flows from financing activities:
Net increase in deposits		24,366			43,375
Net increase in escrow deposits		770			653
Net increase in other borrowings		86			463
Proceeds from FHLB advances		50,000			40,000
Repayment of FHLB advances		(50,000	)		(40,000	)
Cash received upon exercise of stock options		—			117
Cash paid for shares surrendered upon vesting of restricted stock		(21	)		(11	)
Net cash provided by financing activities		25,201			44,597
Increase in cash and cash equivalents		29,166			14,130
Cash and cash equivalents, beginning of period		69,119			109,467
Cash and cash equivalents, end of period	$	98,285		$	123,597
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings	$	5,220		$	2,619
Income taxes		554			—
Noncash investing and financing activities:
Real estate acquired in satisfaction of mortgage loans	$	—		$	749
Loans originated for the disposition of real estate owned		209			54

The accompanying notes are an integral part of the consolidated financial statements 

7

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Entegra Financial Corp. (“we,” “us,” “our,” or the “Company”) was incorporated on May 31, 2011 and became the holding company for Entegra Bank (the “Bank”) on September 30, 2014 upon the completion of Macon Bancorp’s merger with and into the Company, pursuant to which Macon Bancorp converted from a mutual to stock form of organization. The Company’s primary operation is its investment in the Bank. The Company also owns 100% of the common stock of Macon Capital Trust I (the “Trust”), a Delaware statutory trust formed in 2003 to facilitate the issuance of trust preferred securities. The Bank is a North Carolina state-chartered commercial bank and has a wholly owned subsidiary, Entegra Services, Inc. (“Entegra Services”), which holds investment securities. The consolidated financials are presented in these financial statements.

The Bank operates as a community-focused retail bank, originating primarily real estate-based mortgage, consumer and commercial loans and accepting deposits from consumers and small businesses.

Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change, in the near term, relate to the determination of the allowance for loan losses, the valuation of acquired loans, separately identifiable intangible assets associated with mergers and acquisitions, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Bank, and Entegra Services. The accounts of the Trust are not consolidated with the Company. In consolidation, all significant intercompany accounts and transactions have been eliminated.

Reclassification

Certain amounts in the prior year’s financial statements may have been reclassified to conform to the current year’s presentation. The reclassifications had no effect on our results of operations or financial condition as previously reported.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 14, 2019 (the “2018 Form 10-K”). In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

8

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Assets acquired and liabilities assumed are measured and recorded at fair value at the date of acquisition, including identifiable intangible assets. If the fair value of net assets purchased exceeds the fair value of consideration paid, a bargain purchase gain is recognized at the date of acquisition. Conversely, if the consideration paid exceeds the fair value of the net assets acquired, goodwill is recognized at the acquisition date. Fair values are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

The determination of the fair value of loans acquired takes into account credit quality deterioration and probability of loss; therefore, the related allowance for loan losses is not carried forward.

All identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). Deposit liabilities and the related depositor relationship intangible assets may be exchanged in observable exchange transactions. As a result, the depositor relationship intangible asset is considered identifiable, because the separability criterion has been met.

In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

Recent Accounting Standards Updates 

Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted ASU 2016-02, along with several other subsequent codification updates related to lease accounting, as of January 1, 2019. See Note 14 for additional information.

In June 2016, the FASB issued amendments to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in the update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected thereby providing financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by the reporting entity. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company has formed a cross-functional committee to provide corporate governance over the implementation of this update, has evaluated data sources and made process updates to capture additional relevant data, has identified a service provider to perform the calculation, and continues to attend seminars and forums specific to this update. The Company also engaged the service provider to assist with the implementation of the standard. The preliminary measurement of life of loan credit losses was completed in the first quarter of 2019 using December 31, 2018 data. While we continue to evaluate the impact the new guidance will have on our financial position and results of operations, we currently expect the new guidance may result in an increase to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount of any change to our allowance will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

NOTE 2. INVESTMENT SECURITIES

The following table presents the holdings of our equity securities as of March 31, 2019 and December 31, 2018:

	March 31,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,812	$	6,178

9

Equity securities with a fair value of $6.2 million as of March 31, 2019 are held in a Rabbi Trust and seek to generate returns that will fund the cost of certain deferred compensation agreements. Equity securities with a fair value of $0.6 million as of March 31, 2019 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity. There were gains on equity securities of $0.4 million for the three months ended March 31, 2019, and losses of $0.1 million for the three months ended March 31, 2018.  

The amortized cost and estimated fair values of available-for-sale (“AFS”) securities as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,918	$	112	$	(208	)	$	33,822
Municipal Securities		115,467		2,194		(182	)		117,479
Mortgage-backed Securities - Guaranteed		82,467		196		(1,137	)		81,526
Collateralized Mortgage Obligation - Guaranteed		22,194		99		(388	)		21,905
Collateralized Mortgage Obligation - Non Guaranteed		66,842		491		(194	)		67,139
Collateralized Loan Obligations		15,524		—		(312	)		15,212
Corporate bonds		19,920		237		(108	)		20,049
	$	356,332	$	3,329	$	(2,529	)	$	357,132

	December 31, 2018
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	34,068	$	74	$	(152	)	$	33,990
Municipal Securities		115,860		209		(1,667	)		114,402
Mortgage-backed Securities - Guaranteed		86,664		98		(1,578	)		85,184
Collateralized Mortgage Obligation - Guaranteed		22,492		47		(650	)		21,889
Collateralized Mortgage Obligation - Non Guaranteed		69,774		125		(728	)		69,171
Collateralized Loan Obligations		15,534		1		(458	)		15,077
Corporate bonds		19,936		232		(143	)		20,025
	$	364,328	$	786	$	(5,376	)	$	359,738

10

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	March 31, 2019
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	22,738	$	179	$	2,032	$	29	$	24,770	$	208
Municipal Securities		—		—		20,277		182		20,277		182
Mortgage-backed Securities - Guaranteed		5,987		60		54,578		1,077		60,565		1,137
Collateralized Mortgage Obligations - Guaranteed		—		—		15,433		388		15,433		388
Collateralized Mortgage Obligations - Non Guaranteed		2,908		25		17,739		169		20,647		194
Collateralized loan obligations		11,750		269		3,462		43		15,212		312
Corporate bonds		3,125		25		3,350		83		6,475		108
	$	46,508	$	558	$	116,871	$	1,971	$	163,379	$	2,529

	December 31, 2018
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	23,423	$	152	$	—	$	—	$	23,423	$	152
Municipal Securities		33,028		421		56,153		1,246		89,181		1,667
Mortgage-backed Securities - Guaranteed		27,692		370		45,619		1,208		73,311		1,578
Collateralized Mortgage Obligations - Guaranteed		2,042		19		15,294		631		17,336		650
Collateralized Mortgage Obligations - Non Guaranteed		22,383		185		30,471		543		52,854		728
Collateralized loan obligations		11,618		404		1,449		54		13,067		458
Corporate bonds		2,492		45		3,345		98		5,837		143
	$	122,678	$	1,596	$	152,331	$	3,780	$	275,009	$	5,376

11

Information pertaining to the number of securities with gross unrealized losses is detailed in the table below. Management of the Company believes all unrealized losses as of March 31, 2019 and December 31, 2018 represent temporary impairment. The unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost.

	March 31, 2019
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		15		1		16
Municipal Securities		—		18		18
Mortgage-backed Securities - Guaranteed		5		52		57
Collateralized Mortgage Obligations - Guaranteed		—		8		8
Collateralized Mortgage Obligations - Non Guaranteed		2		13		15
Collateralized Loan Obligations		6		2		8
Corporate bonds		4		4		8
		32		98		130

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		14		—		14
Municipal Securities		31		52		83
Mortgage-backed Securities - Guaranteed		21		43		64
Collateralized Mortgage Obligations - Guaranteed		1		8		9
Collateralized Mortgage Obligations - Non Guaranteed		12		22		34
Collateralized Loan Obligations		6		1		7
Corporate bonds		3		4		7
		88		130		218

The Company received proceeds from sales of securities classified as AFS and corresponding gross realized gains and losses as follows for the three months ended March 31, 2018:

(Dollars in thousands)
Gross proceeds	$	10,009
Gross realized gains		21
Gross realized losses		33

There were no investment security sales for the three months ended March 31, 2019.

The Company had securities pledged against deposits and borrowings of approximately $159.8 million at March 31, 2019 and $155.8 million at December 31, 2018. 

12

The amortized cost and estimated fair value of investments in debt securities at March 31, 2019, by contractual maturity, is shown below. Mortgage-backed securities have not been scheduled because expected maturities will differ from contractual maturities when borrowers have the right to prepay the obligations.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Less than 1 year	$	1,979	$	1,981
Over 1 year through 5 years		4,570		3,207
After 5 years through 10 years		30,973		32,307
Over 10 years		147,307		149,067
		184,829		186,562
Mortgage-backed securities		171,503		170,570
Total	$	356,332	$	357,132

NOTE 3. LOANS RECEIVABLE

Loans receivable as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to four-family residential	$	328,779		$	325,560
Commercial real estate		500,600			498,106
Home equity loans and lines of credit		47,665			48,679
Residential construction		46,622			39,533
Other construction and land		99,462			104,645
Total real estate loans		1,023,128			1,016,523
Commercial and industrial		51,562			54,410
Consumer		6,494			6,842
Total commercial and consumer		58,056			61,252
Loans receivable, gross		1,081,184			1,077,775
Less:  Net deferred loan fees		(1,046	)		(1,000	)
Fair value discount		(915	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		503			245
Unamortized premium		319			333
Unamortized discount		(208	)		(236	)
Loans receivable, net of deferred fees	$	1,079,837		$	1,076,069

The Bank had $267.2 million and $256.1 million of loans pledged as collateral to secure funding with the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2019 and December 31, 2018, respectively. The Bank also had $115.2 million and $114.4 million of loans pledged as collateral to secure funding availability with the Federal Reserve Bank (“FRB”) Discount Window at March 31, 2019 and December 31, 2018, respectively.

13

Included in loans receivable and other borrowings at March 31, 2019 are $4.4 million in participated loans that did not qualify for sale accounting. Interest expense on the other borrowings accrues at the same rate as the interest income recognized on the loans receivable, resulting in no effect to net income.

The following tables present the activity related to the discount on individually purchased loans for the three months ended March 31, 2019 and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Discount on purchased loans, beginning of period	$	236		$	710
Accretion		(28	)		(29	)
Discount on purchased loans, end of period	$	208		$	681

The following table presents the activity related to the fair value discount on loans from business combinations for the three months ended March 31 2019, and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Fair value discount, beginning of period	$	1,048		$	2,012
Accretion		(133	)		(266	)
Fair value discount, end of period	$	915		$	1,746

NOTE 4. ALLOWANCE FOR LOAN LOSSES

The following tables present, by portfolio segment, the changes in the allowance for loan losses for the periods indicated:

	Three Months Ended March 31, 2019
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land			Commercial			Consumer			Total
	(Dollars in thousands)
Beginning balance	$	3,909		$	5,130		$	560		$	452	$	1,250		$	608		$	76		$	11,985
Provision		34			(112	)		255			68		(42	)		43			(130	)		116
Charge-offs		(4	)		—			(209	)		—		—			(59	)		(26	)		(298	)
Recoveries		20			56			—			—		8			4			152			240
Ending balance	$	3,959		$	5,074		$	606		$	520	$	1,216		$	596		$	72		$	12,043

	Three Months Ended March 31, 2018
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land		Commercial		Consumer			Total
	(Dollars in thousands)
Beginning balance	$	4,018		$	4,364		$	616		$	303	$	1,025	$	503	$	58		$	10,887
Provision		(151	)		229			(21	)		150		63		128		(37	)		361
Charge-offs		(110	)		(35	)		(41	)		—		—		—		(29	)		(215	)
Recoveries		13			3			21			—		20		5		72			134
Ending balance	$	3,770		$	4,561		$	575		$	453	$	1,108	$	636	$	64		$	11,167

14

The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and the net investment in loans for the periods indicated:

	March 31, 2019
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	148	$	80	$	74	$	—	$	46	$	5	$	—	$	353
Collectively evaluated for impairment		3,811		4,994		532		520		1,170		591		72		11,690
	$	3,959	$	5,074	$	606	$	520	$	1,216	$	596	$	72	$	12,043
Loans Receivable
Individually evaluated for impairment	$	3,262	$	5,994	$	312	$	—	$	1,358	$	271	$	—	$	11,197
Collectively evaluated for impairment		325,414		493,085		47,500		46,566		97,918		51,563		6,594		1,068,640
	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

	December 31, 2018
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	79	$	27	$	—	$	—	$	54	$	7	$	—	$	167
Collectively evaluated for impairment		3,830		5,103		560		452		1,196		601		76		11,818
	$	3,909	$	5,130	$	560	$	452	$	1,250	$	608	$	76	$	11,985
Loans Receivable
Individually evaluated for impairment	$	2,900	$	6,019	$	313	$	—	$	1,377	$	276	$	—	$	10,885
Collectively evaluated for impairment		322,255		490,530		48,512		39,488		103,087		54,367		6,945		1,065,184
	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Portfolio Quality Indicators

The Company’s loan portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. The Company’s internal credit risk grading system is based on experiences with similarly graded loans, industry best practices, and regulatory guidance. Credit risk grades are refreshed each quarter, at which time management analyzes the resulting information, as well as other external statistics and factors, to track loan performance.

The Company’s internally assigned grades pursuant to the Board-approved lending policy are as follows:

· Pass (1-5) – Acceptable loans with any identifiable weaknesses appropriately mitigated. 

· Special Mention (6) – Potential weakness or identifiable weakness present without appropriate mitigating factors; however, loan continues to perform satisfactorily with no material delinquency noted.  This may include some deterioration in repayment capacity and/or loan-to-value of securing collateral.

· Substandard (7) – Significant weakness that remains unmitigated, most likely due to diminished repayment capacity, serious delinquency, and/or marginal performance based upon restructured loan terms.  

· Doubtful (8) – Significant weakness that remains unmitigated and collection in full is highly questionable or improbable.

· Loss (9) – Collectability is unlikely resulting in immediate charge-off.

15

Description of Segment and Class Risks

Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list is not exhaustive, it provides a description of the risks that management has determined are the most significant.

One-to-four family residential

We centrally underwrite each of our one-to-four family residential loans using credit scoring and analytical tools consistent with the Board-approved lending policy and internal procedures based upon industry best practices and regulatory directives. Loans to be sold to secondary market investors must also adhere to investor guidelines. We also evaluate the value and marketability of that collateral. Common risks to each class of non-commercial loans, including one-to-four family residential, include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly unemployment and potential declines in real estate values. Personal events such as death, disability or change in marital status also add risk to non-commercial loans.

Commercial real estate

Commercial mortgage loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. While these loans are secured by real property and possibly other business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation. Other commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental rate concessions to achieve adequate occupancy rates. The performance of agricultural loans are highly dependent on favorable weather, reasonable costs for seed and fertilizer, and the ability to successfully market the product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the control of the borrower.

Home equity and lines of credit

Home equity loans are often secured by first or second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render our second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lienholders that may further weaken our collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines of credit in excess of the collateral value if there have been significant declines since origination.

Residential construction and other construction and land

Residential mortgage construction loans are typically secured by undeveloped or partially developed land with funds to be disbursed as home construction is completed contingent upon receipt and satisfactory review of invoices and inspections. Declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the collateral’s current market value. Non-commercial construction and land development loans can experience delays in completion and/or cost overruns that exceed the borrower’s financial ability to complete the project. Cost overruns can result in foreclosure of partially completed collateral with unrealized value and diminished marketability.Commercial construction and land development loans are dependent on the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and building lots. Deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers.

16

Commercial

We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We strive to gain a complete understanding of our borrower’s businesses, including the experience and background of the principals of such businesses. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, or other assets including accounts receivable and inventory, we gain an understanding of the likely value of the collateral and what level of strength it brings to the loan transaction. To the extent that the principals or other parties are obligated under the note or guaranty agreements, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including volatility or seasonality of cash flows, changing demand for products and services, personal events such as death, disability or change in marital status, and reductions in the value of our collateral.

Consumer

The consumer loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since the date of loan origination in excess of principal repayment. 

The following tables present the recorded investment in gross loans by loan grade as of the dates indicated:

March 31, 2019
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,449	$	—	$	—	$	—	$	1,191	$	6	$	8,646
2		—		10,444		—		—		—		904		—		11,348
3		31,789		89,877		4,839		9,562		12,292		14,717		17		163,093
4		124,622		281,883		3,719		24,186		55,743		22,044		215		512,412
5		25,610		88,755		392		2,443		17,947		12,105		4		147,256
6		318		8,185		—		1		1,280		478		—		10,262
7		646		5,491		—		—		187		383		—		6,707
	$	182,985	$	492,084	$	8,950	$	36,192	$	87,449	$	51,822	$	242	$	859,724
Ungraded Loan Exposure:
Performing	$	144,670	$	6,976	$	38,519	$	10,374	$	11,763	$	12	$	6,351	$	218,665
Nonperforming		1,021		19		343		—		64		—		1		1,448
Subtotal	$	145,691	$	6,995	$	38,862	$	10,374	$	11,827	$	12	$	6,352	$	220,113
Total	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

17

December 31, 2018
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,569	$	—	$	—	$	—	$	1,264	$	7	$	8,840
2		—		7,860		—		—		—		20		—		7,880
3		31,623		87,756		5,212		9,365		12,111		15,685		264		162,016
4		121,688		280,630		4,014		18,358		61,646		22,374		245		508,955
5		24,738		88,698		615		3,404		17,630		12,307		5		147,397
6		321		7,867		—		1		1,303		495		—		9,987
7		674		5,725		—		—		376		487		—		7,262
	$	179,044	$	486,105	$	9,841	$	31,128	$	93,066	$	52,632	$	521	$	852,337
Ungraded Loan Exposure:
Performing	$	145,470	$	10,420	$	38,806	$	8,360	$	11,334	$	2,011	$	6,424	$	222,825
Nonperforming		641		24		178		—		64		—		—		907
Subtotal	$	146,111	$	10,444	$	38,984	$	8,360	$	11,398	$	2,011	$	6,424	$	223,732
Total	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Delinquency Analysis of Loans by Class

The following tables include an aging analysis of the recorded investment of past-due financing receivables by class. The Company does not accrue interest on loans greater than 90 days past due.

	March 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	4,364	$	—	$	251	$	4,615	$	324,061	$	328,676
Commercial real estate		4,291		119		1,515		5,925		493,154		499,079
Home equity and lines of credit		159		—		343		502		47,310		47,812
Residential construction		350		—		1		351		46,215		46,566
Other construction and land		129		—		64		193		99,083		99,276
Commercial		283		—		62		345		51,489		51,834
Consumer		35		3		1		39		6,555		6,594
Total	$	9,611	$	122	$	2,237	$	11,970	$	1,067,867	$	1,079,837

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	3,562	$	1,317	$	84	$	4,963	$	320,192	$	325,155
Commercial real estate		2,615		—		1,782		4,397		492,152		496,549
Home equity and lines of credit		400		457		73		930		47,895		48,825
Residential construction		—		—		1		1		39,487		39,488
Other construction and land		613		32		64		709		103,755		104,464
Commercial		307		25		121		453		54,190		54,643
Consumer		27		4		—		31		6,914		6,945
Total	$	7,524	$	1,835	$	2,125	$	11,484	$	1,064,585	$	1,076,069

18

Impaired Loans

The following table presents investments in loans considered to be impaired and related information on those impaired loans as of March 31, 2019 and December 31, 2018.

	March 31, 2019						December 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	2,324	$	2,475	$	—	$	845	$	923	$	—
Commercial real estate		3,925		6,271		—		3,835		6,207		—
Home equity and lines of credit		213		328		—		283		283		—
Other construction and land		549		683		—		365		366		—
	$	7,011	$	9,757	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	938	$	938	$	148	$	2,055	$	2,055	$	79
Commercial real estate		2,069		2,069		80		2,184		2,184		27
Home equity and lines of credit		99		99		74		30		30		—
Other construction and land		809		809		46		1,012		1,012		54
Commercial		271		271		5		276		276		7
	$	4,186	$	4,186	$	353	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	3,262	$	3,413	$	148	$	2,900	$	2,978	$	79
Commercial real estate		5,994		8,340		80		6,019		8,391		27
Home equity and lines of credit		312		427		74		313		313		—
Other construction and land		1,358		1,492		46		1,377		1,378		54
Commercial		271		271		5		276		276		7
	$	11,197	$	13,943	$	353	$	10,885	$	13,336	$	167

19

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated:

	Three Months Ended March 31,
	2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)
Loans without a valuation allowance
One-to four-family residential	$	2,483	$	29	$	1,877	$	29
Commercial real estate		6,272		37		5,613		31
Home equity and lines of credit		328		15		427		14
Other construction and land		685		5		699		5
	$	9,768	$	86	$	8,616	$	79
Loans with a valuation allowance
One-to four-family residential	$	937	$	8	$	1,621	$	16
Commercial real estate		2,155		23		1,693		23
Home equity and lines of credit		99		2		—		—
Other construction and land		819		12		1,724		9
Commercial		274		6		290		5
	$	4,284	$	51	$	5,328	$	53
Total
One-to four-family residential	$	3,420	$	37	$	3,498	$	45
Commercial real estate		8,427		60		7,306		54
Home equity and lines of credit		427		17		427		14
Other construction and land		1,504		17		2,423		14
Commercial		274		6		290		5
	$	14,052	$	137	$	13,944	$	132

Nonperforming Loans

The following table summarizes the balances of nonperforming loans as of March 31, 2019 and December 31, 2018. Certain loans classified as Troubled Debt Restructurings (“TDRs”) and impaired loans may be on non-accrual status even though they are not contractually delinquent.

	March 31, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,394	$	1,037
Commercial real estate		2,854		3,266
Home equity loans and lines of credit		343		178
Residential construction		1		—
Other construction and land		251		256
Commercial		62		120
Consumer		1		—
Non-performing loans	$	4,906	$	4,857

20

TDRs

The following tables summarize TDR loans as of the dates indicated:

	March 31, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,138	$	358	$	2,496
Commercial real estate		3,912		1,212		5,124
Home equity and lines of credit		313		—		313
Other construction and land		1,170		187		1,357
Commercial		271		—		271
	$	7,804	$	1,757	$	9,561

	December 31, 2018
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,154	$	361	$	2,515
Commercial real estate		3,690		1,462		5,152
Home equity and lines of credit		283		30		313
Other construction and land		1,185		192		1,377
Commercial		276		—		276
	$	7,588	$	2,045	$	9,633

There were no loan modifications that were deemed TDRs at the time of the modification during the three months ended March 31, 2019 or 2018.

There were no TDRs that defaulted during the three months ending March 31, 2019 or 2018 and which were modified as TDRs within the previous 12 months.

21

NOTE 5. GOODWILL AND OTHER INTANGIBLES

The Company had $23.9 million of goodwill as of March 31, 2019 and December 31, 2018.

The Company had $3.4 million and $3.6 million of core deposit intangibles as of March 31, 2019 and December 31, 2018, respectively. The following is a summary of gross carrying amounts and accumulated amortization of core deposit intangibles:

	As of and for the Three Months Ending			As of and for the Year Ending
	March 31,			December 31,
	2019			2018
	Dollars in thousands
Gross balance at beginning of period	$	4,840		$	4,840
Additions from acquisitions		—			—
Gross balance at end of period		4,840			4,840
Less accumulated amortization		(1,436	)		(1,263	)
Core deposit intangible, net	$	3,404		$	3,577

Core deposit intangibles are amortized using the straight-line method over their estimated useful lives of seven years. Estimated amortization expense for core deposit intangibles is $0.7 million for 2019 and each of the next three years, $0.6 million in the fifth year, and $0.3 million in the final year. 

NOTE 6. DEPOSITS

The following table summarizes deposit balances and interest expense by type of deposit as of and for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018.

	As of and for the								As of and for the Year Ended
	Three Months Ended March 31,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	194,562	$	—	$	192,916	$	—	$	184,404	$	—
Interest-bearing demand		198,516		98		206,530		87		209,085		374
Money Market		390,839		1,138		336,625		366		356,086		2,637
Savings		49,996		14		52,162		15		50,716		59
Time Deposits		412,306		1,676		417,675		914		420,949		5,048
	$	1,246,219	$	2,926	$	1,205,908	$	1,382	$	1,221,240	$	8,118

22

The following table indicates wholesale deposits included in the money market and time deposits amounts above:

	As of March 31,				As of December 31,
	2019		2018		2018
(Dollars in thousands)	Balance		Balance		Balance
Wholesale money market	$	5,063	$	25,026	$	5,030
Wholesale time deposits		72,259		56,232		70,978
	$	77,322	$	81,258	$	76,008

NOTE 7. BORROWINGS

The scheduled maturities and respective weighted average rates of outstanding FHLB advances are as follows for the dates indicated:

	March 31, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
	(Dollars in thousands)
2019		163,500		2.59	%		168,500		2.52	%
2020		45,000		2.80	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	213,500		2.64	%	$	213,500		2.58	%

The Company has a $15.0 million revolving credit loan facility with NexBank SSB. The loan facility, which is secured by Entegra Bank stock, bears interest at LIBOR plus 350 basis points and is intended to be used for general corporate purposes. The Company had drawn $5.0 million on the revolving credit loan facility as of March 31, 2019 and December 31, 2018.

The Company also had other borrowings of $4.4 million and $4.3 million at March 31, 2019 and December 31, 2018, respectively, which is comprised of participated loans that did not qualify for sale accounting. Interest expense on these other borrowings accrues at the same rate as the interest income recognized on the loans receivable, resulting in no effect to net income.

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

Risk Management Objective of Interest Rate Swaps

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedging relationship. The Company's hedging strategies involving interest rate derivatives are classified as either “Fair Value Hedges” or “Cash Flow Hedges,” depending upon the rate characteristic of the hedged item.

23

Fair Value Hedge: As a result of interest rate fluctuations, fixed-rate assets and liabilities will appreciate or depreciate in fair value. When effectively hedged, this appreciation or depreciation will generally be offset by fluctuations in the fair value of the derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as a fair value hedge.

Cash Flow Hedge: Cash flows related to floating-rate assets and liabilities will fluctuate with changes in an underlying rate index. When effectively hedged, the increases or decreases in cash flows related to the floating rate asset or liability will generally be offset by changes in cash flows of the derivative instrument designated as a hedge. This strategy is referred to as a cash flow hedge.

Credit and Collateral Risks for Interest Rate Swaps

The Company manages credit exposure on interest rate swap transactions by entering into a bilateral credit support agreement with each counterparty. The credit support agreements allow for collateralization of exposures beyond specified minimum threshold amounts.

The Company’s agreements with its interest rate swap counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in the Company being declared in default. If the Company were to be declared in default, the counterparty could terminate the derivative positions and the Company and the counterparty would be required to settle their obligations under the agreements. At March 31, 2019, the Company had two derivatives in net liability positions of $0.6 million under these agreements and recognized the right to reclaim cash collateral of $0.6 million which was included in the consolidated balance sheets in Other assets. The Company had one derivative in a net liability position of $0.2 million at December 31, 2018.

Mortgage Derivatives

Risk Management Objective of Mortgage Lending Activities

The Company also maintains a risk management program to manage interest rate risk and pricing risk associated with its mortgage lending activities. The risk management program includes the use of forward contracts and other derivatives that are recorded in the financial statements at fair value and are used to offset changes in value of the mortgage inventory due to changes in market interest rates. As a normal part of our operations, we enter into derivative contracts to economically hedge risks associated with overall price risk related to interest rate lock commitments (”IRLCs”) and mortgage loans held-for-sale for which the fair value option has been elected. Fair value changes occur as a result of interest rate movements as well as changes in the value of the associated servicing. Derivative instruments used include forward sales commitments and IRLCs. 

Credit and Collateral Risks for Mortgage Lending Activities

The Company’s underlying risks are primarily related to interest rates and forward sales commitments entered into as part of its mortgage banking activities. Forward sales commitments are contracts for the delayed delivery or net settlement of an underlying instrument, such as a mortgage loan, in which the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. These hedges are used to preserve the Company’s position relative to future sales of mortgage loans to third parties in an effort to minimize the volatility of the expected gain on sale from changes in interest rate and the associated pricing changes.

24

The table below presents the fair value of the Company’s derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands).

	Derivative Assets (1)				Derivative Liabilities (1)
	March 31,		December 31,		March 31,		December 31,
	2019		2018		2019		2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	260	$	354	$	861	$	462
Total	$	260	$	354	$	861	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	45	$	34	$	21	$	22
Total	$	45	$	34	$	21	$	22

(1) All derivative assets are located in “Other assets” on the consolidated balance sheets and all derivative liabilities are located in “Other liabilities” on the consolidated balance sheets. 

The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of income:

Derivatives Designated as Hedging Instruments

	Three Months Ended March 31,
	2019						2018
(dollars in thousands)	Interest income			Interest expense			Interest income		Interest expense
Total amounts of income and expense line items presented in the consolidated statements of income	$	16,542		$	4,589		$	14,842	$	2,449
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		259			—			—		—
Derivatives designated as hedging instruments		(274	)		—			—		—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount  reclassified from accumulated other comprehensive loss into income		—			(65	)		—		(56	)

Fair Value Hedges

The Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps, designated as fair value hedges, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. The gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. The Company entered into a pay-fixed/receive-variable interest rate swap with a notional amount of $25.0 million which was designated as a fair value hedge associated with the Company’s fixed rate loan program.

25

As of March 31, 2019, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:

(dollars in thousands)	Carrying amount of the hedged assets		Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets
Line item in the balance sheet in which the hedged item is included	March 31,  2019		March 31,  2019
Loans receivable (1)	$	97,891	$	503

(1) These amounts include the amortized cost basis of the closed portfolio used to designate the hedging relationship in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $97.9 million, the cumulative basis adjustment associated with the hedging relationship was $0.5 million, and the amount of the designated hedged item was $25.0 million.

Cash Flow Hedges

Interest rate swap contracts, designated as cash flow hedges, involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments without exchange of the underlying notional amounts. The forward starting interest rate swap begins exchanging cash flows in 2020 when the current interest rate swap agreement expires.

The structures of the swap agreements designated as cash flow hedges are described in the table below (dollars in thousands):

Underlyings	Designation	Notional	Payment Provision	Life of Swap Contract
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 0.958%/Receive 3 month LIBOR	4 yrs
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 3.02%/Receive 3 month LIBOR	3 yrs

The table below presents the effect of the Company's derivatives in cash flow hedging relationships for the periods presented (dollars in thousands):

		As of and for the Three Months Ended March 31,						As of and for the Year Ended December 31,
Interest rate swaps	Location	2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(159	)	$	202		$	2
Amounts reclassified from AOCI into income	Interest expense		(65	)		(56	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(224	)	$	146		$	(429	)

26

Derivatives Not Designated as Hedging Instruments

Mortgage Derivatives

Mortgage derivative fair value assets and liabilities are described above. At March 31, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans.

	As of March 31,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	2,736	$	1,627
Forward sales commitment		4,250		3,500

The table below presents the effect of the Company's derivatives not designated as hedging instruments for the periods presented:

		Three Months Ended March  31,
Interest rate products	Location	2019			2018
		(Dollars in thousands)
Amount of (loss) gain recognized in income on forward commitments	Noninterest income	$	(38	)	$	10
Amount of gain recognized in income on interest rate lock commitments	Noninterest income		11			17
Amount of gain (loss) recognized in income on derivatives not designated as hedging instruments		$	(27	)	$	27

27

NOTE 9. INCOME TAXES

The components of net deferred taxes as of March 31, 2019 and December 31, 2018 are summarized as follows:

	As of March 31,		As of December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,729	$	2,703
Deferred compensation and post-employment benefits		1,874		1,854
Non-accrual interest		251		245
Valuation reserve for other real estate		198		191
North Carolina NOL carryover		233		293
Federal NOL carryover		554		1,231
AMT credit carryover		—		316
General federal business credit carryover		826		691
Unrealized losses on securities		581		1,061
Loan basis differences		46		50
Fixed assets		131		123
Core deposit intangible		148		129
Derivative instruments		21		—
Other		1,122		1,207
Total deferred tax assets		8,714		10,094
Deferred tax liabilities:
Loan servicing rights		633		653
Goodwill		581		495
Core deposit intangible		70		74
Deferred loan costs		1,014		1,001
Prepaid expenses		14		14
Unrealized gains on securities		961		105
Derivative instruments		6		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		3,449		2,543
Net deferred tax asset	$	5,265	$	7,551

The following table summarizes the amount and expiration dates of the Company’s unused net operating losses and other carryforwards as of March 31, 2019:

	As of September, 2017
(Dollars in thousands)	Amount		Expiration Dates
Federal	$	2,803	2032-2037
North Carolina	$	13,708	2026-2029
Federal General Business Carryforwards	$	826	2037-2039

28

NOTE 10. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of basic and diluted net income per share of common stock as of the dates indicated:

	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2019		2018
Numerator:
Net income	$	3,815	$	3,582
Denominator:
Weighted-average common shares outstanding - basic		6,918,769		6,885,911
Effect of dilutive securities:
Stock options		6,960		96,871
Restricted stock units		17,538		45,102
Weighted-average common shares outstanding - diluted		6,943,267		7,027,884
Earnings per share - basic	$	0.55	$	0.52
Earnings per share - diluted	$	0.55	$	0.51

The average market price used in calculating the assumed number of dilutive shares issued related to stock options for the three months ended March 31, 2019 and 2018 was $23.12 and $28.56, respectively. The average stock price was less than the exercise price for 91,977 options in the three months ended March 31, 2019 and 19,592 options in the three months ended March 31, 2018. As a result, these stock options are not deemed dilutive in calculating diluted earnings per share for the respective periods in the table above.

29

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31, 2019
	(Dollars in thousands)
	Available for Sale Securities			Cash Flow Hedge			Total
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		5,390			—			5,390
Reclassification adjustment for net securities losses realized in net income		—			—			—
Change in unrealized holding gains on cash flow hedge		—			(159	)		(159	)
Reclassification adjustment for cash flow hedge effectiveness		—			(65	)		(65	)
Income tax effect		(1,244	)		47			(1,197	)
Balance, end of period	$	618		$	(73	)	$	545

	Three Months Ended March 31, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		(4,505	)		—			(4,505	)
Reclassification adjustment for net securities losses realized in net income		12			—			12
Change in unrealized holding gains on cash flow hedge		—			202			202
Reclassification adjustment for cash flow hedge effectiveness		—			(56	)		(56	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		996			(31	)		965
Balance, end of period	$	(3,943	)	$	547		$	(3,396	)

The following table shows the line items in the Consolidated Statements of Income affected by amounts reclassified from accumulated other comprehensive income as of the dates indicated:

	Three Months Ended March 31,
(Dollars in thousands)	2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	(12	)	Loss on sale of investments, net
Income tax effect		—			3		Income tax expense
Reclassified out of AOCI, net of tax		—			(9	)	Net income
Cash flow hedge
Interest expense - effective portion		—			30		Interest expense - FHLB advances
Interest expense - effective portion		65			26		Interest expense - Junior subordinated notes
Income tax effect		(15	)		(13	)	Income tax expense
Reclassified out of AOCI, net of tax		50			43		Net income
Total reclassified out of AOCI, net of tax	$	50		$	34		Net income

30

NOTE 12. COMMITMENTS AND CONTINGENCIES

To accommodate the financial needs of its customers, the Company makes commitments under various terms to lend funds. These commitments include revolving credit agreements, term loan commitments and short-term borrowing agreements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held includes first and second mortgages on one-to-four family dwellings, accounts receivable, inventory, and commercial real estate. Certain lines of credit are unsecured.

The following summarizes the Company’s approximate commitments to extend credit:

	March 31, 2019
	(Dollars in thousands)
Lines of credit	$	175,353
Standby letters of credit		1,011
	$	176,364

The Company had outstanding commitments to originate loans as follows:

	March 31, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	24,709		4.25% to 12.00%
Variable		9,323		3.38% to 8.00%
	$	34,032

The allowance for unfunded commitments was $0.1 million at March 31, 2019 and December 31, 2018.

The Company is exposed to loss as a result of its obligation for representations and warranties on loans sold to

Fannie Mae and maintained a reserve of $0.3 million as of March 31, 2019 and December 31, 2018.

In the normal course of business, the Company is periodically involved in litigation. In the opinion of the Company’s management, none of this litigation is expected to have a material adverse effect on the accompanying consolidated financial statements.

NOTE 13. FAIR VALUE DISCLOSURES

Overview

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 (“ASC 820”), Fair Value Measurements and Disclosures establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs classified within Level 3 of the hierarchy).

31

Fair Value Hierarchy

Level 1

Valuation is based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2

Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as interest rates, yield curves observable at commonly quoted intervals, and other market-corroborated inputs.

Level 3

Valuation is generated from techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process.

Fair Value Option

ASC 820 allows companies to report selected financial assets and liabilities at fair value using the fair value option. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. The Company made the election in June 2018, to record mortgage loans held-for-sale at fair value under the fair value option, which allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to hedge them without the burden of complying with the requirements for hedge accounting.

Financial Assets and Financial Liabilities Measured on a Recurring Basis

The Company uses the following methods and assumptions in estimating the fair value of its financial assets and financial liabilities on a recurring basis:

Investment Securities Available-for-Sale

We obtain fair values for debt securities from a third-party pricing service, which utilizes several sources for valuing fixed-income securities. The market evaluation sources for debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

Included in securities are investments in an exchange traded bond fund and U.S. Treasury bonds which are valued by reference to quoted market prices and considered a Level 1 security.

32

Also included in securities are corporate bonds which are valued using significant unobservable inputs and are classified as Level 2 or Level 3 based on market information available during the period.

Equity Securities

Equity securities represent investments in exchange traded mutual funds which are valued by reference to quoted market prices and considered a Level 1 security.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are recorded at fair value on a recurring basis. The estimated fair value is determined using Level 3 inputs based on observable data such as the existing forward commitment terms or the current market value of similar loans.

Loan Servicing Rights

Loan servicing rights are carried at fair value as determined by a third party valuation firm. The valuation model utilizes a discounted cash flow analysis using discount rates and prepayment speed assumptions used by market participants. The Company classifies loan servicing rights fair value measurements as Level 3.

Derivative Instruments

Derivative instruments include IRLCs, forward sale commitments, and interest rate swaps. IRLCs and forward sale commitments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. The Company classifies these instruments as Level 3.

Interest rate swaps are valued by a third party using significant assumptions that are observable in the market and can be corroborated by market data. The Company classifies interest rate swaps as Level 2.

33

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis at the dates indicated, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,812	$	—	$	—	$	6,812
Securities available for sale:
U.S. Treasury & Government Agencies		4,991		28,831		—		33,822
Municipal Securities		—		117,479		—		117,479
Mortgage-backed Securities - Guaranteed		—		81,526		—		81,526
Collateralized Mortgage Obligations - Guaranteed		—		21,905		—		21,905
Collateralized Mortgage Obligations - Non Guaranteed		—		67,139		—		67,139
Collateralized Loan Obligations		—		15,212				15,212
Corporate bonds		—		19,556		493		20,049
Total securities available for sale		4,991		351,648		493		357,132
Mortgage loans held for sale		—		—		3,270		3,270
Loan servicing rights		—		—		2,753		2,753
Interest rate swaps		—		260		—		260
Mortgage derivatives		—		—		45		45
Total recurring assets at fair value	$	11,803	$	351,908	$	6,561	$	370,272
Liabilities:
Interest rate swaps	$	—	$	861	$	—	$	861
Mortgage derivatives		—		—		21		21
Total recurring liabilities at fair value	$	—	$	861	$	21	$	882

34

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,178	$	—	$	—	$	6,178
Securities available for sale:
U.S. Treasury & Government Agencies		4,949		29,041		—		33,990
Municipal Securities		—		114,402		—		114,402
Mortgage-backed Securities - Guaranteed		—		85,184		—		85,184
Collateralized Mortgage Obligations - Guaranteed		—		21,889		—		21,889
Collateralized Mortgage Obligations - Non Guaranteed		—		69,171		—		69,171
Collateralized Loan Obligations		—		15,077				15,077
Corporate bonds		—		19,532		493		20,025
Total securities available for sale		4,949		354,296		493		359,738
Mortgage loans held for sale		—		—		2,431		2,431
Loan servicing rights		—		—		2,837		2,837
Interest rate swaps		—		354		—		354
Mortgage derivatives		—		—		34		34
Total recurring assets at fair value	$	11,127	$	354,650	$	5,795	$	371,572
Liabilities:
Interest rate swaps	$	—	$	462	$	—	$	462
Mortgage derivatives		—		—		22		22
Total recurring liabilities at fair value	$	—	$	462	$	22	$	484

35

The following table presents the changes in assets and liabilities measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value:

	Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	5,773		$	3,321
AFS securities
Transfer to Level 2		—			1,331
Mortgage loans held for sale		839			—
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		47			100
Fair value adjustment		(131	)		(130	)
Mortgage derivative gains (losses) included in other income		12			27
Balance at end of period	$	6,540		$	4,649

Financial Assets Measured on a Nonrecurring Basis

The Company uses the following methods and assumptions in estimating the fair value of its financial assets on a nonrecurring basis:

SBA Loans Held for Sale

SBA loans held for sale are carried at the lower of cost or fair value. The fair value of SBA loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics and are classified as Level 2.

Impaired Loans

Impaired loans are carried at the lower of recorded investment or fair value. The fair value of collateral dependent impaired loans is estimated using the value of the collateral less selling costs if repayment is expected from liquidation of the collateral. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. Impaired loans carried at fair value are classified as Level 3. Impaired loans measured using the present value of expected future cash flows are not deemed to be measured at fair value.

REO

REO obtained in partial or total satisfaction of a loan is recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent, state certified appraisers. Like impaired loans, appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. REO carried at fair value is classified as Level 3.

36

Small Business Investment Company (“SBIC) Holdings

SBIC holdings are carried at the lower of cost or cost less a valuation allowance. From time to time, impairment of SBIC is evident as a result of underlying financial review and a valuation allowance is established. SBIC carried at cost less a valuation allowance is classified as Level 3.

The following table presents nonfinancial assets measured at fair value on a nonrecurring basis at the dates indicated, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to four family residential	$	—	$	—	$	2,324	$	2,324
Commercial real estate		—		—		3,925		3,925
Home equity loans and lines of credit		—		—		213		213
Other construction and land		—		—		549		549
Real estate owned:
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,307		1,307
Total assets	$	—	$	—	$	9,267	$	9,267

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	845	$	845
Commercial real estate		—		—		3,835		3,835
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		365		365
Real estate owned:
One-to-four family residential		—		—		228		228
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,316		1,316
Total assets	$	—	$	—	$	7,821	$	7,821

There were no liabilities measured at fair value on a nonrecurring basis as of March 31, 2019, or December 31, 2018.

Impaired loans totaling $4.2 million at March 31, 2019 and $5.6 million at December 31, 2018 were measured using the present value of expected future cash flows. These impaired loans were not deemed to be measured at fair value on a nonrecurring basis.

37

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at March 31, 2019.

	Valuation Technique	Unobservable Input	General Range
Impaired loans	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Real estate owned	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Corporate bonds	Discounted Cash Flows	Recent trade pricing	0% -10%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	9% - 20%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	101% - 103%
Mortgage derivatives	External pricing model	Pull-through rate	78%-100%
SBIC	Indicative value provided by fund	Current operations and financial condition	N/A

Fair Value of Financial Assets and Financial Liabilities

The following table includes the estimated fair value of the Company's financial assets and financial liabilities at the dates indicated:

			Fair Value Measurements at March 31, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	98,285	$	98,285	$	98,285	$	—	$	—
Equity securities		6,812		6,812		6,812		—		—
Securities available for sale		357,132		357,132		4,991		351,648		493
Loans held for sale		9,208		9,885		—		6,615		3,270
Loans receivable, net		1,079,837		1,046,136		—		—		1,046,552
Other investments, at cost		12,092		12,092		—		12,092		—
Accrued interest receivable		6,669		6,669		—		6,669		—
BOLI		32,087		32,087		—		32,087		—
Loan servicing rights		2,753		2,753		—		—		2,753
Mortgage derivatives		45		45		—		—		45
Interest rate swaps		260		260		—		260		—
SBIC investments		4,306		4,306		—		—		4,306
Liabilities:
Demand deposits	$	833,913	$	833,913	$	—	$	833,913	$	—
Time deposits		412,306		416,631		—		—		416,631
Federal Home Loan Bank advances		213,500		213,249		—		213,249		—
Junior subordinated debentures		14,433		13,720		—		13,720		—
Other borrowings		9,385		9,572		—		9,572		—
Accrued interest payable		1,173		1,173		—		1,173		—
Mortgage derivatives		21		21		—		—		21
Interest rate swaps		861		861		—		861		—

38

			Fair Value Measurements at December 31, 2018
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	69,119	$	69,119	$	69,119	$	—	$	—
Equity securities		6,178		6,178		6,178		—		—
Securities available for sale		359,739		359,739		4,949		354,297		493
Loans held for sale		7,570		8,114		—		5,683		2,431
Loans receivable, net		1,076,069		1,046,136		—		—		1,046,136
Other investments, at cost		12,039		12,039		—		12,039		—
Accrued interest receivable		6,443		6,443		—		6,443		—
BOLI		32,886		32,886		—		32,886		—
Loan servicing rights		2,837		2,837		—		—		2,837
Mortgage derivatives		34		34		—		—		34
Interest rate swaps		354		354		—		354		—
SBIC investments		3,839		3,839		—		—		3,839
Liabilities:
Demand deposits	$	800,291	$	800,291	$	—	$	800,291	$	—
Time deposits		420,949		424,054		—		—		424,054
Federal Home Loan Bank advances		213,500		213,513		—		213,513		—
Junior subordinated debentures		14,433		12,440		—		12,440		—
Other borrowings		9,299		9,253		—		9,253		—
Accrued interest payable		1,647		1,647		—		1,647		—
Mortgage derivatives		22		22		—		—		22
Interest rate swaps		462		462		—		462		—

NOTE 14. Leases

As of January 1, 2019, we adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily ASU 2016-02 and subsequent updates. These updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted the updates using a modified-retrospective transition approach and recognized a right-of-use lease asset and related lease liabilities totaling $0.5 million as of January 1, 2019. At adoption, we elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. As of March 31, 2019, the right-of-use lease asset, included in other assets, and related lease liabilities, included in other liabilities, totaled $0.4 million.

39

We lease certain office facilities and office equipment under operating leases. The lease agreements have maturity dates ranging from March 2020 to May 2027, one of which includes an option for a five-year extension. The weighted average remaining life of the lease term for these leases was 6.82 years as of March 31, 2019. We do not apply the recognition requirements of Topic 842 - Leases to short-term operating leases. A short-term operating lease has an original term of 12 months or less and does not have a purchase option that is likely to be exercised. For non-short-term operating leases, we recognized lease right-of-use assets and related lease liabilities on our balance sheet upon commencement of the lease in accordance with Topic 842 - Leases. In recognizing lease right-of-use assets and related lease liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. Lease payments over the expected term are discounted using our incremental borrowing rate referenced to the Federal Home Loan Bank Secure Connect advance rates for borrowings of similar term. The weighted average discount rate for leases was 3.04% as of March 31, 2019. We also consider renewal and termination options in the determination of the term of the lease. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Generally, we cannot be reasonably certain about whether or not we will renew a lease until such time the lease is within the last two years of the existing lease term. When we are reasonably certain that a renewal option will be exercised, we measure/remeasure the right-of-use asset and related lease liability using the lease payments specified for the renewal period.

Maturities of lease liabilities as of March 31, 2019 were as follows:

(Dollard in thousands)	Operating Leases
2019	$	107
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		512
Discount effect of cash flows		(68	)
Total lease liability	$	444

The total operating lease costs were $56,000 for the three months ended March 31, 2019.

NOTE 15. Subsequent Events

On April 23, 2019, Entegra entered into a definitive agreement (the “Merger Agreement”) to merge with and into First Citizens BancShares, Inc., a North Carolina corporation (“BancShares”). Under the terms of the Merger Agreement, each outstanding share of Entegra common stock would be converted into the right to receive $30.18 in cash.

Previously on January 15, 2019, Entegra had entered into a definitive agreement to merge with and into SmartFinancial, Inc. (“SmartFinancial”), a Tennessee corporation. Under the terms of the SmartFinancial definitive agreement, each outstanding share of Entegra common stock would be converted into the right to receive 1.215 shares of SmartFinancial common stock.

On April 18, 2019, Entegra notified SmartFinancial that it had received a proposal from BancShares and certain affiliates containing the Merger Agreement described above and that the Entegra board of directors had concluded that such proposal constituted a Superior Proposal (as defined in the SmartFinancial definitive agreement). On April 23, 2019, SmartFinancial delivered a notice to Entegra waiving its rights to renegotiate its agreement with Entegra, subject to Entegra’s compliance with the SmartFinancial Merger Agreement and the payment of the termination fee due to SmartFinancial simultaneously with the termination of the SmartFinancial definitive agreement.

On April 23, 2019, in connection with the termination by Entegra of the SmartFinancial definitive agreement, BancShares, on behalf of Entegra, paid SmartFinancial a termination fee of $6.4 million as required by the terms of the SmartFinancial definitive agreement, and the SmartFinancial definitive agreement was terminated.

40

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may” and words of similar meaning. These forward-looking statements include, but are not limited to:

· statements of our goals, intentions and expectations;

· statements regarding our business plans, prospects, growth and operating strategies;

· statements regarding the asset quality of our loan and investment portfolios; and

· estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The Company is under no duty to and does not undertake any obligation to update any forward-looking statements after the date of this Form 10-Q except as required by law.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

· The proposed merger with First Citizens BancShares, Inc. (“BancShares”) may distract the management of the Company from its other responsibilities;

· We may not be able to implement aspects of our growth strategy;

· Failure to complete the merger with BancShares could negatively impact our stock prices, future business and financial results;

· The Company will be subject to business uncertainties and contractual restrictions while the merger is pending;

· Future expansion involves risks;

· New bank office facilities and other facilities may not be profitable;

· Acquisition of assets and assumption of liabilities may expose us to intangible asset risk, which could impact our results of operations and financial condition;

41

· The success of our growth strategy depends on our ability to identify and retain individuals with experience and relationships in the markets in which we intend to expand;

· We may not be able to utilize all of our deferred tax asset;

· We may need additional access to capital, which we may be unable to obtain on attractive terms or at all;

· Our estimate for losses in our loan portfolio may be inadequate, which would cause our results of operations and financial condition to be adversely affected;

· Our commercial real estate loans generally carry greater credit risk than one-to-four family residential mortgage loans;

· Our concentration of construction financing may expose us to a greater risk of loss and impair our earnings and profitability;

· Repayment of our commercial business loans is primarily dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value;

· Our level of home equity loans and lines of credit lending may expose us to increased credit risk;

· We continue to hold and acquire other real estate, which has led to operating expenses and vulnerability to additional declines in real property values;

· A significant portion of our loan portfolio is secured by real estate, and events that negatively impact the real estate market could adversely affect business, results of operations, financial condition and the value of our common stock;

· Concentration of collateral in our primary market area may increase the risk of increased non-performing assets;

· Income from secondary mortgage market operations is volatile, and we may incur losses with respect to our secondary mortgage market operations that could negatively affect our earnings;

· We rely on the mortgage secondary market for some of our liquidity;

· Future changes in interest rates could reduce our profits;

· Strong competition within our market areas may limit our growth and profitability;

· We may not be able to compete with larger competitors for larger customers because our lending limits are lower than our competitors;

· We depend on our executive management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services;

· The fair value of our investments could decline;

· Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, results of operations and cash flows;

· Changes in accounting standards could affect reported earnings;

· We are subject to environmental liability risk associated with our lending activities;

· A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses;

· We are party to various lawsuits incidental to our business. Litigation is subject to many uncertainties such that the expenses and ultimate exposure with respect to many of these matters cannot be ascertained;

· Our stock-based benefit plan will increase our costs, which will reduce our income;

· Negative public opinion surrounding the Company and the financial institutions industry generally could damage our reputation and adversely impact our earnings;

· Severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business;

· We are subject to extensive regulation and oversight, and, depending upon the findings and determinations of our regulatory authorities, we may be required to make adjustments to our business, operations or financial position and could become subject to formal or informal regulatory action;

· Financial reform legislation enacted by Congress and resulting regulations have increased and are expected to continue to increase our costs of operations;

· We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations;

· As a regulated entity, we and the Bank must maintain certain required levels of regulatory capital that may limit our and the Bank’s operations and potential growth;

42

· Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth;

· The Federal Reserve may require the Company to commit capital resources to support the Bank;

· Our stock price may be volatile, which could result in losses to our shareholders and litigation against us;

· The trading volume in our common stock is lower than that of other larger companies; future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline;

· There may be future sales of our common stock or preferred stock or other dilution of our equity, which may adversely affect the market price of our common stock;

· The implementation of stock-based benefit plans may dilute your ownership interest; and

· We may issue additional debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in the event of liquidation, which could negatively affect the value of our common stock.

43

For additional information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2019 (the “2018 Form 10-K”).

Critical Accounting Policies and Estimates

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2019 have remained unchanged from the disclosures presented in our 2018 Form 10-K. Refer to Note 1 of this Form 10-Q for more information about our accounting policies and recent accounting updates.

Overview

Entegra Financial Corp. was incorporated on May 31, 2011 to be the holding company for Entegra Bank (the “Bank”) upon the completion of Macon Bancorp’s merger with and into Entegra Financial Corp., pursuant to which Macon Bancorp converted from a mutual to stock form of organization. Prior to the completion of the conversion, Entegra Financial Corp. did not engage in any significant activities other than organizational activities. On September 30, 2014, the mutual to stock conversion was completed and the Bank became the wholly owned subsidiary of Entegra Financial Corp. Also on September 30, 2014, Entegra Financial Corp. completed the initial public offering of its common stock. In this Management’s Discussion and Analysis of Financial Condition and Results of Operations section (the “MD&A”), terms such as “we,” “us,” “our” and the “Company” refer to Entegra Financial Corp.

We provide a full range of financial services through offices located throughout the western North Carolina counties of Buncombe, Cherokee, Haywood, Henderson, Jackson, Macon, Polk, and Transylvania, the Upstate South Carolina counties of Anderson, Greenville, Pickens, and Spartanburg and the northern Georgia counties of Gwinnett, Hall and Pickens. We provide full service retail and commercial banking products, as well as wealth management services through a third party.

We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. Offsetting these revenues are the cost of deposits and other funding sources, provisions for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

Our results of operations are significantly affected by general economic and competitive conditions in our market areas and nationally, as well as changes in interest rates, sources of funding, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially affect our financial condition and results of operations.

The following discussion and analysis is presented on a consolidated basis and focuses on the major components of the Company’s operations and significant changes in its results of operations for the periods presented. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information included in this Form 10-Q and in our 2018 Form 10-K.

Recent Developments

On April 23, 2019, Entegra entered into a definitive agreement to merge with and into BancShares (the “Merger Agreement”). Under the terms of the Merger Agreement, each outstanding share of Entegra common stock would be converted into the right to receive $30.18 in cash.

Previously on January 15, 2019, Entegra had entered into a definitive agreement to merge with and into SmartFinancial, Inc. (“SmartFinancial”), a Tennessee corporation. Under the terms of the SmartFinancial definitive agreement, each outstanding share of Entegra common stock would be converted into the right to receive 1.215 shares of SmartFinancial common stock.

44

On April 18, 2019, Entegra notified SmartFinancial that it had received a proposal from BancShares and certain affiliates containing the Merger Agreement described above and that the Entegra board of directors had concluded that such proposal constituted a Superior Proposal (as defined in the SmartFinancial definitive agreement). On April 23, 2019, SmartFinancial delivered a notice to Entegra waiving its rights to renegotiate its agreement with Entegra, subject to Entegra’s compliance with the SmartFinancial definitive agreement and the payment of the termination fee due to SmartFinancial simultaneously with the termination of the SmartFinancial definitive agreement.

On April 23, 2019, in connection with the termination by Entegra of the SmartFinancial definitive agreement, BancShares, on behalf of Entegra, paid SmartFinancial a termination fee of $6.4 million as required by the terms of the SmartFinancial definitive agreement, and the SmartFinancial definitive agreement was terminated. 

Earnings Summary

Net income for the three months ended March 31, 2019 was $3.8 million compared to $3.6 million for the same period in 2018. The increase in net income for the three months ended March 31, 2019 was primarily the result of increases in noninterest income of $2.3 million, partially offset by a decrease in net interest income of $0.4 million and an increase in noninterest expense of $1.6 million.

Net interest income decreased $0.4 million, or 3.59%, to $12.0 million for the three months ended March 31, 2019 compared to $12.4 million for the same period in 2018. The decrease in net interest income was primarily due to increased costs of deposits and borrowings, partially offset by higher volumes in the loan portfolio as well as an increase in the yields earned on cash and taxable investments. Net interest margin on a tax-equivalent basis was 3.23% for the three months ended March 31, 2019 compared to 3.49% for the same period in 2018.

Noninterest income increased $2.3 million, or 161.4%, to $3.74 million for the three months ended March 31, 2019 compared to $1.4 million for the same period in 2018, primarily as the result of a definitive agreement to settle an acquisition-related dispute for $1.75 million and an increase of $0.5 million in equity security gains.

Noninterest expense increased $1.6 million, or 17.7%, to $10.7 million for the three months ended March 31, 2019 compared to $9.1 million for the same period in 2018. The increase was primarily related to increased compensation and employee benefits and merger-related expenses, partially offset by reduced Federal deposit insurance premiums.

Non-GAAP Financial Measures

Statements included in this MD&A include financial measures that do not conform to U.S. generally accepted accounting principles (“GAAP”) and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. This MD&A and the accompanying tables discuss non-GAAP financial measures, such as core noninterest expense, core net income, core return on average assets, core return on tangible average equity, and core efficiency ratio. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

45

We analyze our noninterest expense and net income on a non-GAAP basis as detailed and as of the periods indicated in the table below:

	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2019			2018
Adjusted Noninterest Expense
Noninterest expense (GAAP)	$	10,738		$	9,123
Merger-related expenses		(1,350	)		(196	)
Adjusted noninterest expense (Non-GAAP)	$	9,388		$	8,927
Adjusted Net Income
Net income (GAAP)	$	3,815		$	3,582
Loss (gain) on sale of investments		—			9
Equity securities (gains) losses		(330	)		42
Legal settlement		(1,383	)		—
Merger-related expenses		1,067			155
Adjusted net income (Non-GAAP)	$	3,169		$	3,788
Adjusted Diluted Earnings Per Share
Diluted earnings per share (GAAP)	$	0.55		$	0.51
Loss (gain) on sale of investments		—			—
Equity securities (gains) losses		(0.05	)		0.01
Legal settlement		(0.20	)		—
Merger-related expenses		0.16			0.02
Adjusted diluted earnings per share (Non-GAAP)	$	0.46		$	0.54
Adjusted Return on Average Assets
Return on Average Assets (GAAP)		0.92	%		0.90	%
Loss (gain) on sale of investments		0.00	%		0.00	%
Equity securities (gains) losses		-0.08	%		0.01	%
Legal settlement		-0.33	%		0.00	%
Merger-related expenses		0.26	%		0.04	%
Adjusted Return on Average Assets (Non-GAAP)		0.77	%		0.95	%
Adjusted Return on Tangible Average Equity
Return on Average Equity (GAAP)		9.26	%		9.48	%
Loss (gain) on sale of investments		0.00	%		0.03	%
Equity securities (gains) losses		-0.80	%		0.11	%
Legal settlement		-3.36	%		0.00	%
Merger-related expenses		2.59	%		0.41	%
Effect of goodwill and intangibles		1.54	%		2.26	%
Adjusted Return on Average Tangible Equity (Non-GAAP)		9.23	%		12.29	%
Adjusted Efficiency Ratio
Efficiency ratio (GAAP)		68.59	%		66.07	%
Gain (loss) on sale of investments		0.00	%		-0.06	%
Equity securities gains (losses)		1.88	%		-0.25	%
Legal settlement		8.63	%		0.00	%
Merger-related expenses		-9.49	%		-1.40	%
Adjusted Efficiency Ratio (Non-GAAP)		69.61	%		64.36	%
	As Of
	March 31, 2019			December 31, 2018
	(Dollars in thousands, except share data)
Tangible Assets
Total Assets	$	1,669,151		$	1,636,441
Goodwill and Intangibles		(27,307	)		(27,480	)
Tangible Assets	$	1,641,844		$	1,608,961
Tangible Book Value Per Share
Book Value (GAAP)	$	170,925		$	162,872
Goodwill and intangibles		(27,307	)		(27,480	)
Book Value (Tangible)	$	143,618		$	135,392
Outstanding shares		6,919,212			6,917,703
Tangible Book Value Per Share	$	20.76		$	19.57

46

Financial Condition at March 31, 2019 and December 31, 2018 

Total assets increased $32.7 million, or 2.0%, to $1.67 billion at March 31, 2019 from $1.64 billion at December 31, 2018. This increase in assets was primarily due to increases in cash and cash equivalents of $29.2 million, from $69.1 million at December 31, 2018 to $98.3 million at March 31, 2019, and loans, which increased $3.8 million for the three months ended March 31, 2019, or an annualized rate or 1.4%. Core deposits increased $33.6 million, or 4.2%, to $828.9 million at March 31, 2019 from $795.3 million at December 31, 2018. Core deposits represented 67% of the Company’s deposit portfolio at March 31, 2019 compared to 65% at December 31, 2018.

Total liabilities increased $24.7 million, or 1.7%, to $1.49 billion at March 31, 2019 from $1.47 billion at December 31, 2018, due primarily to the $25.0 million increase in total deposits, partially offset by the $0.5 million decrease in accrued interest payable.

Total shareholders’ equity increased $8.0 million to $170.9 million at March 31, 2019 compared to $162.9 million at December 31, 2018. This increase was primarily attributable to $3.8 million of net income and $4.0 million of after-tax increase in market value of investment securities available for sale. Tangible book value per share, a non-GAAP measure, increased $1.19 to $20.76 at March 31, 2019 from $19.57 at December 31, 2018.

Cash and Cash Equivalents

Total cash and cash equivalents increased $29.2 million to $98.3 million at March 31, 2019 from $69.1 million at December 31, 2018, primarily as a result of proposed merger-related restrictions which limited the use of excess cash.

Investment Securities

The following table presents the holdings of our equity securities as of March 31, 2019 and December 31, 2018:

	March 31, 2019		December 31, 2018
	(Dollars in thousands)
Mutual funds	$	6,812	$	6,178

Equity securities with a fair value of $6.2 million as of March 31, 2019 and $5.6 million as of December 31, 2018 are held in a Rabbi Trust and seek to generate returns that will fund the cost of certain deferred compensation agreements.

Equity securities with a fair value of $0.6 million as of both March 31, 2019 and December 31, 2018 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity.

47

The remainder of our investment securities portfolio is classified as available-for-sale (“AFS”) and is carried at fair value. The following table shows the amortized cost and fair value for our AFS investment portfolio as of the dates indicated.

	March 31, 2019				December 31, 2018
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
U.S. Treasury & Government Agencies	$	33,918	$	33,822	$	34,068	$	33,990
Municipal Securities		115,467		117,479		115,860		114,402
Mortgage-backed Securities - Guaranteed		82,467		81,526		86,664		85,184
Collateralized Mortgage Obligations - Guaranteed		22,194		21,905		22,492		21,889
Collateralized Mortgage Obligations - Non Guaranteed		66,842		67,139		69,774		69,171
Collateralized Loan Obligations		15,524		15,212		15,534		15,077
Corporate bonds		19,920		20,049		19,936		20,025
	$	356,332	$	357,132	$	364,328	$	359,738

AFS investment securities decreased $2.6 million to $357.1 million at March 31, 2019 from $359.7 million at December 31, 2018. We continue to monitor and decrease our investment portfolio as we continue to build our loan portfolio.

48

Loans

The following table presents our loan portfolio composition and the corresponding percentage of total loans as of the dates indicated. Other construction and land loans include residential acquisition and development loans, commercial undeveloped land and one-to-four family improved and unimproved lots. Commercial real estate includes non-residential owner occupied and non-owner occupied real estate, multi-family, and owner-occupied investment property. Commercial business loans include unsecured commercial loans and commercial loans secured by business assets.

	March 31,						December 31,
	2019						2018
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to-four family residential	$	328,779			30.4	%	$	325,560			30.2	%
Commercial		500,600			46.3			498,106			46.2
Home equity loans and lines of credit		47,665			4.4			48,679			4.5
Residential construction		46,622			4.3			39,533			3.7
Other construction and land		99,462			9.2			104,645			9.7
Commercial		51,562			4.8			54,410			5.1
Consumer		6,494			0.6			6,842			0.6
Total loans, gross	$	1,081,184			100.0	%	$	1,077,775			100.0	%
Less:
Deferred loan fees, net		(1,046	)					(1,000	)
Fair value discount		(915	)					(1,048	)
Hedged loans basis adjustment		503						245
Unamortized premium		319						333
Unamortized discount		(208	)					(236	)
Total loans, net	$	1,079,837					$	1,076,069
Percentage of total assets		64.7	%					65.8	%

Net loans increased $3.8 million, or an annualized rate of 1.4%, to $1.08 billion at March 31, 2019. Most of our loan growth is concentrated in one-to-four family residential and commercial real estate with increases of $3.2 million, or 1.0%, and $2.5 million, or 0.5%, respectively, as compared to relative balances at December 31, 2018. We believe that economic conditions in our primary market areas are favorable and present opportunities for continued growth.

Delinquent Loans

When a loan becomes 15 days past due, we contact the borrower to inquire as to the status of the loan payment. When a loan becomes 30 days or more past due, we increase collection efforts to include all available forms of communication. Once a loan becomes 45 days past due, we generally issue a demand letter and further explore the reasons for non-repayment, discuss repayment options, and inspect the collateral. In the event the loan officer or collections staff has reason to believe restructuring will be mutually beneficial to the borrower and the Bank, the borrower will be referred to the Bank’s Credit Administration staff to explore restructuring alternatives to foreclosure. Once the demand period has expired and it has been determined that restructuring is not a viable option, the Bank’s counsel is instructed to pursue foreclosure.

The accrual of interest on loans is discontinued at the time a loan becomes 90 days delinquent or when it becomes impaired, whichever occurs first, unless the loan is well secured and in the process of collection. All interest accrued but not collected for loans that are placed on nonaccrual is reversed. Interest payments received on nonaccrual loans are generally applied as a direct reduction to the principal outstanding until the loan is returned to accrual status. Interest payments received on nonaccrual loans may be recognized as income on a cash basis if recovery of the remaining principal is reasonably assured. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest payments applied to principal while the loan was on nonaccrual may be recognized in income over the remaining life of the loan after the loan is returned to accrual status.

49

If a loan is modified in a troubled debt restructuring (“TDR”), the loan is generally placed on non-accrual until there is a period of satisfactory payment performance by the borrower (either immediately before or after the restructuring), generally six consecutive months, and the ultimate collectability of all amounts contractually due is not in doubt.

The following table sets forth certain information with respect to our loan portfolio carrying balances of delinquencies at the dates indicated. We have no loans past due 90 days and over that are still accruing interest as of March 31, 2019 or December 31, 2018.

	Delinquent loans
	30-59 Days			60-89 Days			90 Days and over			Total
	(Dollars in thousands)
March 31, 2019
Real estate loans:
One-to-four family residential	$	4,364		$	—		$	251		$	4,615
Commercial		4,291			119			1,515			5,925
Home equity loans and lines of credit		159			—			343			502
Residential construction		350			—			1			351
Other construction and land		129			—			64			193
Commercial		283			—			62			345
Consumer		35			3			1			39
Total delinquent loans	$	9,611		$	122		$	2,237		$	11,970
% of total loans, net		0.89	%		0.01	%		0.21	%		1.11	%
December 31, 2018
Real estate loans:
One-to-four family residential	$	3,562		$	1,317		$	84		$	4,963
Commercial		2,615			—			1,782			4,397
Home equity loans and lines of credit		400			457			73			930
One- to four-family residential construction		—			—			1			1
Other construction and land		613			32			64			709
Commercial		307			25			121			453
Consumer		27			4			—			31
Total delinquent loans	$	7,524		$	1,835		$	2,125		$	11,484
% of total loans, net		0.70	%		0.17	%		0.20	%		1.07	%

Delinquent loans increased $0.5 million to $12.0 million at March 31, 2019 from $11.5 million at December 31, 2018. The increase in 30-59 days delinquencies of $2.1 million, or 27.7%, from December 31, 2018 is concentrated primarily in one-to-four residential and commercial real estate loans. We continue to focus on collection efforts and favorable resolutions.

50

Non-Performing Assets

Non-performing loans include all loans past due 90 days and over, certain impaired loans (some of which may be contractually current), and TDR loans that have not yet established a satisfactory period of payment performance (some of which may be contractually current). Non-performing assets include non-performing loans and real estate owned (“REO”). The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.

	March 31			December 31,
	2019			2018
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One-to-four family residential	$	1,394		$	1,037
Commercial		2,854			3,266
Home equity loans and lines of credit		343			178
Residential construction		1			—
Other construction and land		251			256
Commercial		62			120
Consumer		1			—
Total non-performing loans		4,906			4,857
REO:
One-to-four family residential		—			228
Commercial real estate		949			949
Other construction and land		1,307			1,316
Total foreclosed real estate		2,256			2,493
Total non-performing assets	$	7,162		$	7,350
Troubled debt restructurings still accruing	$	7,804		$	7,588
Ratios:
Non-performing loans to total loans		0.45	%		0.45	%
Non-performing assets to total assets		0.43	%		0.45	%

Non-performing loans to total loans was 0.45% at both March 31, 2019 and December 31, 2018. Non-performing assets to total assets declined to 0.43% at March 31, 2019 from 0.45% at December 31, 2018.

REO decreased $0.2 million, or 9.5%, to $2.3 million at March 31, 2019 from $2.5 million at December 31, 2018 due to the sale of the remaining one-to-four residential property.

51

Classification of Loans

The following table sets forth amounts of classified and criticized loans at the dates indicated. As indicated in the table, loans classified as “doubtful” or “loss” are charged off immediately.

	March 31,			December 31,
	2019			2018
	(Dollars in thousands)
Classified loans:
Substandard	$	8,155		$	8,169
Doubtful		—			—
Loss		—			—
Total classified loans:		8,155			8,169
As a % of total loans, net		0.76	%		0.76	%
Special mention		10,262			9,987
Total criticized loans	$	18,417		$	18,156
As a % of total loans, net		1.71	%		1.68	%

Total classified loans to total loans was 0.76% at both March 31, 2019 and December 31, 2018. Total criticized loans to total loans increased slightly to 1.71% at March 31, 2019 from 1.68% at December 31, 2018. Management continues to dedicate resources to monitoring and resolving classified and criticized loans.

Allowance for Loan Losses

The allowance for loan losses reflects our estimates of probable losses inherent in our loan portfolio at the balance sheet date. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of our loans in light of historical experience, the nature and volume of our loan portfolio, adverse situations that may affect our borrowers’ abilities to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The methodology for determining the allowance for loan losses has two main components: the evaluation of individual loans for impairment and the evaluation of certain groups of homogeneous loans with similar risk characteristics.

A loan is considered impaired when it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan. We individually evaluate loans classified as “substandard” or nonaccrual and greater than $350,000 for impairment. If the impaired loan is considered collateral dependent, a charge-off is taken based upon the appraised value of the property less an estimate of selling costs if foreclosure or sale of the property is anticipated. If the impaired loan is not collateral dependent, a specific reserve is established based upon an estimate of the future discounted cash flows after consideration of modifications and the likelihood of future default and prepayment.

The allowance for homogenous loans consists of a base loss reserve and a qualitative reserve. The base loss reserve utilizes an average loss rate for the last 16 quarters. The loss rates for the base loss reserve are segmented into 13 loan categories and contain loss rates ranging from approximately 0.50% to 1.36%.

The qualitative reserve adjusts the weighted average loss rates utilized in the base loss reserve for trends in the following internal and external factors:

· non-accrual and classified loans;

· collateral values;

· loan concentrations;

· economic conditions – including unemployment rates, home sales and prices, and a regional economic index; and

· lender risk – personnel changes.

52

Qualitative reserve adjustment factors are decreased for favorable trends and increased for unfavorable trends. These factors are subject to further adjustment as economic and other conditions change.

The following table sets forth activity in our allowance for loan losses at the dates and for the periods indicated.

	As of or for the Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	11,985		$	10,887
Charge-offs:
Real Estate:
One- to four-family residential		4			110
Commercial		—			35
Home equity loans and lines of credit		209			41
Residential construction		—			—
Other construction and land		—			—
Commercial		59			—
Consumer		26			29
Total charge-offs		298			215
Recoveries:
Real Estate:
One- to four-family residential		20			13
Commercial		56			3
Home equity loans and lines of credit		—			21
Residential construction		—			—
Other construction and land		8			20
Commercial		4			5
Consumer		152			72
Total recoveries		240			134
Net chargeoffs		58			81
Provision for loan losses		116			361
Balance at end of period	$	12,043		$	11,167
Ratios:
Net charge-offs to average loans outstanding		0.02	%		0.03	%
Allowance to non-performing loans at period end		245.47	%		257.54	%
Allowance to total loans at period end		1.12	%		1.08	%

Our allowance as a percentage of total loans increased to 1.12% at March 31, 2019 from 1.08% at March 31, 2018 primarily as the result of loan growth and provision related to acquired loans. The remaining fair value discount on acquired loans was $0.9 million as of March 31, 2019.

We have continued to experience limited charge-off amounts and stable collections of amounts previously charged-off. The overall historical loss rate used in our allowance for loan losses calculation continues to decline as previous quarters with larger loss rates are eliminated from the calculation as time passes. Our coverage ratio of non-performing loans decreased slightly to 245.47% at March 31, 2019 from 246.76% at December 31, 2018 and 257.54% at March 31, 2018.

53

REO

The table below summarizes the balances and activity in REO at the dates and for the periods indicated.

	March 31,		December 31,
	2019		2018
	(Dollars in thousands)
One- to four-family residential	$	—	$	228
Commercial real estate		949		949
Other construction and land		1,307		1,316
Total	$	2,256	$	2,493

	Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Balance, beginning of period	$	2,493		$	2,568
Additions		—			749
Disposals		(228	)		(425	)
Writedowns		—			(18	)
Balance, end of period	$	2,265		$	2,874

Real estate owned decreased $0.2 million, or 9.5%, to $2.3 million at March 31, 2019 from $2.5 million at December 31, 2018. We have experienced a significant decrease in the number and dollar amount of additions to REO, and have had success in liquidating REO. Our policy continues to be to aggressively market REO for sale, including recording write-downs when necessary.

Net Deferred Tax Assets

Deferred tax assets and liabilities are determined using the asset and liability method and are reported net in the consolidated balance sheets of this Form 10-Q. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities and recognizes enacted changes in tax rate and laws. When deferred tax assets are recognized, they are subject to a valuation allowance based on management’s judgment as to whether realization is more likely than not. In determining the need for a valuation allowance, we considered the following sources of taxable income:

· future reversals of existing taxable temporary differences;

· future taxable income exclusive of reversing temporary differences and carry forwards;

· taxable income in prior carryback years; and

· tax planning strategies that would, if necessary, be implemented.

Net deferred tax assets decreased $2.3 million to $5.3 million at March 31, 2019 from $7.6 million at December 31, 2018. The decrease in net deferred tax assets is mainly attributable to decreases in the net unrealized holding losses on our investment securities and reductions in our federal and state net operating losses.

54

Deposits

The following table presents deposits by category and percentage of total deposits as of the dates indicated.

	March 31, 2019					December 31, 2018
	Balance		Percent			Balance		Percent
	(Dollars in thousands)
Deposit type:
Noninterest-bearing demand accounts	$	194,562		15.6	%	$	184,404		15.1	%
Interest-bearing demand accounts		198,516		15.9			209,085		17.1
Money market accounts - retail		385,776		31.0			351,056		28.7
Money market accounts - wholesale		5,063		0.4			5,030		0.4
Savings accounts		49,996		4.0			50,716		4.2
Time deposits - retail		340,047		27.3			349,971		28.7
Time deposits - wholesale		72,259		5.8			70,978		5.8
Total deposits	$	1,246,219		100.0	%	$	1,221,240		100.0	%

Core deposits increased $33.6 million to $828.9 million at March 31, 2019 from $795.3 million at December 31, 2018. Retail certificates of deposit decreased $9.9 million to $340.0 million at March 31, 2019 from $349.9 million at December 31, 2018. Wholesale deposits increased $1.3 million to $77.3 million at March 31, 2019 from $76.0 million at December 31, 2018. We continue to focus on gathering core deposits, which increased to 67% of the Company’s deposit portfolio at March 31, 2019 compared to 65% at December 31, 2018.

FHLB Advances

FHLB advances were $213.5 million at March 31, 2019 and December 31, 2018. FHLB advances are secured by qualifying one-to-four family permanent and commercial loans, by investment securities, and by a blanket collateral agreement with the FHLB.

Other Borrowings

On September 15, 2017, the Company established a $15.0 million revolving credit loan facility with NexBank SSB. The loan facility, which is secured by Entegra Bank stock, bears interest at LIBOR plus 350 basis points and is intended to be used for general corporate purposes. Unless extended, the loan will mature on September 15, 2020. The Company had drawn $5.0 million on the revolving credit loan facility as of March 31, 2019.

The Company also had other borrowings at March 31, 2019 of $4.4 million which is comprised of participated loans that did not qualify for sale accounting. Interest expense on the other borrowings accrues at the same rate as the interest income recognized on the loans receivable, resulting in no effect to net income.

Junior Subordinated Notes

We had $14.4 million in junior subordinated notes outstanding at March 31, 2019 and December 31, 2018 payable to an unconsolidated subsidiary. These notes accrue interest at 2.80% above the 90-day LIBOR, adjusted quarterly. To add stability to net interest income and manage our exposure to interest rate movement, we entered into an interest rate swap in September 2016 on the junior subordinated notes. We also entered into a forward starting interest rate swap on our junior subordinated date in June 2018 to begin in 2020 after the current interest rate swap terminates. The swap contracts involve the payment of fixed-rate amounts to a counterparty in exchange for our receipt of variable-rate payments over the four year life of the current contract and three additional years under the forward starting contract. The effective interest rate on the swapped notes was 3.76% at March 31, 2019 and December 31, 2018.

55

Equity

Total shareholders’ equity increased $8.0 million to $170.9 million at March 31, 2019 compared to $162.9 million at December 31, 2018. This increase was primarily attributable to $3.8 million of net income and $4.0 million of after-tax increase in the market value of investment securities available for sale.

Comparison of Operating Results for the Three Months Ended March 31, 2019 and March 31, 2018.

General. Net income for the three months ended March 31, 2019 was $3.8 million compared to $3.6 million for the same period in 2018. The increase in net income for the recent quarter was primarily the result of an increase in noninterest income of $2.3 million partially offset by a decrease in net interest income of $0.4 million and increases in noninterest expense of $1.6 million.

Net Interest Income. Net interest income decreased $0.4 million, or 3.5%, to $12.0 million for the three months ended March 31, 2019, compared to $12.4 million for the same period in 2018. The decrease in net interest income was primarily due to increased costs of deposits and borrowings, partially offset by higher volumes in the loan portfolio, as well as an increase in the yields earned on cash and taxable investments. The tax-equivalent net interest margin decreased to 3.23% for the three months ended March 31, 2019 compared to 3.49% for the same period in 2018.

The following table sets forth the average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets on a tax-equivalent basis, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average tax-equivalent yields and cost for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

56

	For the Three Months Ended March 31,
	2019								2018
	Average Outstanding Balance			Interest		Yield/ Rate			Average Outstanding Balance			Interest		Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale	$	1,069,700		$	12,916		4.90	%	$	1,008,074		$	11,892		4.78	%
Loans, tax exempt (1)		17,246			137		3.21	%		15,792			116		2.99	%
Investments - taxable		255,539			2,082		3.26	%		261,970			1,789		2.73	%
Investment tax exempt (1)		102,427			962		3.76	%		76,129			696		3.66	%
Interest earning deposits		72,538			472		2.64	%		86,644			349		1.63	%
Other investments, at cost		12,045			204		6.87	%		12,391			171		5.60	%
Total interest-earning assets		1,529,495			16,773		4.45	%		1,461,000			15,013		4.17	%
Noninterest-earning assets		122,582								124,753
Total assets	$	1,652,077							$	1,585,753
Interest-bearing liabilities:
Savings accounts	$	50,522		$	14		0.11	%	$	51,123		$	15		0.12	%
Time deposits		419,097			1,676		1.62	%		403,284			914		0.92	%
Money market accounts		375,676			1,138		1.23	%		319,351			366		0.46	%
Interest bearing transaction accounts		200,654			98		0.20	%		212,366			87		0.17	%
Total interest bearing deposits		1,045,949			2,926		1.13	%		986,124			1,382		0.57	%
FHLB advances		213,500			1,396		2.62	%		223,500			820		1.47	%
Junior subordinated debentures		14,433			139		3.85	%		14,433			138		3.82	%
Other borrowings		9,368			128		5.54	%		8,763			109		5.04	%
Total interest-bearing liabilities		1,283,250			4,589		1.45	%		1,232,820			2,449		0.81	%
Noninterest-bearing deposits		189,511								183,071
Other non interest bearing liabilities		14,526								18,773
Total liabilities		1,487,287								1,434,664
Total equity		164,790								151,089
Total liabilities and equity	$	1,652,077							$	1,585,753
Tax-equivalent net interest income				$	12,184							$	12,565
Net interest-earning assets (2)	$	246,245							$	228,180
Average interest-earning assets to interest-bearing liabilities		119.19	%							118.51	%
Tax-equivalent net interest rate spread (3)							3.00	%							3.36	%
Tax-equivalent net interest margin (4)							3.23	%							3.49	%

(1) Tax exempt loans and investments are calculated giving effect to a 21% federal tax rate.

(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(3) Tax-equivalent net interest rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(4) Tax-equivalent net interest margin represents tax equivalent net interest income divided by average total interest-earning assets.

57

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to change in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on changes due to rate and the changes due to volume.

	For the Three Months Ended March 31, 2019
	Compared to the Three Months Ended March 31, 2018
	Increase (decrease) due to:
	Volume			Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale (1)	$	739		$	285		$	1,024
Loans, tax exempt (2)		12			9			21
Investment - taxable		(44	)		337			293
Investments - tax exempt (2)		247			19			266
Interest-earning deposits		(64	)		187			123
Other investments, at cost		(6	)		38			32
Total interest-earning assets		884			875			1,759
Interest-bearing liabilities:
Savings accounts		—			(1	)		(1	)
Time deposits		37			725			762
Money market accounts		75			697			772
Interest bearing transaction accounts		(5	)		16			11
FHLB advances		(37	)		614			577
Junior subordinated debentures		—			—			—
Other borrowings		8			11			19
Total interest-bearing liabilities		79			2,062			2,140
Change in tax-equivalent net interest income	$	805		$	(1,187	)	$	(381	)

(1) Non-accrual loans are included in the above analysis.

(2) Interest income on tax exempt loans and investments are adjusted for based on a 21% federal tax rate.

Net interest income before provision for loan losses decreased to $12.0 million for the three months ended March 31, 2019, compared to $12.4 million for the same period in 2018. As indicated in the table above, a decrease in tax-equivalent net interest income of $1.2 million attributable to an unfavorable movement in rates was partially offset by a $0.8 million improvement in volume.

58

The increase in tax-equivalent net interest income of $0.8 million related to volume was primarily the result of higher average loan and tax exempt investment balances which increased $63.1 million and $26.3 million, respectively, and lower average FHLB advances which decreased $10.0 million for the three months ended March 31, 2019 as compared to the same period in 2018. The increase in average loan balances and decrease in FHLB advances was partially offset by decreases in average taxable investments and interest-earning deposit balances of $6.4 million and $0.3 million, respectively, and increases in time deposit and money market balances of $15.8 million and $56.3 over the same periods.

The decrease in tax-equivalent net interest income of $1.2 million related to rate was primarily the result of increased rates on time deposits, money markets and FHLB advances, partially off by yields loans, taxable investments, and interest-earning deposits.

Our tax-equivalent net interest rate spread decreased to 3.00% for the three months ended March 31, 2019 compared to 3.36% for the three months ended March 31, 2018. Our tax-equivalent net interest margin decreased to 3.23% for the three months ended March 31, 2019, compared to 3.49% for the three months ended March 31, 2018.

Provision for Loan Losses. We recorded a provision for loan losses for the three months ended March 31, 2019 of $0.1 million due to organic loan growth and acquired loans compared to a $0.4 million provision for loan losses for the same period in 2018. We are experiencing continued stabilization in asset quality, low charge-off amounts, and a continued decline in the historical loss rates used in our allowance for loan losses model.

Noninterest Income. The following table summarizes the components of noninterest income and the corresponding change between the three month periods ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018			Change
	(Dollars in thousands)
Servicing income, net	$	89	$	94		$	(5	)
Mortgage banking		263		239			24
Gain on sale of SBA loans		80		61			19
Loss on sale of investments, net		—		(12	)		12
Equity securities gains (losses)		418		(53	)		471
Service charges on deposit accounts		398		431			(33	)
Interchange fees, net		246		248			(2	)
Bank owned life insurance		180		200			(20	)
Legal settlement income		1,750		—			1,750
Other		278		208			70
Total	$	3,702	$	1,416		$	2,286

Gains on equity securities in the three months ended March 31, 2019 compared to losses in the same period in 2018 relate to increases in market value of the equity securities.

The legal settlement income in the three months ended March 31, 2019 relates to a definitive settlement agreement with one of our former advisors.

59

Noninterest Expense. The following table summarizes the components of noninterest expense and the corresponding change between the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019		2018		Change
	(Dollars in thousands)
Compensation and employee benefits	$	6,020	$	5,617	$	403
Net occupancy		1,120		1,092		28
Federal deposit insurance		142		279		(137	)
Professional and advisory		325		277		48
Data processing		493		509		(16	)
Marketing and advertising		279		209		70
Merger-related expenses		1,350		196		1,154
Net cost of operation of REO		7		50		(43	)
Other		1,002		894		108
Total noninterest expenses	$	10,738	$	9,123	$	1,615

Compensation and employee benefits increased $0.4 million, or 7.2%, for the three months ended March 31, 2019 as compared to the same period in 2018. This additional expense is related to annual raises, employee benefits, incentives and commissions.

Federal deposit insurance premiums decreased $0.1 million for the three months ended March 31, 2019 compared to the same period in 2018 due to an increase in premium credits based on an increase in certain regulatory ratios.

Merger-related expenses increased $1.2 million in the three months ended March 31, 2019 compared to the same period in 2018 due to expenses related primarily to the previously proposed merger with SmartFinancial.

Other noninterest expense increased $0.1 million for the three months ended March 31, 2019 compared to the same period in 2018, primarily as the result of increased franchise tax expense.

Income Taxes. We recorded $1.0 million of income tax expense for the three months ended March 31, 2019 compared to $0.7 million for the same period in 2018. Income tax expense for the three months ending March 31, 2019 and 2018 benefitted from tax-exempt income related to municipal bond investment and BOLI income resulting in effective tax rates of 20.5% and 17.2%, respectively. The increase in the effective tax rate is primarily attributable to higher disallowed interest expense deductions and state income taxes.

We continue to have unutilized net operating losses for federal and state income tax purposes and do not have a material current tax receivable or liability. 

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB, proceeds from the sale of loans originated for sale, and principal repayments and the sale of available-for-sale securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee, under the direction of our Chief Financial Officer, is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2019.

60

We regularly monitor and adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows and borrowing maturities, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in FHLB and Federal Reserve Bank of Richmond (“FRB”) interest-earning deposits and investment securities and are also used to pay off short-term borrowings. At March 31, 2019, cash and cash equivalents totaled $98.3 million. Included in this total was $49.2 million held at the FRB, $2.7 million held at the FHLB, and $30.9 million held at correspondent banks in interest-earning accounts.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements of this Form 10-Q. The following summarizes the most significant sources and uses of liquidity during the three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Operating activities:
Loans originated for sale	$	(9,510	)	$	(9,745	)
Proceeds from loans originated for sale		8,215			9,866
Investing activities:
Purchases of investments	$	—		$	(21,758	)
Maturities and principal repayments of investments		7,177			8,858
Sales of investments		—			10,009
Net increase in loans		(3,474	)		(31,241	)
Proceeds from settlement of BOLI policies		1,115			—
Financing activities:
Net increase in deposits	$	24,366		$	43,375
Proceeds from FHLB advances		50,000			40,000
Repayment of FHLB advances		(50,000	)		(40,000	)

At March 31, 2019, we had $34.0 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $175.4 million in unused lines of credit.

Depending on market conditions, we may be required to pay higher rates on our deposits or other borrowings than we currently pay on certificates of deposit. Based on historical experience and current market interest rates, we anticipate that following their maturity we will retain a large portion of our retail certificates of deposit with maturities of one year or less as of March 31, 2019.

In addition to loans, we invest in securities that provide a source of liquidity, both through repayments and as collateral for borrowings. Our securities portfolio includes both callable securities (which allow the issuer to exercise call options) and mortgage-backed securities (which allow borrowers to prepay loans). Accordingly, a decline in interest rates would likely prompt issuers to exercise call options and borrowers to prepay higher-rate loans, producing higher than otherwise scheduled cash flows.

61

Liquidity management is both a daily and long-term function of management. If we require more funds than we are able to generate locally, we have borrowing agreements with the FHLB and the FRB discount window, and a revolving credit loan facility with NexBank SSB. The following summarizes our borrowing capacity as of March 31, 2019:

	Total		Used		Unused
(Dollars in thousands)	Capacity		Capacity		Capacity
FHLB
Loan collateral capacity	$	208,734
Pledgeable marketable securities		96,795
FHLB totals		305,529	$	213,500	$	92,029
FRB		48,268		—		48,268
Fed funds lines		15,000		—		15,000
Holding Company revolving line of credit		15,000		5,000		10,000
	$	383,797	$	218,500	$	165,297

In July 2013, the Board of Governors of the Federal Reserve System and the FDIC issued final rules to revise their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act (“Basel III”). On January 1, 2015, the Basel III rules became effective and include transition provisions which implement certain portions of the rules through January 1, 2019.

The Basel III also includes changes in what constitutes regulatory capital, some of which are subject to a transition period. These changes include the phasing-out of certain instruments as qualifying capital. In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common stock are required to be deducted from capital, subject to a transition period. Finally, common equity Tier 1 capital includes accumulated other comprehensive income (which includes all unrealized gains and losses on available-for-sale debt and equity securities), subject to a transition period and a one-time opt-out election. The Bank elected to opt-out of this provision. As such, accumulated comprehensive income is not included in the Bank’s Tier 1 capital.

The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based guidelines and framework under prompt corrective action provisions include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories.

Basel III was fully phased in on January 1, 2019. The Company and the Bank are now required to maintain a 2.5% capital conservation buffer which is designed to absorb losses during periods of economic distress. This capital conservation buffer is comprised entirely of Common Equity Tier 1 Capital and is in addition to minimum risk-weighted asset ratios.

62

The tables below summarize capital ratios and related information in accordance with Basel III as measured at March 31, 2019 and December 31, 2018.

The following table summarizes the required and actual capital ratios of the Bank as of the dates indicated:

	Actual					For Capital Adequacy Purposes (1)					To Be Well- Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2019:
Tier 1 Leverage Capital	$	157,179		9.67	%	$	65,040		>4	%	$	81,300		>5	%
Common Equity Tier 1 Capital	$	157,179		13.32	%	$	82,590		>7.0	%	$	76,691		>6.5	%
Tier 1 Risk-based Capital	$	157,179		13.32	%	$	94,388		>8.5	%	$	94,388		>8	%
Total Risk-based Capital	$	169,322		14.35	%	$	123,885		>10.5	%	$	117,985		>10	%
As of December 31, 2018:
Tier 1 Leverage Capital	$	152,137		9.42	%	$	64,589		>4	%	$	80,737		>5	%
Common Equity Tier 1 Capital	$	152,137		12.92	%	$	75,046		>6.375	%	$	76,517		>6.5	%
Tier 1 Risk-based Capital	$	152,137		12.92	%	$	92,703		>7.875	%	$	94,175		>8	%
Total Risk-based Capital	$	164,222		13.95	%	$	116,247		>9.875	%	$	117,719		>10	%

(1) As of December 31, 2018, includes capital conservation buffer of 1.875%.

The following table summarizes the required and actual consolidated capital ratios of the Company as of the dates indicated:

	Actual					For Capital Adequacy Purposes (1)
(Dollars in thousands)	Amount		Ratio			Amount		Ratio
As of March 31, 2019:
Tier I Leverage Capital	$	156,786		9.64	%	$	65,077		>4	%
Common Equity Tier 1 Capital	$	142,353		12.05	%	$	82,662		>7.0	%
Tier I Risk-based Capital	$	156,786		13.28	%	$	100,375		>8.5	%
Total Risk Based Capital	$	168,929		14.31	%	$	123,993		>10.5	%
As of December 31, 2018:
Tier I Leverage Capital	$	151,629		9.38	%	$	64,629		>4	%
Common Equity Tier 1 Capital	$	137,196		11.65	%	$	75,106		>6.375	%
Tier I Risk-based Capital	$	151,629		12.87	%	$	92,777		>7.875	%
Total Risk Based Capital	$	163,714		13.90	%	$	116,340		>9.875	%

(1) As of December 31, 2018, includes capital conservation buffer of 1.875%.  

63

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

One of the most significant forms of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect economic value of equity (“EVE”) by changing the net present value of a bank’s future cash flows, and the cash flows themselves as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive risk can threaten a bank’s earnings, capital, liquidity and solvency. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. The Board of Directors of the Bank has established an ALCO, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board. Our ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and simulations in order to avoid unacceptable earnings and market value fluctuations due to changes in interest rates.

One of the primary ways we manage interest rate risk is by selling the majority of our long-term fixed rate mortgages into the secondary markets, and obtaining commitments to sell at locked-in interest rates prior to issuing a loan commitment. From a funding perspective, we expect to satisfy the majority of our future requirements with retail deposit growth, including checking and savings accounts, money market accounts and certificates of deposit generated within our primary markets. If our funding needs exceed our deposits, we will utilize our excess funding capacity with the FHLB and the FRB.

We have taken the following steps to reduce our interest rate risk:

· increased our personal and business checking accounts and our money market accounts, which are less rate-sensitive than certificates of deposit and which provide us with a stable, low-cost source of funds;

· limited the fixed rate period on loans within our portfolio;

· utilized our securities portfolio for positioning based on projected interest rate environments;

· priced certificates of deposit to encourage customers to extend to longer terms;

· engaged in interest rate swap agreements; and

· utilized FHLB advances for positioning.

We have not conducted speculative hedging activities, such as engaging in futures or options.

Economic Value of Equity (EVE)

EVE is the difference between the present value of an institution’s assets and liabilities that would change in the event of a range of assumed changes in market interest rates. EVE is used to monitor interest rate risk beyond the 12 month time horizon of income simulations. The simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of EVE. The model estimates the economic value of each type of asset, liability and off-balance sheet contract using the current interest rate yield curve with instantaneous increases or decreases of 100 to 400 basis points in 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. Given the current relatively low level of market interest rates, an EVE calculation for an interest rate decrease of greater than 100 basis points has not been prepared.

64

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in EVE. Modeling changes in EVE require making certain assumptions that may or may not reflect the manner in which actual yields and costs, or loan repayments and deposit decay, respond to changes in market interest rates. In this regard, the EVE information presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the EVE information provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Net Interest Income

In addition to an EVE analysis, we analyze the impact of changing rates on our net interest income. Using our balance sheet as of a given date, we analyze the repricing components of individual assets, and adjusting for changes in interest rates at 100 basis point increments, we analyze the impact on our net interest income. Changes to our net interest income are shown in the following table based on immediate changes to interest rates in 100 basis point increments.

The table below reflects the impact of an immediate increase in interest rates in 100 basis point increments on Pretax Net Interest Income (“NII”) and EVE.

		March 31, 2019						December 31, 2018
Change in Interest Rates (basis points)		% Change in Pretax Net Interest Income			% Change in Economic Value of Equity			% Change in Pretax Net Interest Income			% Change in Economic Value of Equity
	+400		(2.7	)		(5.1	)		0.9			3.9
	+300		(1.6	)		(2.6	)		0.9			2.9
	+200		(0.7	)		(2.0	)		0.8			1.8
	+100		(0.2	)		(1.5	)		0.7			0.2
	—		—			—			—			—
	-100		(3.0	)		2.0			(2.5	)		2.7

The results from the rate shock analysis on NII are consistent with having a liability sensitive balance sheet. Having a liability sensitive balance sheet means liabilities will reprice at a faster pace than assets during the short-term horizon. The implications of a liability sensitive balance sheet will differ depending upon the change in market rates. For example, with a liability sensitive balance sheet in a declining interest rate environment, the interest rate on liabilities will decrease at a faster pace than assets. This situation generally results in an increase in NII and operating income. Conversely, with a liability sensitive balance sheet in a rising interest rate environment, the interest rate on liaiblities will increase at a faster pace than assets. This situation generally results in a decrease in NII and operating income. As indicated in the table above, a 200 basis point increase in rates would result in a 0.72% decrease in NII as of March 31, 2019 as compared to a 0.8% increase in NII as of December 31, 2018, suggesting that there is no benefit for the Company to net interest income in rising interest rates The Company generally seeks to remain neutral to the impact brof changes in interest rates by maximizing current earnings while balancing the risk of changes in interest rates.

The results from the rate shock analysis on EVE are consistent with a balance sheet whose assets have a longer maturity than its liabilities. Like most financial institutions, we generally invest in longer maturity assets as compared to our liabilities in order to earn a higher return on our assets than we pay on our liabilities. This is because interest rates generally increase as the time to maturity increases, assuming a normal, upward sloping yield curve. In a rising interest rate environment, this results in a negative EVE because higher interest rates will reduce the present value of longer term assets more than it will reduce the present value of shorter term liabilities, resulting in a negative impact on equity. As noted in the table above, our exposure to higher interest rates from an EVE or present value perspective has increased from December 31, 2018 to March 31, 2019. For example, as indicated in the table above, a 200 basis point increase in rates would result in a 2.0% decrease in EVE as of March 31, 2019 as compared to a 1.8% inecrease in EVE as of December 31, 2018.

65

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2019. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer each concluded that as of March 31, 2019, the end of the period covered by this Form 10-Q, the Company maintained effective disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 

66

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of operations, we are often involved in legal proceedings. In the opinion of management, neither the Company nor the Bank is a party to, nor is their property the subject of, any material pending legal proceedings, other than ordinary routine litigation incidental to their business, nor has any such proceeding been terminated during the quarter ended March 31, 2019.

Item 1A. Risk Factors

There have been no material changes to the risk factors that we have previously disclosed in the “Risk Factors” section in our 2018 Form 10-K as filed with the SEC on March 14, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

67

 Item 6. Exhibits

Exhibit No.	Description
2.1	Agreement and Plan of Merger, dated as of January 15, 2019, by and among Entegra Financial Corp., SmartFinancial, Inc., and CT Merger Sub, Inc. *
2.2	Agreement and Plan of Merger, dated as of April 23, 2019, by and among Entegra Financial Corp., First Citizens BancShares, Inc., First-Citizens Bank & Trust Company and FC Merger Subsidiary VII, Inc. *
3.1	Articles of Incorporation of Entegra Financial Corp., as amended and restated, incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1, filed with the SEC on March 18, 2014 (SEC File No. 333-194641).
3.2	Bylaws of Entegra Financial Corp., as amended and restated, incorporated by reference to Exhibit 3.2 of the Registration Statement on Form S-1, filed with the SEC on March 18, 2014 (SEC File No. 333-194641).
3.3	Articles of Amendment of Entegra Financial Corp., incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K, filed with the SEC on November 16, 2015 (SEC File No. 001-35302)
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial Statements filed in XBRL format.
*	The registrant has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish a copy of any omitted schedule or similar attachment to the SEC upon request.

68

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

Date: May 8, 2019	Entegra Financial Corp.
	(Registrant)
	By:	/s/ David A. Bright
	Name: David A. Bright
	Title: Chief Financial Officer
	(Authorized Officer)

69

EXHIBIT INDEX

Exhibit No.	Description
31.01	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial Statements filed in XBRL format.

70

EX-31.01

Exhibit 31.01

CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification:

I, Roger D. Plemens, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Entegra Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2019	/s/ Roger D. Plemens
	Roger D. Plemens
	President and Chief Executive Officer

71

EX-31.02

Exhibit 31.02

CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification:

I, David A. Bright, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Entegra Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2019	/s/ David A. Bright
	David A. Bright
	Chief Financial Officer

72

EX-32.01

Exhibit 32.01

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Entegra Financial Corp. (the “Company”) certify that the Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2019 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and information contained in that Quarterly Report on Form 10-Q fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.

Dated: May 8, 2019	/s/ Roger D. Plemens
	Roger D. Plemens
	President and Chief Executive Officer
Dated: May 8, 2019	/s/ David A. Bright
	David A. Bright
	Chief Financial Officer

*This certificate is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

*****

73

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 07, 2019
Document And Entity Information
Entity Registrant Name	ENTEGRA FINANCIAL CORP.
Entity Central Index Key	0001522327
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		6,919,212
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019
Entity Emerging Growth Company	true
Entity Small Business	false
Entity Ex Transition Period	false

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 15,494	$ 15,409
Interest-earning deposits	82,791	53,710
Cash and cash equivalents	98,285	69,119
Investments - equity securities	6,812	6,178
Investments - available for sale	357,132	359,738
Other investments, at cost	12,092	12,039
Loans held for sale (includes $3,270 and $2,431 at fair value)	9,208	7,570
Loans receivable	1,079,837	1,076,069
Allowance for loan losses	(12,043)	(11,985)
Fixed assets, net	26,093	26,385
Real estate owned	2,256	2,493
Accrued interest receivable	6,669	6,443
Bank owned life insurance	32,087	32,886
Small Business Investment Company Holdings, at cost	4,306	3,839
Net deferred tax asset	5,265	7,551
Loan servicing rights	2,753	2,837
Goodwill	23,903	23,903
Core deposit intangible	3,404	3,577
Other assets	11,092	7,799
Total assets	1,669,151	1,636,441
Liabilities:
Core deposits	828,850	795,261
Retail certificates of deposit	340,047	349,971
Wholesale deposits	77,322	76,008
Federal Home Loan Bank advances	213,500	213,500
Junior subordinated notes	14,433	14,433
Other borrowings	9,385	9,299
Post employment benefits	9,410	9,305
Accrued interest payable	1,173	1,647
Other liabilities	4,106	4,145
Total liabilities	1,498,226	1,473,569
Commitments and contingencies
Shareholders' Equity:
Preferred stock - no par value, 10,000,000 shares authorized; none issued and outstanding
Common stock - no par value, 50,000,000 shares authorized; 6,919,212 and 6,917,703 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
Common stock held by Rabbi Trust, at cost; 17,672 shares at both March 31, 2019 and December 31, 2018	(379)	(379)
Additional paid in capital	74,320	74,051
Retained earnings	96,439	92,624
Accumulated other comprehensive loss	545	(3,424)
Total shareholders' equity	170,925	162,872
Total liabilities and shareholders' equity	$ 1,669,151	$ 1,636,441

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Loans at fair value	$ 3,270	$ 2,431
Preferred stock, par value	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	6,919,212	6,917,703
Common stock, shares outstanding	6,919,212	6,917,703
Common Stock held by Rabbi Trust	17,672	17,672

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest income:
Interest and fees on loans	$ 12,916	$ 11,892
Interest on tax exempt loans	108	92
Taxable securities	2,081	1,789
Tax-exempt securities	760	550
Interest-earning deposits	472	349
Other	205	170
Total interest and dividend income	16,542	14,842
Interest expense:
Deposits	2,926	1,382
Federal Home Loan Bank advances	1,396	820
Junior subordinated notes	139	138
Other borrowings	128	109
Interest Expense	4,589	2,449
Net interest income	11,953	12,393
Provision for loan losses	116	361
Net interest income after provision for loan losses	11,837	12,032
Noninterest income:
Servicing income, net	89	94
Mortgage banking	263	239
Gain on sale of SBA loans	80	61
Loss on sale of investments, net		(12)
Equity securities gains (losses)	418	(53)
Service charges on deposit accounts	398	431
Interchange fees	246	248
Bank owned life insurance	180	200
Legal settlement income	1,750
Other	278	208
Total noninterest income	3,702	1,416
Noninterest expenses:
Compensation and employee benefits	6,020	5,617
Net occupancy	1,120	1,092
Federal deposit insurance	142	279
Professional and advisory	325	277
Data processing	493	509
Marketing and advertising	279	209
Merger-related expenses	1,350	196
Net cost of operation of real estate owned	7	50
Other	1,002	894
Total noninterest expenses	10,738	9,123
Income before taxes	4,801	4,325
Income tax expense (benefit)	986	743
Net income	$ 3,815	$ 3,582
Earnings per common share:
Earnings per share - basic	$ 0.55	$ 0.52
Earnings per share - diluted	$ 0.55	$ 0.51
Weighted average common shares outstanding:
Common shares outstanding - Basic	6,918,769	6,885,911
Common shares outstanding - Diluted	6,943,267	7,027,884

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 3,815	$ 3,582
Other comprehensive income (loss):
Change in unrealized holding gains and losses on securities available for sale	5,390	(4,505)
Reclassification adjustment for securities losses (gains) realized in net income		12
Change in unrealized holding gains and losses on cash flow hedge	(159)	202
Reclassification adjustment for cash flow hedge effectiveness	(65)	(56)
Other comprehensive income (loss), before tax	5,166	(4,347)
Income tax effect related to items of other comprehensive income (loss)	(1,197)	965
Other comprehensive income (loss), after tax	3,969	(3,382)
Comprehensive income (loss)	$ 7,784	$ 200

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Common Stock held by Rabbi Trust	Total
Beginning Balance at Dec. 31, 2017		$ 72,997	$ 78,718	$ (23)	$ (379)	$ 151,313
Beginning Balance (in shares) at Dec. 31, 2017	6,879,191
Net income (loss)			3,582			3,582
Other comprehensive income, net of tax				(3,382)		(3,582)
Stock compensation expense		257				257
Stock options exercised, net of shares surrendered		117				117
Stock options exercised, net of shares surrendered (in shares)	8,081
Vesting of restricted stock units, net shares surrendered		(11)				(11)
Vesting of restricted stock units, net shares surrendered (in shares)	1,143
Cumulative effect of change in accounting principle			(9)	9
Ending Balance at Mar. 31, 2018		73,360	82,291	(3,396)	(379)	151,876
Ending Balance (in shares) at Mar. 31, 2018	6,888,415
Beginning Balance at Dec. 31, 2018		74,051	92,624	(3,424)	(379)	162,872
Beginning Balance (in shares) at Dec. 31, 2018	6,917,703
Net income (loss)			3,815			3,815
Other comprehensive income, net of tax				3,969		3,969
Stock compensation expense		290				290
Vesting of restricted stock units, net shares surrendered		(21)				(21)
Vesting of restricted stock units, net shares surrendered (in shares)	1,509
Ending Balance at Mar. 31, 2019		$ 74,320	$ 96,439	$ 545	$ (379)	$ 170,925
Ending Balance (in shares) at Mar. 31, 2019	6,919,212

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income (loss)	$ 3,815	$ 3,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	220	173
Investment amortization, net	820	813
Equity securities losses (gains)	(418)	53
Provision for loan losses	116	361
Provision for real estate owned		18
Share-based compensation expense	290	257
Deferred tax expense	1,045	895
Loss on sales of investments		12
Income on bank owned life insurance, net	(180)	(200)
Mortgage banking income, net	(263)	(239)
Gain on sales of SBA loans	(80)	(61)
Net realized (gain) loss on sale of real estate owned	(6)	16
Loans originated for sale	(9,510)	(9,745)
Proceeds from sale of loans originated for sale	8,215	9,866
Net change in operating assets and liabilities:
Accrued interest receivable	(226)	(134)
Loan servicing rights	84	30
Other assets	(3,711)	(1,135)
Postemployment benefits	105	(163)
Accrued interest payable	(474)	(170)
Other liabilities	(170)	(428)
Net cash provided by operating activities	(328)	3,801
Activity for investment securities:
Purchases		(21,758)
Maturities/calls and principal repayments	7,177	8,858
Sales		10,009
Net increase in loans	(3,474)	(31,241)
Proceeds from sale of real estate owned	34	355
Proceeds from settlement of BOLI policies	1,115
Purchase of fixed assets	(39)	(345)
Purchase of Small Business Investment Company Holdings, at cost	(467)	(68)
Purchase of other investments, at cost	(53)	(78)
Net cash provided by (used in) investing activities	4,293	(34,268)
Cash flows from financing activities:
Net increase in deposits	24,366	43,375
Net increase in escrow deposits	770	653
Net increase in other borrowings	86	463
Proceeds from FHLB advances	50,000	40,000
Repayment of FHLB advances	(50,000)	(40,000)
Cash received (paid for shares surrendered) upon exercise of stock options		117
Cash paid for shares surrendered upon vesting of restricted stock	(21)	(11)
Net cash provided by financing activities	25,201	44,597
Increase (decrease) in cash and cash equivalents	29,166	14,130
Cash and cash equivalents, beginning of period	69,119	109,467
Cash and cash equivalents, end of period	98,285	123,597
Cash paid during the year for:
Interest on deposits and other borrowings	5,220	2,619
Income taxes	554
Noncash investing and financing activities:
Real estate acquired in satisfaction of mortgage loans		749
Loans originated for disposition of real estate owned	$ 209	$ 54

XML

ORGANIZATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Entegra Financial Corp. (“we,” “us,” “our,” or the “Company”) was incorporated on May 31, 2011 and became the holding company for Entegra Bank (the “Bank”) on September 30, 2014 upon the completion of Macon Bancorp’s merger with and into the Company, pursuant to which Macon Bancorp converted from a mutual to stock form of organization. The Company’s primary operation is its investment in the Bank. The Company also owns 100% of the common stock of Macon Capital Trust I (the “Trust”), a Delaware statutory trust formed in 2003 to facilitate the issuance of trust preferred securities. The Bank is a North Carolina state-chartered commercial bank and has a wholly owned subsidiary, Entegra Services, Inc. (“Entegra Services”), which holds investment securities. The consolidated financials are presented in these financial statements.

The Bank operates as a community-focused retail bank, originating primarily real estate-based mortgage, consumer and commercial loans and accepting deposits from consumers and small businesses.

Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change, in the near term, relate to the determination of the allowance for loan losses, the valuation of acquired loans, separately identifiable intangible assets associated with mergers and acquisitions, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Bank, and Entegra Services. The accounts of the Trust are not consolidated with the Company. In consolidation, all significant intercompany accounts and transactions have been eliminated.

Reclassification

Certain amounts in the prior year’s financial statements may have been reclassified to conform to the current year’s presentation. The reclassifications had no effect on our results of operations or financial condition as previously reported.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 14, 2019 (the “2018 Form 10-K”). In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Assets acquired and liabilities assumed are measured and recorded at fair value at the date of acquisition, including identifiable intangible assets. If the fair value of net assets purchased exceeds the fair value of consideration paid, a bargain purchase gain is recognized at the date of acquisition. Conversely, if the consideration paid exceeds the fair value of the net assets acquired, goodwill is recognized at the acquisition date. Fair values are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

The determination of the fair value of loans acquired takes into account credit quality deterioration and probability of loss; therefore, the related allowance for loan losses is not carried forward.

All identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). Deposit liabilities and the related depositor relationship intangible assets may be exchanged in observable exchange transactions. As a result, the depositor relationship intangible asset is considered identifiable, because the separability criterion has been met.

In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

Recent Accounting Standards Updates 

Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted ASU 2016-02, along with several other subsequent codification updates related to lease accounting, as of January 1, 2019. See Note 14 for additional information.

In June 2016, the FASB issued amendments to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in the update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected thereby providing financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by the reporting entity. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company has formed a cross-functional committee to provide corporate governance over the implementation of this update, has evaluated data sources and made process updates to capture additional relevant data, has identified a service provider to perform the calculation, and continues to attend seminars and forums specific to this update. The Company also engaged the service provider to assist with the implementation of the standard. The preliminary measurement of life of loan credit losses was completed in the first quarter of 2019 using December 31, 2018 data. While we continue to evaluate the impact the new guidance will have on our financial position and results of operations, we currently expect the new guidance may result in an increase to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount of any change to our allowance will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

XML

INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2019

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

NOTE 2. INVESTMENT SECURITIES

The following table presents the holdings of our equity securities as of March 31, 2019 and December 31, 2018:

	March 31,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,812	$	6,178

Equity securities with a fair value of $6.2 million as of March 31, 2019 are held in a Rabbi Trust and seek to generate returns that will fund the cost of certain deferred compensation agreements. Equity securities with a fair value of $0.6 million as of March 31, 2019 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity. There were gains on equity securities of $0.4 million for the three months ended March 31, 2019, and losses of $0.1 million for the three months ended March 31, 2018.  

The amortized cost and estimated fair values of available-for-sale (“AFS”) securities as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,918	$	112	$	(208	)	$	33,822
Municipal Securities		115,467		2,194		(182	)		117,479
Mortgage-backed Securities - Guaranteed		82,467		196		(1,137	)		81,526
Collateralized Mortgage Obligation - Guaranteed		22,194		99		(388	)		21,905
Collateralized Mortgage Obligation - Non Guaranteed		66,842		491		(194	)		67,139
Collateralized Loan Obligations		15,524		—		(312	)		15,212
Corporate bonds		19,920		237		(108	)		20,049
	$	356,332	$	3,329	$	(2,529	)	$	357,132

	December 31, 2018
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	34,068	$	74	$	(152	)	$	33,990
Municipal Securities		115,860		209		(1,667	)		114,402
Mortgage-backed Securities - Guaranteed		86,664		98		(1,578	)		85,184
Collateralized Mortgage Obligation - Guaranteed		22,492		47		(650	)		21,889
Collateralized Mortgage Obligation - Non Guaranteed		69,774		125		(728	)		69,171
Collateralized Loan Obligations		15,534		1		(458	)		15,077
Corporate bonds		19,936		232		(143	)		20,025
	$	364,328	$	786	$	(5,376	)	$	359,738

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	March 31, 2019
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	22,738	$	179	$	2,032	$	29	$	24,770	$	208
Municipal Securities		—		—		20,277		182		20,277		182
Mortgage-backed Securities - Guaranteed		5,987		60		54,578		1,077		60,565		1,137
Collateralized Mortgage Obligations - Guaranteed		—		—		15,433		388		15,433		388
Collateralized Mortgage Obligations - Non Guaranteed		2,908		25		17,739		169		20,647		194
Collateralized loan obligations		11,750		269		3,462		43		15,212		312
Corporate bonds		3,125		25		3,350		83		6,475		108
	$	46,508	$	558	$	116,871	$	1,971	$	163,379	$	2,529

	December 31, 2018
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	23,423	$	152	$	—	$	—	$	23,423	$	152
Municipal Securities		33,028		421		56,153		1,246		89,181		1,667
Mortgage-backed Securities - Guaranteed		27,692		370		45,619		1,208		73,311		1,578
Collateralized Mortgage Obligations - Guaranteed		2,042		19		15,294		631		17,336		650
Collateralized Mortgage Obligations - Non Guaranteed		22,383		185		30,471		543		52,854		728
Collateralized loan obligations		11,618		404		1,449		54		13,067		458
Corporate bonds		2,492		45		3,345		98		5,837		143
	$	122,678	$	1,596	$	152,331	$	3,780	$	275,009	$	5,376

Information pertaining to the number of securities with gross unrealized losses is detailed in the table below. Management of the Company believes all unrealized losses as of March 31, 2019 and December 31, 2018 represent temporary impairment. The unrealized losses have resulted from temporary changes in the interest rate market and not as a result of credit deterioration. We do not intend to sell and it is not likely that we will be required to sell any of the securities referenced in the table below before recovery of their amortized cost. 

	March 31, 2019
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		15		1		16
Municipal Securities		—		18		18
Mortgage-backed Securities - Guaranteed		5		52		57
Collateralized Mortgage Obligations - Guaranteed		—		8		8
Collateralized Mortgage Obligations - Non Guaranteed		2		13		15
Collateralized Loan Obligations		6		2		8
Corporate bonds		4		4		8
		32		98		130

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		14		—		14
Municipal Securities		31		52		83
Mortgage-backed Securities - Guaranteed		21		43		64
Collateralized Mortgage Obligations - Guaranteed		1		8		9
Collateralized Mortgage Obligations - Non Guaranteed		12		22		34
Collateralized Loan Obligations		6		1		7
Corporate bonds		3		4		7
		88		130		218

The Company received proceeds from sales of securities classified as AFS and corresponding gross realized gains and losses as follows for the three months ended March 31, 2018:

(Dollars in thousands)
Gross proceeds	$	10,009
Gross realized gains		21
Gross realized losses		33

There were no investment security sales for the three months ended March 31, 2019.

The Company had securities pledged against deposits and borrowings of approximately $159.8 million at March 31, 2019 and $155.8 million at December 31, 2018. 

The amortized cost and estimated fair value of investments in debt securities at March 31, 2019, by contractual maturity, is shown below. Mortgage-backed securities have not been scheduled because expected maturities will differ from contractual maturities when borrowers have the right to prepay the obligations. 

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Less than 1 year	$	1,979	$	1,981
Over 1 year through 5 years		4,570		3,207
After 5 years through 10 years		30,973		32,307
Over 10 years		147,307		149,067
		184,829		186,562
Mortgage-backed securities		171,503		170,570
Total	$	356,332	$	357,132

XML

LOANS RECEIVABLE

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

LOANS RECEIVABLE

NOTE 3. LOANS RECEIVABLE

Loans receivable as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to four-family residential	$	328,779		$	325,560
Commercial real estate		500,600			498,106
Home equity loans and lines of credit		47,665			48,679
Residential construction		46,622			39,533
Other construction and land		99,462			104,645
Total real estate loans		1,023,128			1,016,523
Commercial and industrial		51,562			54,410
Consumer		6,494			6,842
Total commercial and consumer		58,056			61,252
Loans receivable, gross		1,081,184			1,077,775
Less:  Net deferred loan fees		(1,046	)		(1,000	)
Fair value discount		(915	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		503			245
Unamortized premium		319			333
Unamortized discount		(208	)		(236	)
Loans receivable, net of deferred fees	$	1,079,837		$	1,076,069

The Bank had $267.2 million and $256.1 million of loans pledged as collateral to secure funding with the Federal Home Loan Bank of Atlanta (“FHLB”) at March 31, 2019 and December 31, 2018, respectively. The Bank also had $115.2 million and $114.4 million of loans pledged as collateral to secure funding availability with the Federal Reserve Bank (“FRB”) Discount Window at March 31, 2019 and December 31, 2018, respectively.

Included in loans receivable and other borrowings at March 31, 2019 are $4.4 million in participated loans that did not qualify for sale accounting. Interest expense on the other borrowings accrues at the same rate as the interest income recognized on the loans receivable, resulting in no effect to net income.

The following tables present the activity related to the discount on individually purchased loans for the three months ended March 31, 2019 and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Discount on purchased loans, beginning of period	$	236		$	710
Accretion		(28	)		(29	)
Discount on purchased loans, end of period	$	208		$	681

The following table presents the activity related to the fair value discount on loans from business combinations for the three months ended March 31 2019, and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Fair value discount, beginning of period	$	1,048		$	2,012
Accretion		(133	)		(266	)
Fair value discount, end of period	$	915		$	1,746

XML

ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

ALLOWANCE FOR LOAN LOSSES

NOTE 4. ALLOWANCE FOR LOAN LOSSES

The following tables present, by portfolio segment, the changes in the allowance for loan losses for the periods indicated:

	Three Months Ended March 31, 2019
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land			Commercial			Consumer			Total
	(Dollars in thousands)
Beginning balance	$	3,909		$	5,130		$	560		$	452	$	1,250		$	608		$	76		$	11,985
Provision		34			(112	)		255			68		(42	)		43			(130	)		116
Charge-offs		(4	)		—			(209	)		—		—			(59	)		(26	)		(298	)
Recoveries		20			56			—			—		8			4			152			240
Ending balance	$	3,959		$	5,074		$	606		$	520	$	1,216		$	596		$	72		$	12,043

	Three Months Ended March 31, 2018
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land		Commercial		Consumer			Total
	(Dollars in thousands)
Beginning balance	$	4,018		$	4,364		$	616		$	303	$	1,025	$	503	$	58		$	10,887
Provision		(151	)		229			(21	)		150		63		128		(37	)		361
Charge-offs		(110	)		(35	)		(41	)		—		—		—		(29	)		(215	)
Recoveries		13			3			21			—		20		5		72			134
Ending balance	$	3,770		$	4,561		$	575		$	453	$	1,108	$	636	$	64		$	11,167

The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and the net investment in loans for the periods indicated:

	March 31, 2019
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	148	$	80	$	74	$	—	$	46	$	5	$	—	$	353
Collectively evaluated for impairment		3,811		4,994		532		520		1,170		591		72		11,690
	$	3,959	$	5,074	$	606	$	520	$	1,216	$	596	$	72	$	12,043
Loans Receivable
Individually evaluated for impairment	$	3,262	$	5,994	$	312	$	—	$	1,358	$	271	$	—	$	11,197
Collectively evaluated for impairment		325,414		493,085		47,500		46,566		97,918		51,563		6,594		1,068,640
	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

	December 31, 2018
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	79	$	27	$	—	$	—	$	54	$	7	$	—	$	167
Collectively evaluated for impairment		3,830		5,103		560		452		1,196		601		76		11,818
	$	3,909	$	5,130	$	560	$	452	$	1,250	$	608	$	76	$	11,985
Loans Receivable
Individually evaluated for impairment	$	2,900	$	6,019	$	313	$	—	$	1,377	$	276	$	—	$	10,885
Collectively evaluated for impairment		322,255		490,530		48,512		39,488		103,087		54,367		6,945		1,065,184
	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Portfolio Quality Indicators

The Company’s loan portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled. The Company’s internal credit risk grading system is based on experiences with similarly graded loans, industry best practices, and regulatory guidance. Credit risk grades are refreshed each quarter, at which time management analyzes the resulting information, as well as other external statistics and factors, to track loan performance.

The Company’s internally assigned grades pursuant to the Board-approved lending policy are as follows:

· Pass (1-5) – Acceptable loans with any identifiable weaknesses appropriately mitigated. 

· Special Mention (6) – Potential weakness or identifiable weakness present without appropriate mitigating factors; however, loan continues to perform satisfactorily with no material delinquency noted.  This may include some deterioration in repayment capacity and/or loan-to-value of securing collateral.

· Substandard (7) – Significant weakness that remains unmitigated, most likely due to diminished repayment capacity, serious delinquency, and/or marginal performance based upon restructured loan terms.  

· Doubtful (8) – Significant weakness that remains unmitigated and collection in full is highly questionable or improbable.

· Loss (9) – Collectability is unlikely resulting in immediate charge-off.

Description of Segment and Class Risks

Each of our portfolio segments and the classes within those segments are subject to risks that could have an adverse impact on the credit quality of our loan portfolio. Management has identified the most significant risks as described below which are generally similar among our segments and classes. While the list is not exhaustive, it provides a description of the risks that management has determined are the most significant.

One-to-four family residential

We centrally underwrite each of our one-to-four family residential loans using credit scoring and analytical tools consistent with the Board-approved lending policy and internal procedures based upon industry best practices and regulatory directives. Loans to be sold to secondary market investors must also adhere to investor guidelines. We also evaluate the value and marketability of that collateral. Common risks to each class of non-commercial loans, including one-to-four family residential, include risks that are not specific to individual transactions such as general economic conditions within our markets, particularly unemployment and potential declines in real estate values. Personal events such as death, disability or change in marital status also add risk to non-commercial loans.

Commercial real estate

Commercial mortgage loans are primarily dependent on the ability of our customers to achieve business results consistent with those projected at loan origination resulting in cash flow sufficient to service the debt. To the extent that a customer’s business results are significantly unfavorable versus the original projections, the ability for our loan to be serviced on a basis consistent with the contractual terms may be at risk. While these loans are secured by real property and possibly other business assets such as inventory or accounts receivable, it is possible that the liquidation of the collateral will not fully satisfy the obligation. Other commercial real estate loans consist primarily of loans secured by multifamily housing and agricultural loans. The primary risk associated with multifamily loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. High unemployment or generally weak economic conditions may result in our customer having to provide rental rate concessions to achieve adequate occupancy rates. The performance of agricultural loans are highly dependent on favorable weather, reasonable costs for seed and fertilizer, and the ability to successfully market the product at a profitable margin. The demand for these products is also dependent on macroeconomic conditions that are beyond the control of the borrower.

Home equity and lines of credit

Home equity loans are often secured by first or second liens on residential real estate, thereby making such loans particularly susceptible to declining collateral values. A substantial decline in collateral value could render our second lien position to be effectively unsecured. Additional risks include lien perfection inaccuracies and disputes with first lienholders that may further weaken our collateral position. Further, the open-end structure of these loans creates the risk that customers may draw on the lines of credit in excess of the collateral value if there have been significant declines since origination.

Residential construction and other construction and land

Residential mortgage construction loans are typically secured by undeveloped or partially developed land with funds to be disbursed as home construction is completed contingent upon receipt and satisfactory review of invoices and inspections. Declines in real estate values can result in residential mortgage loan borrowers having debt levels in excess of the collateral’s current market value. Non-commercial construction and land development loans can experience delays in completion and/or cost overruns that exceed the borrower’s financial ability to complete the project. Cost overruns can result in foreclosure of partially completed collateral with unrealized value and diminished marketability. Commercial construction and land development loans are dependent on the supply and demand for commercial real estate in the markets we serve as well as the demand for newly constructed residential homes and building lots. Deterioration in demand could result in significant decreases in the underlying collateral values and make repayment of the outstanding loans more difficult for our customers.

Commercial

We centrally underwrite each of our commercial loans based primarily upon the customer’s ability to generate the required cash flow to service the debt in accordance with the contractual terms and conditions of the loan agreement. We strive to gain a complete understanding of our borrower’s businesses, including the experience and background of the principals of such businesses. To the extent that the loan is secured by collateral, which is a predominant feature of the majority of our commercial loans, or other assets including accounts receivable and inventory, we gain an understanding of the likely value of the collateral and what level of strength it brings to the loan transaction. To the extent that the principals or other parties are obligated under the note or guaranty agreements, we analyze the relative financial strength and liquidity of each guarantor. Common risks to each class of commercial loans include risks that are not specific to individual transactions such as general economic conditions within our markets, as well as risks that are specific to each transaction including volatility or seasonality of cash flows, changing demand for products and services, personal events such as death, disability or change in marital status, and reductions in the value of our collateral.

Consumer

The consumer loan portfolio includes loans secured by personal property such as automobiles, marketable securities, other titled recreational vehicles including boats and motorcycles, as well as unsecured consumer debt. The value of underlying collateral within this class is especially volatile due to potential rapid depreciation in values since the date of loan origination in excess of principal repayment. 

The following tables present the recorded investment in gross loans by loan grade as of the dates indicated: 

March 31, 2019
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,449	$	—	$	—	$	—	$	1,191	$	6	$	8,646
2		—		10,444		—		—		—		904		—		11,348
3		31,789		89,877		4,839		9,562		12,292		14,717		17		163,093
4		124,622		281,883		3,719		24,186		55,743		22,044		215		512,412
5		25,610		88,755		392		2,443		17,947		12,105		4		147,256
6		318		8,185		—		1		1,280		478		—		10,262
7		646		5,491		—		—		187		383		—		6,707
	$	182,985	$	492,084	$	8,950	$	36,192	$	87,449	$	51,822	$	242	$	859,724
Ungraded Loan Exposure:
Performing	$	144,670	$	6,976	$	38,519	$	10,374	$	11,763	$	12	$	6,351	$	218,665
Nonperforming		1,021		19		343		—		64		—		1		1,448
Subtotal	$	145,691	$	6,995	$	38,862	$	10,374	$	11,827	$	12	$	6,352	$	220,113
Total	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

December 31, 2018
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,569	$	—	$	—	$	—	$	1,264	$	7	$	8,840
2		—		7,860		—		—		—		20		—		7,880
3		31,623		87,756		5,212		9,365		12,111		15,685		264		162,016
4		121,688		280,630		4,014		18,358		61,646		22,374		245		508,955
5		24,738		88,698		615		3,404		17,630		12,307		5		147,397
6		321		7,867		—		1		1,303		495		—		9,987
7		674		5,725		—		—		376		487		—		7,262
	$	179,044	$	486,105	$	9,841	$	31,128	$	93,066	$	52,632	$	521	$	852,337
Ungraded Loan Exposure:
Performing	$	145,470	$	10,420	$	38,806	$	8,360	$	11,334	$	2,011	$	6,424	$	222,825
Nonperforming		641		24		178		—		64		—		—		907
Subtotal	$	146,111	$	10,444	$	38,984	$	8,360	$	11,398	$	2,011	$	6,424	$	223,732
Total	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Delinquency Analysis of Loans by Class

The following tables include an aging analysis of the recorded investment of past-due financing receivables by class. The Company does not accrue interest on loans greater than 90 days past due. 

	March 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	4,364	$	—	$	251	$	4,615	$	324,061	$	328,676
Commercial real estate		4,291		119		1,515		5,925		493,154		499,079
Home equity and lines of credit		159		—		343		502		47,310		47,812
Residential construction		350		—		1		351		46,215		46,566
Other construction and land		129		—		64		193		99,083		99,276
Commercial		283		—		62		345		51,489		51,834
Consumer		35		3		1		39		6,555		6,594
Total	$	9,611	$	122	$	2,237	$	11,970	$	1,067,867	$	1,079,837

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	3,562	$	1,317	$	84	$	4,963	$	320,192	$	325,155
Commercial real estate		2,615		—		1,782		4,397		492,152		496,549
Home equity and lines of credit		400		457		73		930		47,895		48,825
Residential construction		—		—		1		1		39,487		39,488
Other construction and land		613		32		64		709		103,755		104,464
Commercial		307		25		121		453		54,190		54,643
Consumer		27		4		—		31		6,914		6,945
Total	$	7,524	$	1,835	$	2,125	$	11,484	$	1,064,585	$	1,076,069

Impaired Loans

The following table presents investments in loans considered to be impaired and related information on those impaired loans as of March 31, 2019 and December 31, 2018.

	March 31, 2019						December 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	2,324	$	2,475	$	—	$	845	$	923	$	—
Commercial real estate		3,925		6,271		—		3,835		6,207		—
Home equity and lines of credit		213		328		—		283		283		—
Other construction and land		549		683		—		365		366		—
	$	7,011	$	9,757	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	938	$	938	$	148	$	2,055	$	2,055	$	79
Commercial real estate		2,069		2,069		80		2,184		2,184		27
Home equity and lines of credit		99		99		74		30		30		—
Other construction and land		809		809		46		1,012		1,012		54
Commercial		271		271		5		276		276		7
	$	4,186	$	4,186	$	353	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	3,262	$	3,413	$	148	$	2,900	$	2,978	$	79
Commercial real estate		5,994		8,340		80		6,019		8,391		27
Home equity and lines of credit		312		427		74		313		313		—
Other construction and land		1,358		1,492		46		1,377		1,378		54
Commercial		271		271		5		276		276		7
	$	11,197	$	13,943	$	353	$	10,885	$	13,336	$	167

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated:

	Three Months Ended March 31,
	2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)
Loans without a valuation allowance
One-to four-family residential	$	2,483	$	29	$	1,877	$	29
Commercial real estate		6,272		37		5,613		31
Home equity and lines of credit		328		15		427		14
Other construction and land		685		5		699		5
	$	9,768	$	86	$	8,616	$	79
Loans with a valuation allowance
One-to four-family residential	$	937	$	8	$	1,621	$	16
Commercial real estate		2,155		23		1,693		23
Home equity and lines of credit		99		2		—		—
Other construction and land		819		12		1,724		9
Commercial		274		6		290		5
	$	4,284	$	51	$	5,328	$	53
Total
One-to four-family residential	$	3,420	$	37	$	3,498	$	45
Commercial real estate		8,427		60		7,306		54
Home equity and lines of credit		427		17		427		14
Other construction and land		1,504		17		2,423		14
Commercial		274		6		290		5
	$	14,052	$	137	$	13,944	$	132

Nonperforming Loans

The following table summarizes the balances of nonperforming loans as of March 31, 2019 and December 31, 2018. Certain loans classified as Troubled Debt Restructurings (“TDRs”) and impaired loans may be on non-accrual status even though they are not contractually delinquent. 

	March 31, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,394	$	1,037
Commercial real estate		2,854		3,266
Home equity loans and lines of credit		343		178
Residential construction		1		—
Other construction and land		251		256
Commercial		62		120
Consumer		1		—
Non-performing loans	$	4,906	$	4,857

TDRs

The following tables summarize TDR loans as of the dates indicated: 

	March 31, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,138	$	358	$	2,496
Commercial real estate		3,912		1,212		5,124
Home equity and lines of credit		313		—		313
Other construction and land		1,170		187		1,357
Commercial		271		—		271
	$	7,804	$	1,757	$	9,561

	December 31, 2018
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,154	$	361	$	2,515
Commercial real estate		3,690		1,462		5,152
Home equity and lines of credit		283		30		313
Other construction and land		1,185		192		1,377
Commercial		276		—		276
	$	7,588	$	2,045	$	9,633

There were no loan modifications that were deemed TDRs at the time of the modification during the three months ended March 31, 2019 or 2018.

There were no TDRs that defaulted during the three months ending March 31, 2019 or 2018 and which were modified as TDRs within the previous 12 months.

XML

GOODWILL AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 5. GOODWILL AND OTHER INTANGIBLES

The Company had $23.9 million of goodwill as of March 31, 2019 and December 31, 2018.

The Company had $3.4 million and $3.6 million of core deposit intangibles as of March 31, 2019 and December 31, 2018, respectively. The following is a summary of gross carrying amounts and accumulated amortization of core deposit intangibles:

	As of and for the Three Months Ending			As of and for the Year Ending
	March 31,			December 31,
	2019			2018
	Dollars in thousands
Gross balance at beginning of period	$	4,840		$	4,840
Additions from acquisitions		—			—
Gross balance at end of period		4,840			4,840
Less accumulated amortization		(1,436	)		(1,263	)
Core deposit intangible, net	$	3,404		$	3,577

Core deposit intangibles are amortized using the straight-line method over their estimated useful lives of seven years. Estimated amortization expense for core deposit intangibles is $0.7 million for 2019 and each of the next three years, $0.6 million in the fifth year, and $0.3 million in the final year. 

XML

DEPOSITS

3 Months Ended

Mar. 31, 2019

Banking and Thrift [Abstract]

DEPOSITS

NOTE 6. DEPOSITS

The following table summarizes deposit balances and interest expense by type of deposit as of and for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018. 

	As of and for the								As of and for the Year Ended
	Three Months Ended March 31,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	194,562	$	—	$	192,916	$	—	$	184,404	$	—
Interest-bearing demand		198,516		98		206,530		87		209,085		374
Money Market		390,839		1,138		336,625		366		356,086		2,637
Savings		49,996		14		52,162		15		50,716		59
Time Deposits		412,306		1,676		417,675		914		420,949		5,048
	$	1,246,219	$	2,926	$	1,205,908	$	1,382	$	1,221,240	$	8,118

The following table indicates wholesale deposits included in the money market and time deposits amounts above: 

	As of March 31,				As of December 31,
	2019		2018		2018
(Dollars in thousands)	Balance		Balance		Balance
Wholesale money market	$	5,063	$	25,026	$	5,030
Wholesale time deposits		72,259		56,232		70,978
	$	77,322	$	81,258	$	76,008

XML

BORROWINGS

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

BORROWINGS

NOTE 7. BORROWINGS

The scheduled maturities and respective weighted average rates of outstanding FHLB advances are as follows for the dates indicated:

	March 31, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
	(Dollars in thousands)
2019		163,500		2.59	%		168,500		2.52	%
2020		45,000		2.80	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	213,500		2.64	%	$	213,500		2.58	%

The Company has a $15.0 million revolving credit loan facility with NexBank SSB. The loan facility, which is secured by Entegra Bank stock, bears interest at LIBOR plus 350 basis points and is intended to be used for general corporate purposes. The Company had drawn $5.0 million on the revolving credit loan facility as of March 31, 2019 and December 31, 2018.

The Company also had other borrowings of $4.4 million and $4.3 million at March 31, 2019 and December 31, 2018, respectively, which is comprised of participated loans that did not qualify for sale accounting. Interest expense on these other borrowings accrues at the same rate as the interest income recognized on the loans receivable, resulting in no effect to net income.

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

Risk Management Objective of Interest Rate Swaps

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedging relationship. The Company's hedging strategies involving interest rate derivatives are classified as either “Fair Value Hedges” or “Cash Flow Hedges,” depending upon the rate characteristic of the hedged item.

Fair Value Hedge: As a result of interest rate fluctuations, fixed-rate assets and liabilities will appreciate or depreciate in fair value. When effectively hedged, this appreciation or depreciation will generally be offset by fluctuations in the fair value of the derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as a fair value hedge.

Cash Flow Hedge: Cash flows related to floating-rate assets and liabilities will fluctuate with changes in an underlying rate index. When effectively hedged, the increases or decreases in cash flows related to the floating rate asset or liability will generally be offset by changes in cash flows of the derivative instrument designated as a hedge. This strategy is referred to as a cash flow hedge.

Credit and Collateral Risks for Interest Rate Swaps

The Company manages credit exposure on interest rate swap transactions by entering into a bilateral credit support agreement with each counterparty. The credit support agreements allow for collateralization of exposures beyond specified minimum threshold amounts.

The Company’s agreements with its interest rate swap counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in the Company being declared in default. If the Company were to be declared in default, the counterparty could terminate the derivative positions and the Company and the counterparty would be required to settle their obligations under the agreements. At March 31, 2019, the Company had two derivatives in net liability positions of $0.6 million under these agreements and recognized the right to reclaim cash collateral of $0.6 million which was included in the consolidated balance sheets in Other assets. The Company had one derivative in a net liability position of $0.2 million at December 31, 2018.

Mortgage Derivatives

Risk Management Objective of Mortgage Lending Activities

The Company also maintains a risk management program to manage interest rate risk and pricing risk associated with its mortgage lending activities. The risk management program includes the use of forward contracts and other derivatives that are recorded in the financial statements at fair value and are used to offset changes in value of the mortgage inventory due to changes in market interest rates. As a normal part of our operations, we enter into derivative contracts to economically hedge risks associated with overall price risk related to interest rate lock commitments (”IRLCs”) and mortgage loans held-for-sale for which the fair value option has been elected. Fair value changes occur as a result of interest rate movements as well as changes in the value of the associated servicing. Derivative instruments used include forward sales commitments and IRLCs. 

Credit and Collateral Risks for Mortgage Lending Activities

The Company’s underlying risks are primarily related to interest rates and forward sales commitments entered into as part of its mortgage banking activities. Forward sales commitments are contracts for the delayed delivery or net settlement of an underlying instrument, such as a mortgage loan, in which the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. These hedges are used to preserve the Company’s position relative to future sales of mortgage loans to third parties in an effort to minimize the volatility of the expected gain on sale from changes in interest rate and the associated pricing changes.

The table below presents the fair value of the Company’s derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands).

	Derivative Assets (1)				Derivative Liabilities (1)
	March 31,		December 31,		March 31,		December 31,
	2019		2018		2019		2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	260	$	354	$	861	$	462
Total	$	260	$	354	$	861	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	45	$	34	$	21	$	22
Total	$	45	$	34	$	21	$	22

(1) All derivative assets are located in “Other assets” on the consolidated balance sheets and all derivative liabilities are located in “Other liabilities” on the consolidated balance sheets.

The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of income:

Derivatives Designated as Hedging Instruments

	Three Months Ended March 31,
	2019						2018
(dollars in thousands)	Interest income			Interest expense			Interest income		Interest expense
Total amounts of income and expense line items presented in the consolidated statements of income	$	16,542		$	4,589		$	14,842	$	2,449
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		259			—			—		—
Derivatives designated as hedging instruments		(274	)		—			—		—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount  reclassified from accumulated other comprehensive loss into income		—			(65	)		—		(56	)

Fair Value Hedges

The Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps, designated as fair value hedges, involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. The gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. The Company entered into a pay-fixed/receive-variable interest rate swap with a notional amount of $25.0 million which was designated as a fair value hedge associated with the Company’s fixed rate loan program.

As of March 31, 2019, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges: 

(dollars in thousands)	Carrying amount of the hedged assets		Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets
Line item in the balance sheet in which the hedged item is included	March 31,  2019		March 31,  2019
Loans receivable (1)	$	97,891	$	503

(1) These amounts include the amortized cost basis of the closed portfolio used to designate the hedging relationship in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $97.9 million, the cumulative basis adjustment associated with the hedging relationship was $0.5 million, and the amount of the designated hedged item was $25.0 million.

Cash Flow Hedges

Interest rate swap contracts, designated as cash flow hedges, involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments without exchange of the underlying notional amounts. The forward starting interest rate swap begins exchanging cash flows in 2020 when the current interest rate swap agreement expires.

The structures of the swap agreements designated as cash flow hedges are described in the table below (dollars in thousands): 

Underlyings	Designation	Notional	Payment Provision	Life of Swap Contract
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 0.958%/Receive 3 month LIBOR	4 yrs
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 3.02%/Receive 3 month LIBOR	3 yrs

The table below presents the effect of the Company's derivatives in cash flow hedging relationships for the periods presented (dollars in thousands):                     

		As of and for the Three Months Ended March 31,						As of and for the Year Ended December 31,
Interest rate swaps	Location	2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(159	)	$	202		$	2
Amounts reclassified from AOCI into income	Interest expense		(65	)		(56	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(224	)	$	146		$	(429	)

Derivatives Not Designated as Hedging Instruments

Mortgage Derivatives

Mortgage derivative fair value assets and liabilities are described above. At March 31, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans. 

	As of March 31,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	2,736	$	1,627
Forward sales commitment		4,250		3,500

The table below presents the effect of the Company's derivatives not designated as hedging instruments for the periods presented:

		Three Months Ended March  31,
Interest rate products	Location	2019			2018
		(Dollars in thousands)
Amount of (loss) gain recognized in income on forward commitments	Noninterest income	$	(38	)	$	10
Amount of gain recognized in income on interest rate lock commitments	Noninterest income		11			17
Amount of gain (loss) recognized in income on derivatives not designated as hedging instruments		$	(27	)	$	27

XML

INCOME TAXES

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9. INCOME TAXES

The components of net deferred taxes as of March 31, 2019 and December 31, 2018 are summarized as follows: 

	As of March 31,		As of December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,729	$	2,703
Deferred compensation and post-employment benefits		1,874		1,854
Non-accrual interest		251		245
Valuation reserve for other real estate		198		191
North Carolina NOL carryover		233		293
Federal NOL carryover		554		1,231
AMT credit carryover		—		316
General federal business credit carryover		826		691
Unrealized losses on securities		581		1,061
Loan basis differences		46		50
Fixed assets		131		123
Core deposit intangible		148		129
Derivative instruments		21		—
Other		1,122		1,207
Total deferred tax assets		8,714		10,094
Deferred tax liabilities:
Loan servicing rights		633		653
Goodwill		581		495
Core deposit intangible		70		74
Deferred loan costs		1,014		1,001
Prepaid expenses		14		14
Unrealized gains on securities		961		105
Derivative instruments		6		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		3,449		2,543
Net deferred tax asset	$	5,265	$	7,551

The following table summarizes the amount and expiration dates of the Company’s unused net operating losses and other carryforwards as of March 31, 2019: 

	As of September, 2017
(Dollars in thousands)	Amount		Expiration Dates
Federal	$	2,803	2032-2037
North Carolina	$	13,708	2026-2029
Federal General Business Carryforwards	$	826	2037-2039

XML

EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2019

Earnings Per Share

EARNINGS PER SHARE

NOTE 10. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of basic and diluted net income per share of common stock as of the dates indicated: 

	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2019		2018
Numerator:
Net income	$	3,815	$	3,582
Denominator:
Weighted-average common shares outstanding - basic		6,918,769		6,885,911
Effect of dilutive securities:
Stock options		6,960		96,871
Restricted stock units		17,538		45,102
Weighted-average common shares outstanding - diluted		6,943,267		7,027,884
Earnings per share - basic	$	0.55	$	0.52
Earnings per share - diluted	$	0.55	$	0.51

The average market price used in calculating the assumed number of dilutive shares issued related to stock options for the three months ended March 31, 2019 and 2018 was $23.12 and $28.56, respectively. The average stock price was less than the exercise price for 91,977 options in the three months ended March 31, 2019 and 19,592 options in the three months ended March 31, 2018. As a result, these stock options are not deemed dilutive in calculating diluted earnings per share for the respective periods in the table above.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

3 Months Ended

Mar. 31, 2019

Fair Value Inputs Value of Loan

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the three months ended March 31, 2019 and 2018. 

	Three Months Ended March 31, 2019
	(Dollars in thousands)
	Available for Sale Securities			Cash Flow Hedge			Total
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		5,390			—			5,390
Reclassification adjustment for net securities losses realized in net income		—			—			—
Change in unrealized holding gains on cash flow hedge		—			(159	)		(159	)
Reclassification adjustment for cash flow hedge effectiveness		—			(65	)		(65	)
Income tax effect		(1,244	)		47			(1,197	)
Balance, end of period	$	618		$	(73	)	$	545

	Three Months Ended March 31, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		(4,505	)		—			(4,505	)
Reclassification adjustment for net securities losses realized in net income		12			—			12
Change in unrealized holding gains on cash flow hedge		—			202			202
Reclassification adjustment for cash flow hedge effectiveness		—			(56	)		(56	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		996			(31	)		965
Balance, end of period	$	(3,943	)	$	547		$	(3,396	)

The following table shows the line items in the Consolidated Statements of Income affected by amounts reclassified from accumulated other comprehensive income as of the dates indicated:

	Three Months Ended March 31,
(Dollars in thousands)	2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	(12	)	Loss on sale of investments, net
Income tax effect		—			3		Income tax expense
Reclassified out of AOCI, net of tax		—			(9	)	Net income
Cash flow hedge
Interest expense - effective portion		—			30		Interest expense - FHLB advances
Interest expense - effective portion		65			26		Interest expense - Junior subordinated notes
Income tax effect		(15	)		(13	)	Income tax expense
Reclassified out of AOCI, net of tax		50			43		Net income
Total reclassified out of AOCI, net of tax	$	50		$	34		Net income

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 12. COMMITMENTS AND CONTINGENCIES

To accommodate the financial needs of its customers, the Company makes commitments under various terms to lend funds. These commitments include revolving credit agreements, term loan commitments and short-term borrowing agreements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held includes first and second mortgages on one-to-four family dwellings, accounts receivable, inventory, and commercial real estate. Certain lines of credit are unsecured.

The following summarizes the Company’s approximate commitments to extend credit: 

	March 31, 2019
	(Dollars in thousands)
Lines of credit	$	175,353
Standby letters of credit		1,011
	$	176,364

The Company had outstanding commitments to originate loans as follows:

	March 31, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	24,709		4.25% to 12.00%
Variable		9,323		3.38% to 8.00%
	$	34,032

The allowance for unfunded commitments was $0.1 million at March 31, 2019 and December 31, 2018.

The Company is exposed to loss as a result of its obligation for representations and warranties on loans sold to Fannie Mae and maintained a reserve of $0.3 million as of March 31, 2019 and December 31, 2018.

In the normal course of business, the Company is periodically involved in litigation. In the opinion of the Company’s management, none of this litigation is expected to have a material adverse effect on the accompanying consolidated financial statements.

XML

FAIR VALUE DISCLOSURES

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

NOTE 13. FAIR VALUE DISCLOSURES

Overview

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 (“ASC 820”), Fair Value Measurements and Disclosures establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs classified within Level 3 of the hierarchy).

Fair Value Hierarchy

Level 1

Valuation is based on inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2

Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as interest rates, yield curves observable at commonly quoted intervals, and other market-corroborated inputs.

Level 3

Valuation is generated from techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon models that primarily use, as inputs, observable market-based parameters. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process.

Fair Value Option

ASC 820 allows companies to report selected financial assets and liabilities at fair value using the fair value option. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately on the balance sheet. The Company made the election in June 2018, to record mortgage loans held-for-sale at fair value under the fair value option, which allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to hedge them without the burden of complying with the requirements for hedge accounting.

Financial Assets and Financial Liabilities Measured on a Recurring Basis

The Company uses the following methods and assumptions in estimating the fair value of its financial assets and financial liabilities on a recurring basis:

Investment Securities Available-for-Sale

We obtain fair values for debt securities from a third-party pricing service, which utilizes several sources for valuing fixed-income securities. The market evaluation sources for debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

Included in securities are investments in an exchange traded bond fund and U.S. Treasury bonds which are valued by reference to quoted market prices and considered a Level 1 security.

Also included in securities are corporate bonds which are valued using significant unobservable inputs and are classified as Level 2 or Level 3 based on market information available during the period.

Equity Securities

Equity securities represent investments in exchange traded mutual funds which are valued by reference to quoted market prices and considered a Level 1 security.

Mortgage Loans Held-for-Sale

Mortgage loans held-for-sale are recorded at fair value on a recurring basis. The estimated fair value is determined using Level 3 inputs based on observable data such as the existing forward commitment terms or the current market value of similar loans.

Loan Servicing Rights

Loan servicing rights are carried at fair value as determined by a third party valuation firm. The valuation model utilizes a discounted cash flow analysis using discount rates and prepayment speed assumptions used by market participants. The Company classifies loan servicing rights fair value measurements as Level 3.

Derivative Instruments

Derivative instruments include IRLCs, forward sale commitments, and interest rate swaps. IRLCs and forward sale commitments are valued based on the change in the value of the underlying loan between the commitment date and the end of the period. The Company classifies these instruments as Level 3.

Interest rate swaps are valued by a third party using significant assumptions that are observable in the market and can be corroborated by market data. The Company classifies interest rate swaps as Level 2.

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis at the dates indicated, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,812	$	—	$	—	$	6,812
Securities available for sale:
U.S. Treasury & Government Agencies		4,991		28,831		—		33,822
Municipal Securities		—		117,479		—		117,479
Mortgage-backed Securities - Guaranteed		—		81,526		—		81,526
Collateralized Mortgage Obligations - Guaranteed		—		21,905		—		21,905
Collateralized Mortgage Obligations - Non Guaranteed		—		67,139		—		67,139
Collateralized Loan Obligations		—		15,212				15,212
Corporate bonds		—		19,556		493		20,049
Total securities available for sale		4,991		351,648		493		357,132
Mortgage loans held for sale		—		—		3,270		3,270
Loan servicing rights		—		—		2,753		2,753
Interest rate swaps		—		260		—		260
Mortgage derivatives		—		—		45		45
Total recurring assets at fair value	$	11,803	$	351,908	$	6,561	$	370,272
Liabilities:
Interest rate swaps	$	—	$	861	$	—	$	861
Mortgage derivatives		—		—		21		21
Total recurring liabilities at fair value	$	—	$	861	$	21	$	882

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,178	$	—	$	—	$	6,178
Securities available for sale:
U.S. Treasury & Government Agencies		4,949		29,041		—		33,990
Municipal Securities		—		114,402		—		114,402
Mortgage-backed Securities - Guaranteed		—		85,184		—		85,184
Collateralized Mortgage Obligations - Guaranteed		—		21,889		—		21,889
Collateralized Mortgage Obligations - Non Guaranteed		—		69,171		—		69,171
Collateralized Loan Obligations		—		15,077				15,077
Corporate bonds		—		19,532		493		20,025
Total securities available for sale		4,949		354,296		493		359,738
Mortgage loans held for sale		—		—		2,431		2,431
Loan servicing rights		—		—		2,837		2,837
Interest rate swaps		—		354		—		354
Mortgage derivatives		—		—		34		34
Total recurring assets at fair value	$	11,127	$	354,650	$	5,795	$	371,572
Liabilities:
Interest rate swaps	$	—	$	462	$	—	$	462
Mortgage derivatives		—		—		22		22
Total recurring liabilities at fair value	$	—	$	462	$	22	$	484

The following table presents the changes in assets and liabilities measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value:

	Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	5,773		$	3,321
AFS securities
Transfer to Level 2		—			1,331
Mortgage loans held for sale		839			—
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		47			100
Fair value adjustment		(131	)		(130	)
Mortgage derivative gains (losses) included in other income		12			27
Balance at end of period	$	6,540		$	4,649

Financial Assets Measured on a Nonrecurring Basis

The Company uses the following methods and assumptions in estimating the fair value of its financial assets on a nonrecurring basis:

SBA Loans Held for Sale

SBA loans held for sale are carried at the lower of cost or fair value. The fair value of SBA loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics and are classified as Level 2.

Impaired Loans

Impaired loans are carried at the lower of recorded investment or fair value. The fair value of collateral dependent impaired loans is estimated using the value of the collateral less selling costs if repayment is expected from liquidation of the collateral. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. Impaired loans carried at fair value are classified as Level 3. Impaired loans measured using the present value of expected future cash flows are not deemed to be measured at fair value.

REO

REO obtained in partial or total satisfaction of a loan is recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent, state certified appraisers. Like impaired loans, appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. REO carried at fair value is classified as Level 3.

Small Business Investment Company (“SBIC) Holdings

SBIC holdings are carried at the lower of cost or cost less a valuation allowance. From time to time, impairment of SBIC is evident as a result of underlying financial review and a valuation allowance is established. SBIC carried at cost less a valuation allowance is classified as Level 3.

The following table presents nonfinancial assets measured at fair value on a nonrecurring basis at the dates indicated, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: 

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to four family residential	$	—	$	—	$	2,324	$	2,324
Commercial real estate		—		—		3,925		3,925
Home equity loans and lines of credit		—		—		213		213
Other construction and land		—		—		549		549
Real estate owned:
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,307		1,307
Total assets	$	—	$	—	$	9,267	$	9,267

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	845	$	845
Commercial real estate		—		—		3,835		3,835
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		365		365
Real estate owned:
One-to-four family residential		—		—		228		228
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,316		1,316
Total assets	$	—	$	—	$	7,821	$	7,821

There were no liabilities measured at fair value on a nonrecurring basis as of March 31, 2019, or December 31, 2018.

Impaired loans totaling $4.2 million at March 31, 2019 and $5.6 million at December 31, 2018 were measured using the present value of expected future cash flows. These impaired loans were not deemed to be measured at fair value on a nonrecurring basis.

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at March 31, 2019.

	Valuation Technique	Unobservable Input	General Range
Impaired loans	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Real estate owned	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Corporate bonds	Discounted Cash Flows	Recent trade pricing	0% -10%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	9% - 20%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	101% - 103%
Mortgage derivatives	External pricing model	Pull-through rate	78%-100%
SBIC	Indicative value provided by fund	Current operations and financial condition	N/A

Fair Value of Financial Assets and Financial Liabilities

The following table includes the estimated fair value of the Company's financial assets and financial liabilities at the dates indicated: 

			Fair Value Measurements at March 31, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	98,285	$	98,285	$	98,285	$	—	$	—
Equity securities		6,812		6,812		6,812		—		—
Securities available for sale		357,132		357,132		4,991		351,648		493
Loans held for sale		9,208		9,885		—		6,615		3,270
Loans receivable, net		1,079,837		1,046,136		—		—		1,046,552
Other investments, at cost		12,092		12,092		—		12,092		—
Accrued interest receivable		6,669		6,669		—		6,669		—
BOLI		32,087		32,087		—		32,087		—
Loan servicing rights		2,753		2,753		—		—		2,753
Mortgage derivatives		45		45		—		—		45
Interest rate swaps		260		260		—		260		—
SBIC investments		4,306		4,306		—		—		4,306
Liabilities:
Demand deposits	$	833,913	$	833,913	$	—	$	833,913	$	—
Time deposits		412,306		416,631		—		—		416,631
Federal Home Loan Bank advances		213,500		213,249		—		213,249		—
Junior subordinated debentures		14,433		13,720		—		13,720		—
Other borrowings		9,385		9,572		—		9,572		—
Accrued interest payable		1,173		1,173		—		1,173		—
Mortgage derivatives		21		21		—		—		21
Interest rate swaps		861		861		—		861		—

			Fair Value Measurements at December 31, 2018
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	69,119	$	69,119	$	69,119	$	—	$	—
Equity securities		6,178		6,178		6,178		—		—
Securities available for sale		359,739		359,739		4,949		354,297		493
Loans held for sale		7,570		8,114		—		5,683		2,431
Loans receivable, net		1,076,069		1,046,136		—		—		1,046,136
Other investments, at cost		12,039		12,039		—		12,039		—
Accrued interest receivable		6,443		6,443		—		6,443		—
BOLI		32,886		32,886		—		32,886		—
Loan servicing rights		2,837		2,837		—		—		2,837
Mortgage derivatives		34		34		—		—		34
Interest rate swaps		354		354		—		354		—
SBIC investments		3,839		3,839		—		—		3,839
Liabilities:
Demand deposits	$	800,291	$	800,291	$	—	$	800,291	$	—
Time deposits		420,949		424,054		—		—		424,054
Federal Home Loan Bank advances		213,500		213,513		—		213,513		—
Junior subordinated debentures		14,433		12,440		—		12,440		—
Other borrowings		9,299		9,253		—		9,253		—
Accrued interest payable		1,647		1,647		—		1,647		—
Mortgage derivatives		22		22		—		—		22
Interest rate swaps		462		462		—		462		—

XML

LEASES

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

LEASES

NOTE 14. Leases

As of January 1, 2019, we adopted certain accounting standard updates related to accounting for leases (Topic 842 - Leases), primarily ASU 2016-02 and subsequent updates. These updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract; and a right-of-use asset related to the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted the updates using a modified-retrospective transition approach and recognized a right-of-use lease asset and related lease liabilities totaling $0.5 million as of January 1, 2019. At adoption, we elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. As of March 31, 2019, the right-of-use lease asset, included in other assets, and related lease liabilities, included in other liabilities, totaled $0.4 million.

We lease certain office facilities and office equipment under operating leases. The lease agreements have maturity dates ranging from March 2020 to May 2027, one of which includes an option for a five-year extension. The weighted average remaining life of the lease term for these leases was 6.82 years as of March 31, 2019. We do not apply the recognition requirements of Topic 842 - Leases to short-term operating leases. A short-term operating lease has an original term of 12 months or less and does not have a purchase option that is likely to be exercised. For non-short-term operating leases, we recognized lease right-of-use assets and related lease liabilities on our balance sheet upon commencement of the lease in accordance with Topic 842 - Leases. In recognizing lease right-of-use assets and related lease liabilities, we account for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately as such amounts are generally readily determinable under our lease contracts. Lease payments over the expected term are discounted using our incremental borrowing rate referenced to the Federal Home Loan Bank Secure Connect advance rates for borrowings of similar term. The weighted average discout rate for leases was 3.04% as of March 31, 2019. We also consider renewal and termination options in the determination of the term of the lease. If it is reasonably certain that a renewal or termination option will be exercised, the effects of such options are included in the determination of the expected lease term. Generally, we cannot be reasonably certain about whether or not we will renew a lease until such time the lease is within the last two years of the existing lease term. When we are reasonably certain that a renewal option will be exercised, we measure/remeasure the right-of-use asset and related lease liability using the lease payments specified for the renewal period.

Maturities of lease liabilities as of March 31, 2019 were as follows:

(Dollard in thousands)	Operating Leases
2019	$	107
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		512
Discount effect of cash flows		(68	)
Total lease liability	$	444

The total operating lease costs were $56,000 for the three months ended March 31, 2019.

XML

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 15. Subsequent Events

On April 23, 2019, Entegra entered into a definitive agreement (the “Merger Agreement”) to merge with and into First Citizens BancShares, Inc., a North Carolina corporation (“BancShares”). Under the terms of the Merger Agreement, each outstanding share of Entegra common stock would be converted into the right to receive $30.18 in cash.

Previously on January 15, 2019, Entegra had entered into a definitive agreement to merge with and into SmartFinancial, Inc. (“SmartFinancial”), a Tennessee corporation. Under the terms of the SmartFinancial definitive agreement, each outstanding share of Entegra common stock would be converted into the right to receive 1.215 shares of SmartFinancial common stock.

On April 18, 2019, Entegra notified SmartFinancial that it had received a proposal from BancShares and certain affiliates containing the Merger Agreement described above and that the Entegra board of directors had concluded that such proposal constituted a Superior Proposal (as defined in the SmartFinancial definitive agreement). On April 23, 2019, SmartFinancial delivered a notice to Entegra waiving its rights to renegotiate its agreement with Entegra, subject to Entegra’s compliance with the SmartFinancial Merger Agreement and the payment of the termination fee due to SmartFinancial simultaneously with the termination of the SmartFinancial definitive agreement.

On April 23, 2019, in connection with the termination by Entegra of the SmartFinancial definitive agreement, BancShares, on behalf of Entegra, paid SmartFinancial a termination fee of $6.4 million as required by the terms of the SmartFinancial definitive agreement, and the SmartFinancial definitive agreement was terminated.

XML

ORGANIZATION AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Organization

Organization

Entegra Financial Corp. (“we,” “us,” “our,” or the “Company”) was incorporated on May 31, 2011 and became the holding company for Entegra Bank (the “Bank”) on September 30, 2014 upon the completion of Macon Bancorp’s merger with and into the Company, pursuant to which Macon Bancorp converted from a mutual to stock form of organization. The Company’s primary operation is its investment in the Bank. The Company also owns 100% of the common stock of Macon Capital Trust I (the “Trust”), a Delaware statutory trust formed in 2003 to facilitate the issuance of trust preferred securities. The Bank is a North Carolina state-chartered commercial bank and has a wholly owned subsidiary, Entegra Services, Inc. (“Entegra Services”), which holds investment securities. The consolidated financials are presented in these financial statements.

The Bank operates as a community-focused retail bank, originating primarily real estate-based mortgage, consumer and commercial loans and accepting deposits from consumers and small businesses.

Estimates

Estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change, in the near term, relate to the determination of the allowance for loan losses, the valuation of acquired loans, separately identifiable intangible assets associated with mergers and acquisitions, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Bank, and Entegra Services. The accounts of the Trust are not consolidated with the Company. In consolidation, all significant intercompany accounts and transactions have been eliminated.

Reclassification

Reclassification

Certain amounts in the prior year’s financial statements may have been reclassified to conform to the current year’s presentation. The reclassifications had no effect on our results of operations or financial condition as previously reported.

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the Securities and Exchange Commission’s (the “SEC”) instructions for Quarterly Reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 14, 2019 (the “2018 Form 10-K”). In the opinion of management, these interim financial statements present fairly, in all material respects, the Company’s consolidated financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Business Combinations

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Assets acquired and liabilities assumed are measured and recorded at fair value at the date of acquisition, including identifiable intangible assets. If the fair value of net assets purchased exceeds the fair value of consideration paid, a bargain purchase gain is recognized at the date of acquisition. Conversely, if the consideration paid exceeds the fair value of the net assets acquired, goodwill is recognized at the acquisition date. Fair values are subject to refinement for a period not to exceed one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

The determination of the fair value of loans acquired takes into account credit quality deterioration and probability of loss; therefore, the related allowance for loan losses is not carried forward.

All identifiable intangible assets that are acquired in a business combination are recognized at fair value on the acquisition date. Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are separable (i.e., capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). Deposit liabilities and the related depositor relationship intangible assets may be exchanged in observable exchange transactions. As a result, the depositor relationship intangible asset is considered identifiable, because the separability criterion has been met.

In addition, acquisition-related costs and restructuring costs are recognized as period expenses as incurred.

Recent Accounting Standards Updates

Recent Accounting Standards Updates 

Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We adopted ASU 2016-02, along with several other subsequent codification updates related to lease accounting, as of January 1, 2019. See Note 14 for additional information.

In June 2016, the FASB issued amendments to ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in the update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected thereby providing financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by the reporting entity. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company has formed a cross-functional committee to provide corporate governance over the implementation of this update, has evaluated data sources and made process updates to capture additional relevant data, has identified a service provider to perform the calculation, and continues to attend seminars and forums specific to this update. The Company also engaged the service provider to assist with the implementation of the standard. The preliminary measurement of life of loan credit losses was completed in the first quarter of 2019 using December 31, 2018 data. While we continue to evaluate the impact the new guidance will have on our financial position and results of operations, we currently expect the new guidance may result in an increase to our allowance for credit losses given the change to estimated losses over the contractual life of the loan portfolio. The amount of any change to our allowance will depend, in part, upon the composition of our loan portfolio at the adoption date as well as economic conditions and loss forecasts at that date.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

XML

INVESTMENT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2019

Investment Securities

Schedule of holdings of our trading account

The following table presents the holdings of our equity securities as of March 31, 2019 and December 31, 2018:

	March 31,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,812	$	6,178

Schedule of investment securities available for sale

The amortized cost and estimated fair values of available-for-sale (“AFS”) securities as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,918	$	112	$	(208	)	$	33,822
Municipal Securities		115,467		2,194		(182	)		117,479
Mortgage-backed Securities - Guaranteed		82,467		196		(1,137	)		81,526
Collateralized Mortgage Obligation - Guaranteed		22,194		99		(388	)		21,905
Collateralized Mortgage Obligation - Non Guaranteed		66,842		491		(194	)		67,139
Collateralized Loan Obligations		15,524		—		(312	)		15,212
Corporate bonds		19,920		237		(108	)		20,049
	$	356,332	$	3,329	$	(2,529	)	$	357,132

	December 31, 2018
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	34,068	$	74	$	(152	)	$	33,990
Municipal Securities		115,860		209		(1,667	)		114,402
Mortgage-backed Securities - Guaranteed		86,664		98		(1,578	)		85,184
Collateralized Mortgage Obligation - Guaranteed		22,492		47		(650	)		21,889
Collateralized Mortgage Obligation - Non Guaranteed		69,774		125		(728	)		69,171
Collateralized Loan Obligations		15,534		1		(458	)		15,077
Corporate bonds		19,936		232		(143	)		20,025
	$	364,328	$	786	$	(5,376	)	$	359,738

Unrealized Losses Related to Held to Maturity Securities Previously Recognized in Other Comprehensive Income

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	March 31, 2019
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	22,738	$	179	$	2,032	$	29	$	24,770	$	208
Municipal Securities		—		—		20,277		182		20,277		182
Mortgage-backed Securities - Guaranteed		5,987		60		54,578		1,077		60,565		1,137
Collateralized Mortgage Obligations - Guaranteed		—		—		15,433		388		15,433		388
Collateralized Mortgage Obligations - Non Guaranteed		2,908		25		17,739		169		20,647		194
Collateralized loan obligations		11,750		269		3,462		43		15,212		312
Corporate bonds		3,125		25		3,350		83		6,475		108
	$	46,508	$	558	$	116,871	$	1,971	$	163,379	$	2,529

	December 31, 2018
	Less Than 12 Months				More Than 12 Months				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	23,423	$	152	$	—	$	—	$	23,423	$	152
Municipal Securities		33,028		421		56,153		1,246		89,181		1,667
Mortgage-backed Securities - Guaranteed		27,692		370		45,619		1,208		73,311		1,578
Collateralized Mortgage Obligations - Guaranteed		2,042		19		15,294		631		17,336		650
Collateralized Mortgage Obligations - Non Guaranteed		22,383		185		30,471		543		52,854		728
Collateralized loan obligations		11,618		404		1,449		54		13,067		458
Corporate bonds		2,492		45		3,345		98		5,837		143
	$	122,678	$	1,596	$	152,331	$	3,780	$	275,009	$	5,376

Securities Gross Unrealized Losses Position

	March 31, 2019
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		15		1		16
Municipal Securities		—		18		18
Mortgage-backed Securities - Guaranteed		5		52		57
Collateralized Mortgage Obligations - Guaranteed		—		8		8
Collateralized Mortgage Obligations - Non Guaranteed		2		13		15
Collateralized Loan Obligations		6		2		8
Corporate bonds		4		4		8
		32		98		130

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
U.S. Treasury & Government Agencies		14		—		14
Municipal Securities		31		52		83
Mortgage-backed Securities - Guaranteed		21		43		64
Collateralized Mortgage Obligations - Guaranteed		1		8		9
Collateralized Mortgage Obligations - Non Guaranteed		12		22		34
Collateralized Loan Obligations		6		1		7
Corporate bonds		3		4		7
		88		130		218

Proceeds from Sales of Securities Available For Sale and Their Corresponding Gross Realized Gains and Losses

The Company received proceeds from sales of securities classified as AFS and corresponding gross realized gains and losses as follows for the three months ended March 31, 2018:

(Dollars in thousands)
Gross proceeds	$	10,009
Gross realized gains		21
Gross realized losses		33

Amortized Cost and Estimated Fair Value of Securities by Contractual Maturity

The amortized cost and estimated fair value of investments in debt securities at March 31, 2019, by contractual maturity, is shown below.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Less than 1 year	$	1,979	$	1,981
Over 1 year through 5 years		4,570		3,207
After 5 years through 10 years		30,973		32,307
Over 10 years		147,307		149,067
		184,829		186,562
Mortgage-backed securities		171,503		170,570
Total	$	356,332	$	357,132

XML

LOANS RECEIVABLE (Tables)

3 Months Ended

Mar. 31, 2019

Loans Receivable

Loan Receivable

Loans receivable as of March 31, 2019 and December 31, 2018 are summarized as follows:

	March 31,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to four-family residential	$	328,779		$	325,560
Commercial real estate		500,600			498,106
Home equity loans and lines of credit		47,665			48,679
Residential construction		46,622			39,533
Other construction and land		99,462			104,645
Total real estate loans		1,023,128			1,016,523
Commercial and industrial		51,562			54,410
Consumer		6,494			6,842
Total commercial and consumer		58,056			61,252
Loans receivable, gross		1,081,184			1,077,775
Less:  Net deferred loan fees		(1,046	)		(1,000	)
Fair value discount		(915	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		503			245
Unamortized premium		319			333
Unamortized discount		(208	)		(236	)
Loans receivable, net of deferred fees	$	1,079,837		$	1,076,069

Activity Related to Discount on Purchased Loans

The following tables present the activity related to the discount on individually purchased loans for the three months ended March 31, 2019 and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Discount on purchased loans, beginning of period	$	236		$	710
Accretion		(28	)		(29	)
Discount on purchased loans, end of period	$	208		$	681

Aggregate amount of extensions of credit to executive officers and directors

The following table presents the activity related to the fair value discount on loans from business combinations for the three months ended March 31 2019, and 2018:

	For the Three Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Fair value discount, beginning of period	$	1,048		$	2,012
Accretion		(133	)		(266	)
Fair value discount, end of period	$	915		$	1,746

XML

ALLOWANCE FOR LOAN LOSSES (Tables)

3 Months Ended

Mar. 31, 2019

Allowance For Loan Losses

Changes in Allowance for Loan Losses

The following tables present, by portfolio segment, the changes in the allowance for loan losses for the periods indicated:

	Three Months Ended March 31, 2019
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land			Commercial			Consumer			Total
	(Dollars in thousands)
Beginning balance	$	3,909		$	5,130		$	560		$	452	$	1,250		$	608		$	76		$	11,985
Provision		34			(112	)		255			68		(42	)		43			(130	)		116
Charge-offs		(4	)		—			(209	)		—		—			(59	)		(26	)		(298	)
Recoveries		20			56			—			—		8			4			152			240
Ending balance	$	3,959		$	5,074		$	606		$	520	$	1,216		$	596		$	72		$	12,043

	Three Months Ended March 31, 2018
	One-to four Family Residential			Commercial Real Estate			Home Equity and Lines of Credit			Residential Construction		Other Construction and Land		Commercial		Consumer			Total
	(Dollars in thousands)
Beginning balance	$	4,018		$	4,364		$	616		$	303	$	1,025	$	503	$	58		$	10,887
Provision		(151	)		229			(21	)		150		63		128		(37	)		361
Charge-offs		(110	)		(35	)		(41	)		—		—		—		(29	)		(215	)
Recoveries		13			3			21			—		20		5		72			134
Ending balance	$	3,770		$	4,561		$	575		$	453	$	1,108	$	636	$	64		$	11,167

Investment in Loans by Portfolio Segment

The following tables present, by portfolio segment and reserving methodology, the allocation of the allowance for loan losses and the net investment in loans for the periods indicated:

	March 31, 2019
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	148	$	80	$	74	$	—	$	46	$	5	$	—	$	353
Collectively evaluated for impairment		3,811		4,994		532		520		1,170		591		72		11,690
	$	3,959	$	5,074	$	606	$	520	$	1,216	$	596	$	72	$	12,043
Loans Receivable
Individually evaluated for impairment	$	3,262	$	5,994	$	312	$	—	$	1,358	$	271	$	—	$	11,197
Collectively evaluated for impairment		325,414		493,085		47,500		46,566		97,918		51,563		6,594		1,068,640
	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

	December 31, 2018
	One-to four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses
Individually evaluated for impairment	$	79	$	27	$	—	$	—	$	54	$	7	$	—	$	167
Collectively evaluated for impairment		3,830		5,103		560		452		1,196		601		76		11,818
	$	3,909	$	5,130	$	560	$	452	$	1,250	$	608	$	76	$	11,985
Loans Receivable
Individually evaluated for impairment	$	2,900	$	6,019	$	313	$	—	$	1,377	$	276	$	—	$	10,885
Collectively evaluated for impairment		322,255		490,530		48,512		39,488		103,087		54,367		6,945		1,065,184
	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Credit Risk Profile by Rating

The following tables present the recorded investment in gross loans by loan grade as of the dates indicated: 

March 31, 2019
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,449	$	—	$	—	$	—	$	1,191	$	6	$	8,646
2		—		10,444		—		—		—		904		—		11,348
3		31,789		89,877		4,839		9,562		12,292		14,717		17		163,093
4		124,622		281,883		3,719		24,186		55,743		22,044		215		512,412
5		25,610		88,755		392		2,443		17,947		12,105		4		147,256
6		318		8,185		—		1		1,280		478		—		10,262
7		646		5,491		—		—		187		383		—		6,707
	$	182,985	$	492,084	$	8,950	$	36,192	$	87,449	$	51,822	$	242	$	859,724
Ungraded Loan Exposure:
Performing	$	144,670	$	6,976	$	38,519	$	10,374	$	11,763	$	12	$	6,351	$	218,665
Nonperforming		1,021		19		343		—		64		—		1		1,448
Subtotal	$	145,691	$	6,995	$	38,862	$	10,374	$	11,827	$	12	$	6,352	$	220,113
Total	$	328,676	$	499,079	$	47,812	$	46,566	$	99,276	$	51,834	$	6,594	$	1,079,837

December 31, 2018
Loan Grade	One-to-Four Family Residential		Commercial Real Estate		Home Equity and Lines of Credit		Residential Construction		Other Construction and Land		Commercial		Consumer		Total
	(Dollars in thousands)
1	$	—	$	7,569	$	—	$	—	$	—	$	1,264	$	7	$	8,840
2		—		7,860		—		—		—		20		—		7,880
3		31,623		87,756		5,212		9,365		12,111		15,685		264		162,016
4		121,688		280,630		4,014		18,358		61,646		22,374		245		508,955
5		24,738		88,698		615		3,404		17,630		12,307		5		147,397
6		321		7,867		—		1		1,303		495		—		9,987
7		674		5,725		—		—		376		487		—		7,262
	$	179,044	$	486,105	$	9,841	$	31,128	$	93,066	$	52,632	$	521	$	852,337
Ungraded Loan Exposure:
Performing	$	145,470	$	10,420	$	38,806	$	8,360	$	11,334	$	2,011	$	6,424	$	222,825
Nonperforming		641		24		178		—		64		—		—		907
Subtotal	$	146,111	$	10,444	$	38,984	$	8,360	$	11,398	$	2,011	$	6,424	$	223,732
Total	$	325,155	$	496,549	$	48,825	$	39,488	$	104,464	$	54,643	$	6,945	$	1,076,069

Aging Analysis of Recorded Investment of Past-Due Financing Receivables

The following tables include an aging analysis of the recorded investment of past-due financing receivables by class. The Company does not accrue interest on loans greater than 90 days past due. 

	March 31, 2019
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	4,364	$	—	$	251	$	4,615	$	324,061	$	328,676
Commercial real estate		4,291		119		1,515		5,925		493,154		499,079
Home equity and lines of credit		159		—		343		502		47,310		47,812
Residential construction		350		—		1		351		46,215		46,566
Other construction and land		129		—		64		193		99,083		99,276
Commercial		283		—		62		345		51,489		51,834
Consumer		35		3		1		39		6,555		6,594
Total	$	9,611	$	122	$	2,237	$	11,970	$	1,067,867	$	1,079,837

	December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 Days and Over Past Due		Total Past Due		Current		Total Loans Receivable
	(Dollars in thousands)
One-to-four family residential	$	3,562	$	1,317	$	84	$	4,963	$	320,192	$	325,155
Commercial real estate		2,615		—		1,782		4,397		492,152		496,549
Home equity and lines of credit		400		457		73		930		47,895		48,825
Residential construction		—		—		1		1		39,487		39,488
Other construction and land		613		32		64		709		103,755		104,464
Commercial		307		25		121		453		54,190		54,643
Consumer		27		4		—		31		6,914		6,945
Total	$	7,524	$	1,835	$	2,125	$	11,484	$	1,064,585	$	1,076,069

Summary of Average Impaired Loans

The following table presents investments in loans considered to be impaired and related information on those impaired loans as of March 31, 2019 and December 31, 2018.

	March 31, 2019						December 31, 2018
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	2,324	$	2,475	$	—	$	845	$	923	$	—
Commercial real estate		3,925		6,271		—		3,835		6,207		—
Home equity and lines of credit		213		328		—		283		283		—
Other construction and land		549		683		—		365		366		—
	$	7,011	$	9,757	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	938	$	938	$	148	$	2,055	$	2,055	$	79
Commercial real estate		2,069		2,069		80		2,184		2,184		27
Home equity and lines of credit		99		99		74		30		30		—
Other construction and land		809		809		46		1,012		1,012		54
Commercial		271		271		5		276		276		7
	$	4,186	$	4,186	$	353	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	3,262	$	3,413	$	148	$	2,900	$	2,978	$	79
Commercial real estate		5,994		8,340		80		6,019		8,391		27
Home equity and lines of credit		312		427		74		313		313		—
Other construction and land		1,358		1,492		46		1,377		1,378		54
Commercial		271		271		5		276		276		7
	$	11,197	$	13,943	$	353	$	10,885	$	13,336	$	167

Financing Receivables on Nonaccrual Status

The following table presents average impaired loans and interest income recognized on those impaired loans, by class segment, for the periods indicated:

	Three Months Ended March 31,
	2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)
Loans without a valuation allowance
One-to four-family residential	$	2,483	$	29	$	1,877	$	29
Commercial real estate		6,272		37		5,613		31
Home equity and lines of credit		328		15		427		14
Other construction and land		685		5		699		5
	$	9,768	$	86	$	8,616	$	79
Loans with a valuation allowance
One-to four-family residential	$	937	$	8	$	1,621	$	16
Commercial real estate		2,155		23		1,693		23
Home equity and lines of credit		99		2		—		—
Other construction and land		819		12		1,724		9
Commercial		274		6		290		5
	$	4,284	$	51	$	5,328	$	53
Total
One-to four-family residential	$	3,420	$	37	$	3,498	$	45
Commercial real estate		8,427		60		7,306		54
Home equity and lines of credit		427		17		427		14
Other construction and land		1,504		17		2,423		14
Commercial		274		6		290		5
	$	14,052	$	137	$	13,944	$	132

Schedule of Nonperforming Loans

The following table summarizes the balances of nonperforming loans as of March 31, 2019 and December 31, 2018.

	March 31, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,394	$	1,037
Commercial real estate		2,854		3,266
Home equity loans and lines of credit		343		178
Residential construction		1		—
Other construction and land		251		256
Commercial		62		120
Consumer		1		—
Non-performing loans	$	4,906	$	4,857

Summary of TDR Loans

The following tables summarize TDR loans as of the dates indicated: 

	March 31, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,138	$	358	$	2,496
Commercial real estate		3,912		1,212		5,124
Home equity and lines of credit		313		—		313
Other construction and land		1,170		187		1,357
Commercial		271		—		271
	$	7,804	$	1,757	$	9,561

	December 31, 2018
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	2,154	$	361	$	2,515
Commercial real estate		3,690		1,462		5,152
Home equity and lines of credit		283		30		313
Other construction and land		1,185		192		1,377
Commercial		276		—		276
	$	7,588	$	2,045	$	9,633

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of gross carrying amounts and accumulated amortization of core deposit intangibles

The following is a summary of gross carrying amounts and accumulated amortization of core deposit intangibles:

	As of and for the Three Months Ending			As of and for the Year Ending
	March 31,			December 31,
	2019			2018
	Dollars in thousands
Gross balance at beginning of period	$	4,840		$	4,840
Additions from acquisitions		—			—
Gross balance at end of period		4,840			4,840
Less accumulated amortization		(1,436	)		(1,263	)
Core deposit intangible, net	$	3,404		$	3,577

XML

DEPOSITS (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure Deposits Tables Abstract

Summary of Deposit Balances and Interest Expenses

The following table summarizes deposit balances and interest expense by type of deposit as of and for the three months ended March 31, 2019 and 2018 and the year ended December 31, 2018. 

	As of and for the								As of and for the Year Ended
	Three Months Ended March 31,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	194,562	$	—	$	192,916	$	—	$	184,404	$	—
Interest-bearing demand		198,516		98		206,530		87		209,085		374
Money Market		390,839		1,138		336,625		366		356,086		2,637
Savings		49,996		14		52,162		15		50,716		59
Time Deposits		412,306		1,676		417,675		914		420,949		5,048
	$	1,246,219	$	2,926	$	1,205,908	$	1,382	$	1,221,240	$	8,118

Summary of wholesale deposits included in the money market and time deposits amounts

The following table indicates wholesale deposits included in the money market and time deposits amounts above: 

	As of March 31,				As of December 31,
	2019		2018		2018
(Dollars in thousands)	Balance		Balance		Balance
Wholesale money market	$	5,063	$	25,026	$	5,030
Wholesale time deposits		72,259		56,232		70,978
	$	77,322	$	81,258	$	76,008

XML

BORROWINGS (Tables)

3 Months Ended

Mar. 31, 2019

Borrowings

Scheduled maturities of FHLB advances and respective weighted average rates

The scheduled maturities and respective weighted average rates of outstanding FHLB advances are as follows for the dates indicated:

	March 31, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
	(Dollars in thousands)
2019		163,500		2.59	%		168,500		2.52	%
2020		45,000		2.80	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	213,500		2.64	%	$	213,500		2.58	%

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

3 Months Ended

Mar. 31, 2019

Derivative Financial Instruments And Hedging Activities

Schedule of fair value of the Company's derivative financial instruments

The table below presents the fair value of the Company’s derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands).

	Derivative Assets (1)				Derivative Liabilities (1)
	March 31,		December 31,		March 31,		December 31,
	2019		2018		2019		2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	260	$	354	$	861	$	462
Total	$	260	$	354	$	861	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	45	$	34	$	21	$	22
Total	$	45	$	34	$	21	$	22

(1) All derivative assets are located in “Other assets” on the consolidated balance sheets and all derivative liabilities are located in “Other liabilities” on the consolidated balance sheets.

Schedule of Cash Flow Hedges Included in Statement of Income

The table below presents the effect of fair value and cash flow hedge accounting on the consolidated statements of income:

Derivatives Designated as Hedging Instruments

	Three Months Ended March 31,
	2019						2018
(dollars in thousands)	Interest income			Interest expense			Interest income		Interest expense
Total amounts of income and expense line items presented in the consolidated statements of income	$	16,542		$	4,589		$	14,842	$	2,449
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		259			—			—		—
Derivatives designated as hedging instruments		(274	)		—			—		—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount  reclassified from accumulated other comprehensive loss into income		—			(65	)		—		(56	)

Schedule of Fair value Hedges recorded on the balance sheet related to cumulative basis adjustments

As of March 31, 2019, the following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges: 

(dollars in thousands)	Carrying amount of the hedged assets		Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets
Line item in the balance sheet in which the hedged item is included	March 31,  2019		March 31,  2019
Loans receivable (1)	$	97,891	$	503

(1) These amounts include the amortized cost basis of the closed portfolio used to designate the hedging relationship in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $97.9 million, the cumulative basis adjustment associated with the hedging relationship was $0.5 million, and the amount of the designated hedged item was $25.0 million.

Schedule of Structure of the Swap Agreements

The structures of the swap agreements designated as cash flow hedges are described in the table below (dollars in thousands): 

Underlyings	Designation	Notional	Payment Provision	Life of Swap Contract
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 0.958%/Receive 3 month LIBOR	4 yrs
Junior Subordinated Debt	Cash Flow Hedge	$          14,000	Pay 3.02%/Receive 3 month LIBOR	3 yrs

Schedule of derivatives in cash flow hedging

The table below presents the effect of the Company's derivatives in cash flow hedging relationships for the periods presented (dollars in thousands):                     

		As of and for the Three Months Ended March 31,						As of and for the Year Ended December 31,
Interest rate swaps	Location	2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(159	)	$	202		$	2
Amounts reclassified from AOCI into income	Interest expense		(65	)		(56	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(224	)	$	146		$	(429	)

Schedule of Company's IRLCs and forward commitments for the future delivery of residential mortgage loans

Mortgage derivative fair value assets and liabilities are described above. At March 31, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans. 

	As of March 31,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	2,736	$	1,627
Forward sales commitment		4,250		3,500

The table below presents the effect of the Company's derivatives not designated as hedging instruments for the periods presented:

		Three Months Ended March  31,
Interest rate products	Location	2019			2018
		(Dollars in thousands)
Amount of (loss) gain recognized in income on forward commitments	Noninterest income	$	(38	)	$	10
Amount of gain recognized in income on interest rate lock commitments	Noninterest income		11			17
Amount of gain (loss) recognized in income on derivatives not designated as hedging instruments		$	(27	)	$	27

XML

INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2019

Income Taxes

Schedule of Components of Income Tax Expense (Benefit)

The components of net deferred taxes as of March 31, 2019 and December 31, 2018 are summarized as follows: 

	As of March 31,		As of December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,729	$	2,703
Deferred compensation and post-employment benefits		1,874		1,854
Non-accrual interest		251		245
Valuation reserve for other real estate		198		191
North Carolina NOL carryover		233		293
Federal NOL carryover		554		1,231
AMT credit carryover		—		316
General federal business credit carryover		826		691
Unrealized losses on securities		581		1,061
Loan basis differences		46		50
Fixed assets		131		123
Core deposit intangible		148		129
Derivative instruments		21		—
Other		1,122		1,207
Total deferred tax assets		8,714		10,094
Deferred tax liabilities:
Loan servicing rights		633		653
Goodwill		581		495
Core deposit intangible		70		74
Deferred loan costs		1,014		1,001
Prepaid expenses		14		14
Unrealized gains on securities		961		105
Derivative instruments		6		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		3,449		2,543
Net deferred tax asset	$	5,265	$	7,551

Schedule of Unused net operating losses and expiration dates

The following table summarizes the amount and expiration dates of the Company’s unused net operating losses and other carryforwards as of March 31, 2019: 

	As of September, 2017
(Dollars in thousands)	Amount		Expiration Dates
Federal	$	2,803	2032-2037
North Carolina	$	13,708	2026-2029
Federal General Business Carryforwards	$	826	2037-2039

XML

EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure Earnings Per Share Tables Abstract

Schedule of reconciliation of average shares outstanding

The following is a reconciliation of the numerator and denominator of basic and diluted net income per share of common stock as of the dates indicated: 

	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2019		2018
Numerator:
Net income	$	3,815	$	3,582
Denominator:
Weighted-average common shares outstanding - basic		6,918,769		6,885,911
Effect of dilutive securities:
Stock options		6,960		96,871
Restricted stock units		17,538		45,102
Weighted-average common shares outstanding - diluted		6,943,267		7,027,884
Earnings per share - basic	$	0.55	$	0.52
Earnings per share - diluted	$	0.55	$	0.51

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Income Loss

Schedule of Accumulated other comprehensive income (loss)

The following table summarizes the components of accumulated other comprehensive income (loss) and changes in those components as of and for the three months ended March 31, 2019 and 2018. 

	Three Months Ended March 31, 2019
	(Dollars in thousands)
	Available for Sale Securities			Cash Flow Hedge			Total
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		5,390			—			5,390
Reclassification adjustment for net securities losses realized in net income		—			—			—
Change in unrealized holding gains on cash flow hedge		—			(159	)		(159	)
Reclassification adjustment for cash flow hedge effectiveness		—			(65	)		(65	)
Income tax effect		(1,244	)		47			(1,197	)
Balance, end of period	$	618		$	(73	)	$	545

	Three Months Ended March 31, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale		—			—			—
Change in net unrealized holding losses on securities available for sale		(4,505	)		—			(4,505	)
Reclassification adjustment for net securities losses realized in net income		12			—			12
Change in unrealized holding gains on cash flow hedge		—			202			202
Reclassification adjustment for cash flow hedge effectiveness		—			(56	)		(56	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		996			(31	)		965
Balance, end of period	$	(3,943	)	$	547		$	(3,396	)

Schedule of Consolidated Statements of Operations affected by amounts reclassified from accumulated other comprehensive income (loss)

The following table shows the line items in the Consolidated Statements of Income affected by amounts reclassified from accumulated other comprehensive income as of the dates indicated:

	Three Months Ended March 31,
(Dollars in thousands)	2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	(12	)	Loss on sale of investments, net
Income tax effect		—			3		Income tax expense
Reclassified out of AOCI, net of tax		—			(9	)	Net income
Cash flow hedge
Interest expense - effective portion		—			30		Interest expense - FHLB advances
Interest expense - effective portion		65			26		Interest expense - Junior subordinated notes
Income tax effect		(15	)		(13	)	Income tax expense
Reclassified out of AOCI, net of tax		50			43		Net income
Total reclassified out of AOCI, net of tax	$	50		$	34		Net income

XML

COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2019

Commitments And Contingencies

Schedule of commitments to fund lines of credit

The following summarizes the Company’s approximate commitments to extend credit: 

	March 31, 2019
	(Dollars in thousands)
Lines of credit	$	175,353
Standby letters of credit		1,011
	$	176,364

Schedule of Outstanding commitments to originate mortgage loans

The Company had outstanding commitments to originate loans as follows:

	March 31, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	24,709		4.25% to 12.00%
Variable		9,323		3.38% to 8.00%
	$	34,032

XML

FAIR VALUE DISCLOSURES (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures

Summary of assets and liabilities measured at fair value on a recurring basis

The following tables present financial assets and financial liabilities measured at fair value on a recurring basis at the dates indicated, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value:

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,812	$	—	$	—	$	6,812
Securities available for sale:
U.S. Treasury & Government Agencies		4,991		28,831		—		33,822
Municipal Securities		—		117,479		—		117,479
Mortgage-backed Securities - Guaranteed		—		81,526		—		81,526
Collateralized Mortgage Obligations - Guaranteed		—		21,905		—		21,905
Collateralized Mortgage Obligations - Non Guaranteed		—		67,139		—		67,139
Collateralized Loan Obligations		—		15,212				15,212
Corporate bonds		—		19,556		493		20,049
Total securities available for sale		4,991		351,648		493		357,132
Mortgage loans held for sale		—		—		3,270		3,270
Loan servicing rights		—		—		2,753		2,753
Interest rate swaps		—		260		—		260
Mortgage derivatives		—		—		45		45
Total recurring assets at fair value	$	11,803	$	351,908	$	6,561	$	370,272
Liabilities:
Interest rate swaps	$	—	$	861	$	—	$	861
Mortgage derivatives		—		—		21		21
Total recurring liabilities at fair value	$	—	$	861	$	21	$	882

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,178	$	—	$	—	$	6,178
Securities available for sale:
U.S. Treasury & Government Agencies		4,949		29,041		—		33,990
Municipal Securities		—		114,402		—		114,402
Mortgage-backed Securities - Guaranteed		—		85,184		—		85,184
Collateralized Mortgage Obligations - Guaranteed		—		21,889		—		21,889
Collateralized Mortgage Obligations - Non Guaranteed		—		69,171		—		69,171
Collateralized Loan Obligations		—		15,077				15,077
Corporate bonds		—		19,532		493		20,025
Total securities available for sale		4,949		354,296		493		359,738
Mortgage loans held for sale		—		—		2,431		2,431
Loan servicing rights		—		—		2,837		2,837
Interest rate swaps		—		354		—		354
Mortgage derivatives		—		—		34		34
Total recurring assets at fair value	$	11,127	$	354,650	$	5,795	$	371,572
Liabilities:
Interest rate swaps	$	—	$	462	$	—	$	462
Mortgage derivatives		—		—		22		22
Total recurring liabilities at fair value	$	—	$	462	$	22	$	484

Schedule of changes in assets measured at fair value on a recurring basis

The following table presents the changes in assets and liabilities measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine fair value:

	Three Months Ended March 31,
	2019			2018
	(Dollars in thousands)
Balance at beginning of period	$	5,773		$	3,321
AFS securities
Transfer to Level 2		—			1,331
Mortgage loans held for sale		839			—
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		47			100
Fair value adjustment		(131	)		(130	)
Mortgage derivative gains (losses) included in other income		12			27
Balance at end of period	$	6,540		$	4,649

Summary of assets and liabilities measured at a fair value on a nonrecurring basis

The following table presents nonfinancial assets measured at fair value on a nonrecurring basis at the dates indicated, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: 

	March 31, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to four family residential	$	—	$	—	$	2,324	$	2,324
Commercial real estate		—		—		3,925		3,925
Home equity loans and lines of credit		—		—		213		213
Other construction and land		—		—		549		549
Real estate owned:
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,307		1,307
Total assets	$	—	$	—	$	9,267	$	9,267

	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	845	$	845
Commercial real estate		—		—		3,835		3,835
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		365		365
Real estate owned:
One-to-four family residential		—		—		228		228
Commercial real estate		—		—		949		949
Other construction and land		—		—		1,316		1,316
Total assets	$	—	$	—	$	7,821	$	7,821

Schedule of significant unobservable inputs used in the fair value measurements

The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at March 31, 2019.

	Valuation Technique	Unobservable Input	General Range
Impaired loans	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Real estate owned	Discounted Appraisals	Collateral discounts and estimated selling cost	0% -  30%
Corporate bonds	Discounted Cash Flows	Recent trade pricing	0% -10%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	9% - 20%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	101% - 103%
Mortgage derivatives	External pricing model	Pull-through rate	78%-100%
SBIC	Indicative value provided by fund	Current operations and financial condition	N/A

Schedule of carrying amount and estimated fair value of the Company's financial instruments

The following table includes the estimated fair value of the Company's financial assets and financial liabilities at the dates indicated: 

			Fair Value Measurements at March 31, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	98,285	$	98,285	$	98,285	$	—	$	—
Equity securities		6,812		6,812		6,812		—		—
Securities available for sale		357,132		357,132		4,991		351,648		493
Loans held for sale		9,208		9,885		—		6,615		3,270
Loans receivable, net		1,079,837		1,046,136		—		—		1,046,552
Other investments, at cost		12,092		12,092		—		12,092		—
Accrued interest receivable		6,669		6,669		—		6,669		—
BOLI		32,087		32,087		—		32,087		—
Loan servicing rights		2,753		2,753		—		—		2,753
Mortgage derivatives		45		45		—		—		45
Interest rate swaps		260		260		—		260		—
SBIC investments		4,306		4,306		—		—		4,306
Liabilities:
Demand deposits	$	833,913	$	833,913	$	—	$	833,913	$	—
Time deposits		412,306		416,631		—		—		416,631
Federal Home Loan Bank advances		213,500		213,249		—		213,249		—
Junior subordinated debentures		14,433		13,720		—		13,720		—
Other borrowings		9,385		9,572		—		9,572		—
Accrued interest payable		1,173		1,173		—		1,173		—
Mortgage derivatives		21		21		—		—		21
Interest rate swaps		861		861		—		861		—

			Fair Value Measurements at December 31, 2018
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	69,119	$	69,119	$	69,119	$	—	$	—
Equity securities		6,178		6,178		6,178		—		—
Securities available for sale		359,739		359,739		4,949		354,297		493
Loans held for sale		7,570		8,114		—		5,683		2,431
Loans receivable, net		1,076,069		1,046,136		—		—		1,046,136
Other investments, at cost		12,039		12,039		—		12,039		—
Accrued interest receivable		6,443		6,443		—		6,443		—
BOLI		32,886		32,886		—		32,886		—
Loan servicing rights		2,837		2,837		—		—		2,837
Mortgage derivatives		34		34		—		—		34
Interest rate swaps		354		354		—		354		—
SBIC investments		3,839		3,839		—		—		3,839
Liabilities:
Demand deposits	$	800,291	$	800,291	$	—	$	800,291	$	—
Time deposits		420,949		424,054		—		—		424,054
Federal Home Loan Bank advances		213,500		213,513		—		213,513		—
Junior subordinated debentures		14,433		12,440		—		12,440		—
Other borrowings		9,299		9,253		—		9,253		—
Accrued interest payable		1,647		1,647		—		1,647		—
Mortgage derivatives		22		22		—		—		22
Interest rate swaps		462		462		—		462		—

XML

LEASES (Tables)

3 Months Ended

Mar. 31, 2019

Leases

Schedule of Future minimum lease payments

Maturities of lease liabilities as of March 31, 2019 were as follows:

(Dollard in thousands)	Operating Leases
2019	$	107
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		512
Discount effect of cash flows		(68	)
Total lease liability	$	444

XML

ORGANIZATION (Details Narrative)	Mar. 31, 2019
Disclosure Organization Details Narrative Abstract
Ownership percentage in Macon Capital Trust I	100.00%

XML

INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Mutual funds	$ 6,812	$ 6,178
Amortized Cost	356,332	364,328
Gross Unrealized Gains	3,329	786
Gross Unrealized Losses	(2,529)	(5,376)
Estimated fair value	357,132	359,738
U.S. Government Agencies [Member]
Amortized Cost	33,918	34,068
Gross Unrealized Gains	112	74
Gross Unrealized Losses	(208)	(152)
Estimated fair value	33,822	33,990
Municipal Securities [Member]
Amortized Cost	115,467	115,860
Gross Unrealized Gains	2,194	209
Gross Unrealized Losses	(182)	(1,667)
Estimated fair value	117,479	114,402
Mortgage-backed Securities - Guaranteed [Member]
Amortized Cost	82,467	86,664
Gross Unrealized Gains	196	98
Gross Unrealized Losses	(1,137)	(1,578)
Estimated fair value	81,526	85,184
Collateralized Mortgage Obligations - Guaranteed [Member]
Amortized Cost	22,194	22,492
Gross Unrealized Gains	99	47
Gross Unrealized Losses	(388)	(650)
Estimated fair value	21,905	21,889
Collateralized Mortgage Obligations - Non Guaranteed [Member]
Amortized Cost	66,842	69,774
Gross Unrealized Gains	491	125
Gross Unrealized Losses	(194)	(728)
Estimated fair value	67,139	69,171
Collateralized mortgage obligations [Member]
Amortized Cost	15,524	15,534
Gross Unrealized Gains		1
Gross Unrealized Losses	(312)	(458)
Estimated fair value	15,212	15,077
Corporate debt securities [Member]
Amortized Cost	19,920	19,936
Gross Unrealized Gains	237	232
Gross Unrealized Losses	(108)	(143)
Estimated fair value	$ 20,049	$ 20,025

XML

INVESTMENT SECURITIES (Details 2) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Held to maturity, Less Than 12 Months Fair Value	$ 32	$ 88
Held to maturity, Over 12 Months Fair Value	98	130
Held to maturity, Fair Value	130	218
Available for sale, Less Than 12 Months Fair Value	46,508	122,678
Available for sale, Less Than 12 Months Unrealized Losses	558	1,596
Available for sale, Over 12 Months Fair Value	116,871	152,331
Available for sale, Over 12 Months Unrealized Losses	1,971	3,780
Available for sale, Fair Value	163,379	275,009
Available for sale, Unrealized Losses	2,529	5,376
U.S. Government Agencies [Member]
Held to maturity, Less Than 12 Months Fair Value	15	14
Held to maturity, Over 12 Months Fair Value	1
Held to maturity, Fair Value	16	14
Available for sale, Less Than 12 Months Fair Value	22,738	23,423
Available for sale, Less Than 12 Months Unrealized Losses	179	152
Available for sale, Over 12 Months Fair Value	2,032
Available for sale, Over 12 Months Unrealized Losses	29
Available for sale, Fair Value	24,770	23,423
Available for sale, Unrealized Losses	208	152
Municipal Securities [Member]
Held to maturity, Less Than 12 Months Fair Value		31
Held to maturity, Over 12 Months Fair Value	18	52
Held to maturity, Fair Value	18	83
Available for sale, Less Than 12 Months Fair Value		33,028
Available for sale, Less Than 12 Months Unrealized Losses		421
Available for sale, Over 12 Months Fair Value	20,277	56,153
Available for sale, Over 12 Months Unrealized Losses	182	1,246
Available for sale, Fair Value	20,277	89,181
Available for sale, Unrealized Losses	182	1,667
Mortgage-backed Securities - Guaranteed [Member]
Held to maturity, Less Than 12 Months Fair Value	5	21
Held to maturity, Over 12 Months Fair Value	52	43
Held to maturity, Fair Value	57	64
Available for sale, Less Than 12 Months Fair Value	5,987	27,692
Available for sale, Less Than 12 Months Unrealized Losses	60	370
Available for sale, Over 12 Months Fair Value	54,578	45,619
Available for sale, Over 12 Months Unrealized Losses	1,077	1,208
Available for sale, Fair Value	60,565	73,311
Available for sale, Unrealized Losses	1,137	1,578
Collateralized Mortgage Obligations - Guaranteed [Member]
Held to maturity, Less Than 12 Months Fair Value		1
Held to maturity, Over 12 Months Fair Value	8	8
Held to maturity, Fair Value	8	9
Available for sale, Less Than 12 Months Fair Value		2,042
Available for sale, Less Than 12 Months Unrealized Losses		19
Available for sale, Over 12 Months Fair Value	15,433	15,294
Available for sale, Over 12 Months Unrealized Losses	388	631
Available for sale, Fair Value	15,433	17,336
Available for sale, Unrealized Losses	388	650
Collateralized Mortgage Obligations - Non Guaranteed [Member]
Held to maturity, Less Than 12 Months Fair Value	2	12
Held to maturity, Over 12 Months Fair Value	13	22
Held to maturity, Fair Value	15	34
Available for sale, Less Than 12 Months Fair Value	2,908	22,383
Available for sale, Less Than 12 Months Unrealized Losses	25	185
Available for sale, Over 12 Months Fair Value	17,739	30,471
Available for sale, Over 12 Months Unrealized Losses	169	543
Available for sale, Fair Value	20,647	52,854
Available for sale, Unrealized Losses	194	728
Collateralized mortgage obligations [Member]
Held to maturity, Less Than 12 Months Fair Value	6	6
Held to maturity, Over 12 Months Fair Value	2	1
Held to maturity, Fair Value	8	7
Available for sale, Less Than 12 Months Fair Value	11,750	11,618
Available for sale, Less Than 12 Months Unrealized Losses	269	404
Available for sale, Over 12 Months Fair Value	3,462	1,449
Available for sale, Over 12 Months Unrealized Losses	43	54
Available for sale, Fair Value	15,212	13,067
Available for sale, Unrealized Losses	312	458
Corporate debt securities [Member]
Held to maturity, Less Than 12 Months Fair Value	4	3
Held to maturity, Over 12 Months Fair Value	4	4
Held to maturity, Fair Value	8	7
Available for sale, Less Than 12 Months Fair Value	3,125	2,492
Available for sale, Less Than 12 Months Unrealized Losses	25	45
Available for sale, Over 12 Months Fair Value	3,350	3,345
Available for sale, Over 12 Months Unrealized Losses	83	98
Available for sale, Fair Value	6,475	5,837
Available for sale, Unrealized Losses	$ 108	$ 143

XML

INVESTMENT SECURITIES (Details 3) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Gross proceeds		$ 10,009
Securities pledged against deposits	159,800		$ 155,800
Available-for-sale Securities [Member]
Gross proceeds		10,009
Gross realized gains		21
Gross realized losses		$ 33

XML

INVESTMENT SECURITIES (Details 4) $ in Thousands	Mar. 31, 2019 USD ($)
Disclosure Investment Securities Details Abstract
Available for sale, Less than 1 year, Amortized Cost	$ 1,979
Available for sale, Over 1 year through 5 years, Amortized Cost	4,570
Available for sale, After 5 years through 10 years, Amortized Cost	30,973
Available for sale, Over 10 years, Amortized Cost	147,307
Available for sale, Before Amortized Cost Available for sale, Mortgage-backed securities, Amortized Cost	184,829
Available for sale, Mortgage-backed securities, Amortized Cost	171,503
Available for sale, Total, Amortized Cost	356,332
Available for Sale, Less than 1 year, Fair Value	1,981
Available for Sale, Over 1 year through 5 years, Fair Value	3,207
Available for Sale, After 5 years through 10 years, Fair Value	32,307
Available for Sale, Over 10 years, Fair Value	149,067
Available for sale, Before Amortized Cost Available for sale, Mortgage-backed securities, Fair Value	186,562
Available for Sale, Mortgage-backed securities, Fair Value	170,570
Available for Sale, Total, Fair Value	$ 357,132

XML

LOANS RECEIVABLE (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	$ 1,081,184	$ 1,077,775
Less: Net deferred loan fees	(1,046)	(1,000)
Fair value discount	(915)	(1,048)	$ (1,746)	$ (2,012)
Hedged loans basis adjustment	503	245
Unamortized premium	319	333
Unamortized discount	(208)	(236)
Loans receivable	1,079,837	1,076,069
One To Four Family Residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	328,779	325,560
Loans receivable	328,676	325,155
Commercial Real Estate Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	500,600	498,106
Loans receivable	499,079	496,549
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	47,665	48,679
Loans receivable	47,812	48,825
Residential Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	46,622	39,533
Loans receivable	46,566	39,488
Other Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	99,462	104,645
Loans receivable	99,276	104,464
Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	1,023,128	1,016,523
Commercial Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	51,562	54,410
Loans receivable	51,834	54,643
Consumer Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	6,494	6,842
Loans receivable	6,594	6,945
Commercial and Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	$ 58,056	$ 61,252

XML

LOANS RECEIVABLE (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Discount on purchased loans, beginning of period	$ 1,000
Discount on purchased loans, end of period	1,046
Federal Deposit Insurance Corporation [Member]
Discount on purchased loans, beginning of period	236	$ 710
Accretion	(28)	(29)
Discount on purchased loans, end of period	$ 208	$ 681

XML

LOANS RECEIVABLE (Details 3) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Disclosure Loans Receivable Details 3Abstract
Fair value discount, beginning of year	$ 1,048	$ 2,012
Accretion	(133)	(266)
Discount on purchased loans, end of period	$ 915	$ 1,746

XML

LOANS RECEIVABLE (Detail Narrative) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Federal Reserve Bank Advances [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans pledged as collateral to secure funding amount	$ 115,200	$ 114,400
Federal Home Loan Bank of Atlanta [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans pledged as collateral to secure funding amount	$ 267,200	$ 256,100

XML

ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	$ 11,985	$ 10,887
Provision	116	361
Charge-offs	(298)	(215)
Recoveries	240	134
Balance, end of period	12,043	11,167
One To Four Family Residential [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	3,909	4,018
Provision	34	(151)
Charge-offs	(4)	(110)
Recoveries	20	13
Balance, end of period	3,959	3,770
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	5,130	4,364
Provision	(112)	229
Charge-offs		(35)
Recoveries	56	3
Balance, end of period	5,074	4,561
Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	560	616
Provision	255	(21)
Charge-offs	(209)	(41)
Recoveries		21
Balance, end of period	606	575
Residential Construction [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	452	303
Provision	68	150
Charge-offs
Recoveries
Balance, end of period	520	453
Other Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,250	1,025
Provision	(42)	63
Charge-offs
Recoveries	8	20
Balance, end of period	1,216	1,108
Commercial Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	608	503
Provision	43	128
Charge-offs	(59)
Recoveries	4	5
Balance, end of period	596	636
Consumer Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	76	58
Provision	(130)	(37)
Charge-offs	(26)	(29)
Recoveries	152	72
Balance, end of period	$ 72	$ 64

XML

ALLOWANCE FOR LOAN LOSSES (Details 2) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Allowance for loan losses
Individually evaluated for impairment	$ 353	$ 167
Collectively evaluated for impairment	11,690	11,818
Balance, end of period	12,043	11,985	$ 11,167	$ 10,887
Loans Receivable
Individually evaluated for impairment	11,197	10,885
Collectively evaluated for impairment	1,068,640	1,065,184
Total Loans Receivable	1,079,837	1,076,069
One To Four Family Residential [Member]
Allowance for loan losses
Individually evaluated for impairment	148	79
Collectively evaluated for impairment	3,811	3,830
Balance, end of period	3,959	3,909	3,770	4,018
Loans Receivable
Individually evaluated for impairment	3,262	2,900
Collectively evaluated for impairment	325,414	322,255
Total Loans Receivable	328,676	325,155
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	80	27
Collectively evaluated for impairment	4,994	5,103
Balance, end of period	5,074	5,130	4,561	4,364
Loans Receivable
Individually evaluated for impairment	5,994	6,019
Collectively evaluated for impairment	493,085	490,530
Total Loans Receivable	499,079	496,549
Home Equity Line of Credit [Member]
Allowance for loan losses
Individually evaluated for impairment	74
Collectively evaluated for impairment	532	560
Balance, end of period	606	560	575	616
Loans Receivable
Individually evaluated for impairment	312	313
Collectively evaluated for impairment	47,500	48,512
Total Loans Receivable	47,812	48,825
Residential Construction [Member]
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment	520	452
Balance, end of period	520	452	453	303
Loans Receivable
Individually evaluated for impairment
Collectively evaluated for impairment	46,566	39,488
Total Loans Receivable	46,566	39,488
Other Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	46	54
Collectively evaluated for impairment	1,170	1,196
Balance, end of period	1,216	1,250	1,108	1,025
Loans Receivable
Individually evaluated for impairment	1,358	1,377
Collectively evaluated for impairment	97,918	103,087
Total Loans Receivable	99,276	104,464
Commercial Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	5	7
Collectively evaluated for impairment	591	601
Balance, end of period	596	608	636	503
Loans Receivable
Individually evaluated for impairment	271	276
Collectively evaluated for impairment	51,563	54,367
Total Loans Receivable	51,834	54,643
Consumer Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment	72	76
Balance, end of period	72	76	$ 64	$ 58
Loans Receivable
Individually evaluated for impairment
Collectively evaluated for impairment	6,594	6,945
Total Loans Receivable	$ 6,594	$ 6,945

XML

ALLOWANCE FOR LOAN LOSSES (Details 3) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Loans receivable	$ 1,079,837	$ 1,076,069
One To Four Family Residential [Member]
Loans receivable	328,676	325,155
Commercial Real Estate Portfolio Segment [Member]
Loans receivable	499,079	496,549
Home Equity Line of Credit [Member]
Loans receivable	47,812	48,825
Residential Construction [Member]
Loans receivable	46,566	39,488
Other Portfolio Segment [Member]
Loans receivable	99,276	104,464
Commercial Portfolio Segment [Member]
Loans receivable	51,834	54,643
Consumer Portfolio Segment [Member]
Loans receivable	6,594	6,945
Graded Loan [Member]
Loans receivable	859,724	852,337
Graded Loan [Member] | One To Four Family Residential [Member]
Loans receivable	182,985	179,044
Graded Loan [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	492,084	486,105
Graded Loan [Member] | Home Equity Line of Credit [Member]
Loans receivable	8,950	9,841
Graded Loan [Member] | Residential Construction [Member]
Loans receivable	36,192	31,128
Graded Loan [Member] | Other Portfolio Segment [Member]
Loans receivable	87,449	93,066
Graded Loan [Member] | Commercial Portfolio Segment [Member]
Loans receivable	51,822	52,632
Graded Loan [Member] | Consumer Portfolio Segment [Member]
Loans receivable	242	521
Graded Loan [Member] | Loan Grade One [Member]
Loans receivable	8,646	8,840
Graded Loan [Member] | Loan Grade One [Member] | One To Four Family Residential [Member]
Loans receivable
Graded Loan [Member] | Loan Grade One [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	7,449	7,569
Graded Loan [Member] | Loan Grade One [Member] | Home Equity Line of Credit [Member]
Loans receivable
Graded Loan [Member] | Loan Grade One [Member] | Residential Construction [Member]
Loans receivable
Graded Loan [Member] | Loan Grade One [Member] | Other Portfolio Segment [Member]
Loans receivable
Graded Loan [Member] | Loan Grade One [Member] | Commercial Portfolio Segment [Member]
Loans receivable	1,191	1,264
Graded Loan [Member] | Loan Grade One [Member] | Consumer Portfolio Segment [Member]
Loans receivable	6	7
Graded Loan [Member] | Loan Grade Two [Member]
Loans receivable	11,348	7,880
Graded Loan [Member] | Loan Grade Two [Member] | One To Four Family Residential [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Two [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	10,444	7,860
Graded Loan [Member] | Loan Grade Two [Member] | Home Equity Line of Credit [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Two [Member] | Residential Construction [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Two [Member] | Other Portfolio Segment [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Two [Member] | Commercial Portfolio Segment [Member]
Loans receivable	904	20
Graded Loan [Member] | Loan Grade Two [Member] | Consumer Portfolio Segment [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Three [Member]
Loans receivable	163,093	162,016
Graded Loan [Member] | Loan Grade Three [Member] | One To Four Family Residential [Member]
Loans receivable	31,789	31,623
Graded Loan [Member] | Loan Grade Three [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	89,877	87,756
Graded Loan [Member] | Loan Grade Three [Member] | Home Equity Line of Credit [Member]
Loans receivable	4,839	5,212
Graded Loan [Member] | Loan Grade Three [Member] | Residential Construction [Member]
Loans receivable	9,562	9,365
Graded Loan [Member] | Loan Grade Three [Member] | Other Portfolio Segment [Member]
Loans receivable	12,292	12,111
Graded Loan [Member] | Loan Grade Three [Member] | Commercial Portfolio Segment [Member]
Loans receivable	14,717	15,685
Graded Loan [Member] | Loan Grade Three [Member] | Consumer Portfolio Segment [Member]
Loans receivable	17	264
Graded Loan [Member] | Loan Grade Four [Member]
Loans receivable	512,412	508,955
Graded Loan [Member] | Loan Grade Four [Member] | One To Four Family Residential [Member]
Loans receivable	124,622	121,688
Graded Loan [Member] | Loan Grade Four [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	281,883	280,630
Graded Loan [Member] | Loan Grade Four [Member] | Home Equity Line of Credit [Member]
Loans receivable	3,719	4,014
Graded Loan [Member] | Loan Grade Four [Member] | Residential Construction [Member]
Loans receivable	24,186	18,358
Graded Loan [Member] | Loan Grade Four [Member] | Other Portfolio Segment [Member]
Loans receivable	55,743	61,646
Graded Loan [Member] | Loan Grade Four [Member] | Commercial Portfolio Segment [Member]
Loans receivable	22,044	22,374
Graded Loan [Member] | Loan Grade Four [Member] | Consumer Portfolio Segment [Member]
Loans receivable	215	245
Graded Loan [Member] | Loan Grade Five [Member]
Loans receivable	147,256	147,397
Graded Loan [Member] | Loan Grade Five [Member] | One To Four Family Residential [Member]
Loans receivable	25,610	24,738
Graded Loan [Member] | Loan Grade Five [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	88,755	88,698
Graded Loan [Member] | Loan Grade Five [Member] | Home Equity Line of Credit [Member]
Loans receivable	392	615
Graded Loan [Member] | Loan Grade Five [Member] | Residential Construction [Member]
Loans receivable	2,443	3,404
Graded Loan [Member] | Loan Grade Five [Member] | Other Portfolio Segment [Member]
Loans receivable	17,947	17,630
Graded Loan [Member] | Loan Grade Five [Member] | Commercial Portfolio Segment [Member]
Loans receivable	12,105	12,307
Graded Loan [Member] | Loan Grade Five [Member] | Consumer Portfolio Segment [Member]
Loans receivable	4	5
Graded Loan [Member] | Loan Grade Six [Member]
Loans receivable	10,262	9,987
Graded Loan [Member] | Loan Grade Six [Member] | One To Four Family Residential [Member]
Loans receivable	318	321
Graded Loan [Member] | Loan Grade Six [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	8,185	7,867
Graded Loan [Member] | Loan Grade Six [Member] | Home Equity Line of Credit [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Six [Member] | Residential Construction [Member]
Loans receivable	1	1
Graded Loan [Member] | Loan Grade Six [Member] | Other Portfolio Segment [Member]
Loans receivable	1,280	1,303
Graded Loan [Member] | Loan Grade Six [Member] | Commercial Portfolio Segment [Member]
Loans receivable	478	495
Graded Loan [Member] | Loan Grade Six [Member] | Consumer Portfolio Segment [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Seven [Member]
Loans receivable	6,707	7,262
Graded Loan [Member] | Loan Grade Seven [Member] | One To Four Family Residential [Member]
Loans receivable	646	674
Graded Loan [Member] | Loan Grade Seven [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	5,491	5,725
Graded Loan [Member] | Loan Grade Seven [Member] | Home Equity Line of Credit [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Seven [Member] | Residential Construction [Member]
Loans receivable
Graded Loan [Member] | Loan Grade Seven [Member] | Other Portfolio Segment [Member]
Loans receivable	187	376
Graded Loan [Member] | Loan Grade Seven [Member] | Commercial Portfolio Segment [Member]
Loans receivable	383	487
Graded Loan [Member] | Loan Grade Seven [Member] | Consumer Portfolio Segment [Member]
Loans receivable
UnGraded Loan [Member]
Loans receivable	220,113	223,732
UnGraded Loan [Member] | One To Four Family Residential [Member]
Loans receivable	145,691	146,111
UnGraded Loan [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	6,995	10,444
UnGraded Loan [Member] | Home Equity Line of Credit [Member]
Loans receivable	38,862	38,984
UnGraded Loan [Member] | Residential Construction [Member]
Loans receivable	10,374	8,360
UnGraded Loan [Member] | Other Portfolio Segment [Member]
Loans receivable	11,827	11,398
UnGraded Loan [Member] | Commercial Portfolio Segment [Member]
Loans receivable	12	2,011
UnGraded Loan [Member] | Consumer Portfolio Segment [Member]
Loans receivable	6,352	6,424
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member]
Loans receivable	1,448	907
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | One To Four Family Residential [Member]
Loans receivable	1,021	641
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	19	24
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Home Equity Line of Credit [Member]
Loans receivable	343	178
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Residential Construction [Member]
Loans receivable
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Other Portfolio Segment [Member]
Loans receivable	64	64
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Commercial Portfolio Segment [Member]
Loans receivable
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Consumer Portfolio Segment [Member]
Loans receivable	1
UnGraded Loan [Member] | Performing Financing Receivable [Member]
Loans receivable	220,113	223,732
UnGraded Loan [Member] | Performing Financing Receivable [Member] | One To Four Family Residential [Member]
Loans receivable	144,670	145,470
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans receivable	6,976	10,420
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Home Equity Line of Credit [Member]
Loans receivable	38,519	38,806
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Residential Construction [Member]
Loans receivable	10,374	8,360
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Other Portfolio Segment [Member]
Loans receivable	11,763	11,334
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Commercial Portfolio Segment [Member]
Loans receivable	12	2,011
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Consumer Portfolio Segment [Member]
Loans receivable	$ 6,351	$ 6,424

XML

ALLOWANCE FOR LOAN LOSSES (Details 4) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 9,611	$ 7,524
60-89 Days Past	122	1,835
90 Days and Over Past Due	2,237	2,125
Total Past Due	11,970	11,484
Current	1,067,867	1,064,585
Total Loans Receivable	1,079,837	1,076,069
One To Four Family Residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	4,364	3,562
60-89 Days Past		1,317
90 Days and Over Past Due	251	84
Total Past Due	4,615	4,963
Current	324,061	320,192
Total Loans Receivable	328,676	325,155
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	4,291	2,615
60-89 Days Past	119
90 Days and Over Past Due	1,515	1,782
Total Past Due	5,925	4,397
Current	493,154	492,152
Total Loans Receivable	499,079	496,549
Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	159	400
60-89 Days Past		457
90 Days and Over Past Due	343	73
Total Past Due	502	930
Current	47,310	47,895
Total Loans Receivable	47,812	48,825
Residential Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	350
60-89 Days Past
90 Days and Over Past Due	1	1
Total Past Due	351	1
Current	46,215	39,487
Total Loans Receivable	46,566	39,488
Other Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	129	613
60-89 Days Past		32
90 Days and Over Past Due	64	64
Total Past Due	193	709
Current	99,083	103,755
Total Loans Receivable	99,276	104,464
Commercial Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	283	307
60-89 Days Past		25
90 Days and Over Past Due	62	121
Total Past Due	345	453
Current	51,489	54,190
Total Loans Receivable	51,834	54,643
Consumer Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	35	27
60-89 Days Past	3	4
90 Days and Over Past Due	1
Total Past Due	39	31
Current	6,555	6,914
Total Loans Receivable	$ 6,594	$ 6,945

XML

ALLOWANCE FOR LOAN LOSSES (Details 5) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	$ 7,011	$ 5,328
Unpaid Principal Balance, without a valuation allowance	9,757	7,779
Recorded Balance, Recorded Balance, with a valuation allowance	4,186	5,557
Unpaid Principal Balance, with a valuation allowance	4,186	5,557
Recorded Balance	11,197	10,885
Unpaid Principal Balance	13,943	13,336
Specific Allowance	353	167
One To Four Family Residential [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	2,324	845
Unpaid Principal Balance, without a valuation allowance	2,475	923
Recorded Balance, Recorded Balance, with a valuation allowance	938	2,055
Unpaid Principal Balance, with a valuation allowance	938	2,055
Recorded Balance	3,262	2,900
Unpaid Principal Balance	3,413	2,978
Specific Allowance	148	79
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	3,925	3,835
Unpaid Principal Balance, without a valuation allowance	6,271	6,207
Recorded Balance, Recorded Balance, with a valuation allowance	2,069	2,184
Unpaid Principal Balance, with a valuation allowance	2,069	2,184
Recorded Balance	5,994	6,019
Unpaid Principal Balance	8,340	8,391
Specific Allowance	80	27
Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	213	283
Unpaid Principal Balance, without a valuation allowance	328	283
Recorded Balance, Recorded Balance, with a valuation allowance	99	30
Unpaid Principal Balance, with a valuation allowance	99	30
Recorded Balance	312	313
Unpaid Principal Balance	427	313
Specific Allowance	74
Other Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	549	365
Unpaid Principal Balance, without a valuation allowance	683	366
Recorded Balance, Recorded Balance, with a valuation allowance	809	1,012
Unpaid Principal Balance, with a valuation allowance	809	1,012
Recorded Balance	1,358	1,377
Unpaid Principal Balance	1,492	1,378
Specific Allowance	46	54
Commercial Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, Recorded Balance, with a valuation allowance	271	276
Unpaid Principal Balance, with a valuation allowance	271	276
Recorded Balance	271	276
Unpaid Principal Balance	271	276
Specific Allowance	$ 5	$ 7

XML

ALLOWANCE FOR LOAN LOSSES (Details 6) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Average Investment in Impaired Loans, without a valuation allowance	$ 9,768	$ 8,616
Interest Income Recognized, without a valuation allowance	86	79
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	4,284	5,328
Interest Income Recognized, with a valuation allowance	51	53
Average Investment in Impaired Loans	14,052	13,944
Interest Income Recognized	137	132
One To Four Family Residential [Member]
Average Investment in Impaired Loans, without a valuation allowance	2,483	1,877
Interest Income Recognized, without a valuation allowance	29	29
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	937	1,621
Interest Income Recognized, with a valuation allowance	8	16
Average Investment in Impaired Loans	3,420	3,498
Interest Income Recognized	37	45
Commercial Real Estate Portfolio Segment [Member]
Average Investment in Impaired Loans, without a valuation allowance	6,272	5,613
Interest Income Recognized, without a valuation allowance	37	31
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	2,155	1,693
Interest Income Recognized, with a valuation allowance	23	23
Average Investment in Impaired Loans	8,427	7,306
Interest Income Recognized	60	54
Home Equity Line of Credit [Member]
Average Investment in Impaired Loans, without a valuation allowance	328	427
Interest Income Recognized, without a valuation allowance	15	14
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	99
Interest Income Recognized, with a valuation allowance	2
Average Investment in Impaired Loans	427	427
Interest Income Recognized	17	14
Other Portfolio Segment [Member]
Average Investment in Impaired Loans, without a valuation allowance	685	699
Interest Income Recognized, without a valuation allowance	5	5
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	819	1,724
Interest Income Recognized, with a valuation allowance	12	9
Average Investment in Impaired Loans	1,504	2,423
Interest Income Recognized	17	14
Commercial Portfolio Segment [Member]
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	274	290
Interest Income Recognized, with a valuation allowance	6	5
Average Investment in Impaired Loans	274	290
Interest Income Recognized	$ 6	$ 5

XML

ALLOWANCE FOR LOAN LOSSES (Details 7) - Nonperforming Financing Receivable [Member] - Loans [Member] - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	$ 4,906	$ 4,857
One To Four Family Residential [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	1,394	1,037
Commercial Real Estate Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	2,854	3,266
Home Equity Line of Credit [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	343	178
Residential Construction [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	1
Other Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	251	256
Commercial Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	62	120
Consumer Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	$ 1

XML

ALLOWANCE FOR LOAN LOSSES (Details 8) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Modifications [Line Items]
TDR loans	$ 9,561	$ 9,633
Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	5,124	7,588
Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	1,757	2,045
One To Four Family Residential [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	2,496	2,515
One To Four Family Residential [Member] | Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	2,138	2,154
One To Four Family Residential [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	358	361
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	7,804	5,152
Commercial Real Estate Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	3,912	3,690
Commercial Real Estate Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	1,212	1,462
Home Equity Line of Credit [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	313	313
Home Equity Line of Credit [Member] | Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	313	283
Home Equity Line of Credit [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans		30
Other Portfolio Segment [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	1,357	1,377
Other Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	1,170	1,185
Other Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	187	192
Commercial Portfolio Segment [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	271	276
Commercial Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans	271	276
Commercial Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Modifications [Line Items]
TDR loans

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Gross carrying amount at beginning of period	$ 4,840	$ 4,840
Additions from acquisitions during the period
Gross balance at end of period	4,840	4,840
Accumulated amortization	(1,436)	(1,263)
Finite Lived Core Deposits Net	3,404	$ 3,577
Amortization expense	$ 700

XML

DEPOSITS (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Deposits By Type [Line Items]
Balance	$ 1,246,219	$ 1,205,908	$ 1,221,240
Interest Expense	2,926	1,382	8,118
Noninterest-bearing demand [Member]
Deposits By Type [Line Items]
Balance	194,562	192,916	184,404
Interest Expense
Interest-bearing Deposits [Member]
Deposits By Type [Line Items]
Balance	198,516	206,530	209,085
Interest Expense	98	87	374
Money Market Funds [Member]
Deposits By Type [Line Items]
Balance	390,839	336,625	356,086
Interest Expense	1,138	366	2,637
Savings Deposits [Member]
Deposits By Type [Line Items]
Balance	49,996	52,162	50,716
Interest Expense	14	15	59
Time deposit [Member]
Deposits By Type [Line Items]
Balance	412,306	417,675	420,949
Interest Expense	$ 1,676	$ 914	$ 5,048

XML

DEPOSITS (Details 2) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Disclosure Deposits Details 3Abstract
Wholesale money market	$ 5,063	$ 5,030	$ 25,026
Wholesale time deposits	72,259	70,978	56,232
Total	$ 77,322	$ 76,008	$ 81,258

XML

BORROWINGS (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances [Abstract]
2019	$ 163,500	$ 168,500
2020	45,000	45,000
2024	5,000
Total	$ 213,500	$ 213,500
Federal Home Loan Bank, Advances, Weighted Average Rate [Abstract]
2019	2.59%	2.52%
2020	2.80%	2.80%
2024	2.81%
Total	2.64%	2.58%

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Interest rate swap		$ 545	$ (3,396)	$ (3,424)	$ (23)
Interest Expense		4,589	$ 2,449
Designated as Hedging Instrument [Member]
Asset derivatives, Fair value	[1]	260		354
Liability derivatives, Fair value	[1]	860		462
Designated as Hedging Instrument [Member] | Interest rate swaps [Member]
Asset derivatives, Fair value	[1]	260		354
Liability derivatives, Fair value	[1]	860		462
Designated as Hedging Instrument [Member] | Mortgage Derivatives [Member]
Asset derivatives, Fair value	[1]	45		34
Liability derivatives, Fair value	[1]	21		22
Not Designated as Hedging Instrument [Member]
Asset derivatives, Fair value	[1]	45		34
Liability derivatives, Fair value	[1]	$ 21		$ 22

[1] All derivative assets are located in "Other assets" on the consolidated balance sheets and all derivative liabilities are located in "Other liabilities" on the consolidated balance sheets.

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest Income	$ 16,542	$ 14,842
Interest Expenses	4,589	2,449
Fair Value Hedging Relationships [Member] | Hedged Assets [Member]
Interest Income	259
Fair Value Hedging Relationships [Member] | Interest Rate Swap - Derivatives Designated As Hedging Instruments [Member]
Interest Income	(274)
Cash Flow Hedging Relationships [Member] | Interest Rate Swap - Accumulated Other Comprehensive Loss Into Income [Member]
Interest Expenses	$ (65)	$ (56)

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 3) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Loan Receivable		$ 1,079,837	$ 1,076,069
Hedged Assets [Member]
Loan Receivable	[1]	97,891
Hedged Assets [Member] | Fair Value Hedging Relationships [Member]
Loan Receivable	[1]	$ 503

[1] These amounts include the amortized cost basis of the closed portfolio used to designate the hedging relationship in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At March 31, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $97.9 million, the cumulative basis adjustment associated with the hedging relationship was $0.5 million, and the amount of the designated hedged item was $25.0 million.

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 4) - Junior Subordinated Debt [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Notional Amount	$ 14,000
Fixed Interest Rate	0.958%
Underlying Rate	3 month LIBOR
Life of Swap Contract	4 years
Notional Amount	$ 14,000
Fixed Interest Rate	3.02%
Underlying Rate	3 month LIBOR
Life of Swap Contract	3 years

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 5) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Disclosure Derivative Financial Instruments And Hedging Activities Details 5Abstract
Amount of gain (loss) recognized in AOCI on derivatives	$ (159)	$ 202	$ 2
Amount of gain (loss) reclassified from AOCI into income	(65)	(56)	(431)
Amount of gain (loss) recognized in consolidated statement of comprehensive income	$ (224)	$ 146	$ (429)

XML

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 6) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Amount of gain (loss) recognized in income	$ (27)	$ 27
Interest Rate Lock Commitments [Member]
Amount of gain (loss) recognized in income	11	17
Forward Sales Commitments [Member]
Amount of gain (loss) recognized in income	(38)	$ 10
Residential Real Estate [Member] | Interest Rate Lock Commitments [Member]
Fair value Derivative Assets and Liabilities	2,736		$ 1,627
Residential Real Estate [Member] | Forward Sales Commitments [Member]
Fair value Derivative Assets and Liabilities	$ 4,250		$ 3,500

XML

INCOME TAXES (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Deferred tax assets:
Allowance for loan losses	$ 2,729	$ 2,703
Deferred compensation and post employment benefits	1,874	1,854
Non-accrual interest	251	245
Valuation reserve for other real estate	198	191
North Carolina NOL carryover	233	293
Federal NOL carryover	554	1,231
AMT credit carryforward		316
General federal business credit carryover	826	691
Unrealized losses on securities	581	1,061
Loan basis differences	46	50
Fixed assets	131	123
Core deposit intangible	148	129
Derivative instruments	21
Other	1,122	1,207
Total deferred tax assets	8,714	10,094
Deferred tax liabilities:
Loan servicing rights	633	653
Goodwill	581	495
Core deposit intangible	70	74
Deferred loan costs	1,014	1,001
Prepaid expenses	14	14
Unrealized gains on securities	961	105
Derivative instruments	6	29
Investment in partnerships	170	155
Other		17
Total deferred tax liabilities	3,449	2,543
Net deferred tax asset	$ 5,265	$ 7,551

XML

INCOME TAXES (Details 2) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Federal [Member]
Unused Net Operating Losses	$ 2,803
Federal [Member] | Minimum [Member]
Expiration Dates	2032
Federal [Member] | Maximum [Member]
Expiration Dates	2037
North Carolina [Member]
Unused Net Operating Losses	$ 13,708
North Carolina [Member] | Minimum [Member]
Expiration Dates	2026
North Carolina [Member] | Maximum [Member]
Expiration Dates	2029
Federal general business credit [Member]
Unused Net Operating Losses	$ 826
Federal general business credit [Member] | Minimum [Member]
Expiration Dates	2037
Federal general business credit [Member] | Maximum [Member]
Expiration Dates	2039

XML

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 3,815	$ 3,582
Weighted average shares outstanding	6,918,769	6,885,911
Effect of dilutive stock options	6,960	96,871
Effect of dilutive restricted stock units	17,538	45,102
Average shares outstanding	6,943,267	7,027,884
Earnings per share - basic	$ 0.55	$ 0.52
Earnings per share - diluted	0.55	0.51
Equity Option [Member]
Average Stock Price	$ 23.12	$ 28.56
Anti-Dilutaive Shares	91,977	19,592

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Balance, beginning of period	$ (3,424)	$ (23)	$ (23)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale
Change in net unrealized holding losses on securities available for sale	5,390	(4,505)
Reclassification adjustment for net securities losses realized in net income		12
Change in unrealized holding gains and losses on cash flow hedge	(159)	202	2
Reclassification adjustment for cash flow hedge effectiveness	(65)	(56)	(431)
Cumulative effect of change in accounting principle
Income tax effect	(1,197)	965
Balance, end of period	545	(3,396)	(3,424)
Available-for-sale Securities [Member]
Balance, beginning of period	(3,528)	(455)	(455)
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale
Change in net unrealized holding losses on securities available for sale	5,390	(4,505)
Reclassification adjustment for net securities losses realized in net income		12
Change in unrealized holding gains and losses on cash flow hedge
Reclassification adjustment for cash flow hedge effectiveness
Cumulative effect of change in accounting principle		9
Income tax effect	(1,244)	996
Balance, end of period	618	(3,943)	(3,528)
Cash Flow Hedge [Member]
Balance, beginning of period	104	432	432
Change in deferred tax valuation allowance attributable to net unrealized losses on investment securities available for sale
Change in net unrealized holding losses on securities available for sale
Reclassification adjustment for net securities losses realized in net income
Change in unrealized holding gains and losses on cash flow hedge	(159)	202
Reclassification adjustment for cash flow hedge effectiveness	(65)	(56)
Cumulative effect of change in accounting principle
Income tax effect	47	(31)
Balance, end of period	$ (73)	$ 547	$ 104

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense - Junior subordinated notes	$ 139	$ 138
Cash Flow Hedge [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense - FHLB advances		30
Interest expense - Junior subordinated notes	65	26
Tax effect	(15)	(13)
Impact, net of tax	50	43
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Impact, net of tax	50	34
Gain on sale of investments, net [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Before tax		(12)
Tax effect		3
Impact, net of tax		$ (9)

XML

COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Other Commitments [Line Items]
Commitments to fund lines of credit	$ 176,364
Lines of credit [Member]
Other Commitments [Line Items]
Commitments to fund lines of credit	175,353
Standby Letters of Credit [Member]
Other Commitments [Line Items]
Commitments to fund lines of credit	$ 1,011

XML

COMMITMENTS AND CONTINGENCIES (Details 2) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Fixed	$ 24,709
Variable	9,323
Total	$ 34,032
Minimum [Member]
Fixed (as a percent)	4.25%
Variable (as a percent)	3.38%
Maximum [Member]
Fixed (as a percent)	12.00%
Variable (as a percent)	8.00%

XML

COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Mortgage Loans Sold to Federal National Mortgage Association[Member]
Loss Contingencies [Line Items]
Obligation for representations and warranties, reserve	$ 300	$ 300
Commitments to Extend Credit [Member]
Loss Contingencies [Line Items]
Allowance for unfunded commitments	$ 100	$ 100

XML

FAIR VALUE DISCLOSURES (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	$ 370,272	$ 371,572
Liabilities measured at fair value on recurring basis	882	484
Loan Servicing Rights[Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	2,753	2,837
Mortgage Derivatives [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	45	34
Liabilities measured at fair value on recurring basis	21	22
Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	260	354
Liabilities measured at fair value on recurring basis	861	462
Mortgage loans held for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	3,270	2,431
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	11,803	11,127
Liabilities measured at fair value on recurring basis
Fair Value, Inputs, Level 1 [Member] | Loan Servicing Rights[Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage Derivatives [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Liabilities measured at fair value on recurring basis
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Liabilities measured at fair value on recurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage loans held for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	351,908	354,650
Liabilities measured at fair value on recurring basis	861	462
Fair Value, Inputs, Level 2 [Member] | Loan Servicing Rights[Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Fair Value, Inputs, Level 2 [Member] | Mortgage Derivatives [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Liabilities measured at fair value on recurring basis
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	260	354
Liabilities measured at fair value on recurring basis	861	462
Fair Value, Inputs, Level 2 [Member] | Mortgage loans held for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	6,561	5,795
Liabilities measured at fair value on recurring basis	21	22
Fair Value, Inputs, Level 3 [Member] | Loan Servicing Rights[Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	2,753	2,837
Fair Value, Inputs, Level 3 [Member] | Mortgage Derivatives [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	45	34
Liabilities measured at fair value on recurring basis	21	22
Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Liabilities measured at fair value on recurring basis
Fair Value, Inputs, Level 3 [Member] | Mortgage loans held for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	3,270	2,431
Trading account assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	6,812	6,178
Trading account assets [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	6,812	6,178
Trading account assets [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Trading account assets [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	357,132	359,738
Available-for-sale Securities [Member] | U.S. Treasury securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	33,822	33,990
Available-for-sale Securities [Member] | Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	117,479	114,402
Available-for-sale Securities [Member] | Mortgage-backed Securities - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	81,526	85,184
Available-for-sale Securities [Member] | Collateralized Mortgage Obligations - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	21,905	21,889
Available-for-sale Securities [Member] | Collateralized Mortgage Obligations - Non Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	67,139	69,171
Available-for-sale Securities [Member] | Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	15,212	15,077
Available-for-sale Securities [Member] | Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	20,049	20,025
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	4,991	4,949
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | U.S. Treasury securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	4,991	4,949
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-backed Securities - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized Mortgage Obligations - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized Mortgage Obligations - Non Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member] | Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	351,648	354,296
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | U.S. Treasury securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	28,831	29,041
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	117,479	114,402
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-backed Securities - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	81,526	85,184
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized Mortgage Obligations - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	21,905	21,889
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized Mortgage Obligations - Non Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	67,139	69,171
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	15,212	15,077
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	19,556	19,532
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	493	493
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | U.S. Treasury securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Municipal Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-backed Securities - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Collateralized Mortgage Obligations - Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Collateralized Mortgage Obligations - Non Guaranteed [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member] | Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on recurring basis	$ 493	$ 493

XML

FAIR VALUE DISCLOSURES (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Disclosure Fair Value Disclosures Details 2Abstract
Balance at beginning of period	$ 5,773	$ 3,321
Corporate bonds Transfer to Level 2		1,331
Mortgage loans held for sale	839
Capitalization from loans sold	47	100
Fair value adjustment	(131)	(130)
Mortgage derivative gains included in Other income	12	27
Balance at end of period	$ 6,540	$ 4,649

XML

FAIR VALUE DISCLOSURES (Details 3) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets measured at fair value on nonrecurring basis	$ 370,272	$ 371,572
Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on nonrecurring basis	6,561	5,795
Fair Value, Measurements, Nonrecurring [Member]
Assets measured at fair value on nonrecurring basis	9,267	7,821
Impaired loans measured at present value	4,200	5,600
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on nonrecurring basis	9,267	7,821
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | One To Four Family Residential [Member]
Assets measured at fair value on nonrecurring basis	2,324	845
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	3,925	3,835
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Home Equity Line of Credit [Member]
Assets measured at fair value on nonrecurring basis	213	283
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	549	365
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | One To Four Family Residential [Member]
Assets measured at fair value on nonrecurring basis	2,324	845
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	3,925	3,835
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Home Equity Line of Credit [Member]
Assets measured at fair value on nonrecurring basis	213	283
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	549	365
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | One To Four Family Residential [Member]
Assets measured at fair value on nonrecurring basis		228
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	949	949
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	1,307	1,316
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | One To Four Family Residential [Member]
Assets measured at fair value on nonrecurring basis		228
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	949	949
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	$ 1,307	$ 1,316

XML

FAIR VALUE DISCLOSURES (Details 4)	3 Months Ended
	Mar. 31, 2019
Impaired Loans [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	Collateral discounts and estimated selling cost
Valuation Technique	Discounted Appraisals
Impaired Loans [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Collateral discounts and estimated selling cost	0.00%
Impaired Loans [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Collateral discounts and estimated selling cost	30.00%
Real Estate Owned [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	Collateral discounts and estimated selling cost
Valuation Technique	Discounted Appraisals
Real Estate Owned [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Collateral discounts and estimated selling cost	0.00%
Real Estate Owned [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Collateral discounts and estimated selling cost	30.00%
Corporate Bond [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	Recent trade pricing
Valuation Technique	Discounted Cash Flows
Corporate Bond [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	0.00%
Corporate Bond [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	10.00%
Loan Servicing Rights[Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Valuation Technique	Discounted Cash Flows
Loan Servicing Rights[Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Prepayment Speed	9.00%
Discount rate	10.00%
Loan Servicing Rights[Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Prepayment Speed	20.00%
Discount rate	14.00%
Mortgage loans held for sale [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	External pricing model
Valuation Technique	Recent trade pricing
Mortgage loans held for sale [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	101.00%
Mortgage loans held for sale [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	103.00%
Mortgage Derivatives [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	External pricing model
Valuation Technique	Pull-through rate
Mortgage Derivatives [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	78.00%
Mortgage Derivatives [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	100.00%
SBIC Investments [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Unobservable Input	Current operations and financial condition
Valuation Technique	Indicative value provided by fund

XML

FAIR VALUE DISCLOSURES (Details 5) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Assets:
Cash and equivalents	$ 98,285	$ 69,119	$ 123,597	$ 109,467
Trading securities	6,812	6,178
Securities available for sale	357,132	359,738
Loans held for sale	9,208	7,570
Other investments, at cost	12,092	12,039
Accrued interest receivable	6,669	6,443
Bank owned life insurance	32,087	32,886
Loan servicing rights	2,753	2,837
Liabilities:
Federal Home Loan Bank advances	213,500	213,500
Junior subordinated debentures	14,433	14,433
Other borrowings	9,385	9,299
Accrued interest payable	1,173	1,647
Fair Value, Inputs, Level 1 [Member]
Assets:
Cash and equivalents	98,285	69,119
Trading securities	6,812	6,178
Securities available for sale	4,991	4,949
Loans held for sale
Loans receivable, net
Other investments, at cost
Accrued interest receivable
Bank owned life insurance
Loan servicing rights
SBIC investments
Liabilities:
Demand deposits
Time deposits
Federal Home Loan Bank advances
Junior subordinated debentures
Other borrowings
Accrued interest payable
Fair Value, Inputs, Level 2 [Member]
Assets:
Cash and equivalents
Trading securities
Securities available for sale	351,648	354,297
Loans held for sale	6,615	5,683
Loans receivable, net
Other investments, at cost	12,092	12,039
Accrued interest receivable	6,669	6,443
Bank owned life insurance	32,087	32,886
Loan servicing rights
SBIC investments
Liabilities:
Demand deposits	833,913	800,291
Time deposits
Federal Home Loan Bank advances	213,249	213,513
Junior subordinated debentures	13,720	12,440
Other borrowings	9,572	9,253
Accrued interest payable	1,173	1,647
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	260	354
Liabilities:
Derivative Liabilities	861	462
Fair Value, Inputs, Level 3 [Member]
Assets:
Cash and equivalents
Trading securities
Securities available for sale	493	493
Loans held for sale	3,270	2,431
Loans receivable, net	1,046,552	1,046,136
Other investments, at cost
Accrued interest receivable
Bank owned life insurance
Loan servicing rights	2,753	2,837
SBIC investments	4,306	3,839
Liabilities:
Demand deposits
Time deposits	390,806	424,054
Federal Home Loan Bank advances
Junior subordinated debentures
Other borrowings
Accrued interest payable
Fair Value, Inputs, Level 3 [Member] | Mortgage Derivatives [Member]
Assets:
Derivative asset	45	34
Liabilities:
Derivative Liabilities	21	22
Reported Value Measurement [Member]
Assets:
Cash and equivalents	98,285	69,119
Trading securities	6,812	6,178
Securities available for sale	357,132	359,739
Loans held for sale	9,208	7,570
Loans receivable, net	1,079,837	1,076,069
Other investments, at cost	12,092	12,039
Accrued interest receivable	6,669	6,443
Bank owned life insurance	32,087	32,886
Loan servicing rights	2,753	2,837
SBIC investments	4,306	3,839
Liabilities:
Demand deposits	833,913	800,291
Time deposits	412,306	420,949
Federal Home Loan Bank advances	213,500	213,500
Junior subordinated debentures	14,433	14,433
Other borrowings	9,385	9,299
Accrued interest payable	1,173	1,647
Reported Value Measurement [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	260	354
Liabilities:
Derivative Liabilities	861	462
Reported Value Measurement [Member] | Mortgage Derivatives [Member]
Assets:
Derivative asset	45	34
Liabilities:
Derivative Liabilities	21	22
Fair Value Measurement [Member]
Assets:
Cash and equivalents	98,285	69,119
Trading securities	6,812	6,178
Securities available for sale	357,132	359,739
Loans held for sale	9,885	8,114
Loans receivable, net	1,046,136	1,046,136
Other investments, at cost	12,092	12,039
Accrued interest receivable	6,669	6,443
Bank owned life insurance	32,087	32,886
Loan servicing rights	2,753	2,837
SBIC investments	4,306	3,839
Liabilities:
Demand deposits	833,913	800,291
Time deposits	416,631	424,054
Federal Home Loan Bank advances	213,249	213,513
Junior subordinated debentures	13,720	12,440
Other borrowings	9,572	9,253
Accrued interest payable	1,173	1,647
Fair Value Measurement [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	260	354
Liabilities:
Derivative Liabilities	861	462
Fair Value Measurement [Member] | Mortgage Derivatives [Member]
Assets:
Derivative asset	45	34
Liabilities:
Derivative Liabilities	$ 21	$ 22

XML

LEASES (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Leases [Abstract]
2019	$ 107
2020	69
2021	53
2022	53
2023	53
Thereafter	177
Total undiscounted lease payments	512
Discount effect of cash flows	(68)
Total lease liability	$ 444

XML

LEASES (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Total Operating Lease Cost	$ 56

XML

SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] $ / shares in Units, $ in Thousands	Apr. 23, 2019 USD ($) $ / shares
SmartFinancial, Inc. [Member]
Termination Fees Paid by First Citizens BancShares, Inc. | $	$ 6,400
First Citizens BancShares, Inc. [Member]
Cash Paid for each outstanding share of Enterga common stock (per Share) | $ / shares	$ 30.18