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:

September 30, 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)

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

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, no par value per share	ENFC	NASDAQ Global Market

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On November 4, 2019, there were 6,927,523 shares of the issuer’s common stock (no par value) 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 – September 30, 2019 and December 31, 2018	3
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity –Nine Months Ended September 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2019 and 2018	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	73
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	74
Item 1A.	Risk Factors	74
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
	Signatures	76

2

Item 1. Financial Statements

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30,			December 31,
	2019			2018
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	17,662		$	15,409
Interest-earning deposits		126,534			53,710
Cash and cash equivalents		144,196			69,119
Investments - equity securities		6,947			6,178
Investments - available for sale		349,327			359,738
Other investments, at cost		11,652			12,039
Loans held for sale (includes $5,221 and $2,431 at fair value)		11,142			7,570
Loans receivable, net		1,076,581			1,076,069
Allowance for loan losses		(12,309	)		(11,985	)
Fixed assets, net		25,430			26,385
Real estate owned		3,088			2,493
Accrued interest receivable		6,163			6,443
Bank owned life insurance		32,461			32,886
Small Business Investment Company holdings, at cost		4,993			3,839
Net deferred tax asset		2,871			7,551
Loan servicing rights		2,520			2,837
Goodwill		23,903			23,903
Core deposit intangible		3,059			3,577
Other assets		11,999			7,799
Total assets	$	1,704,023		$	1,636,441
Liabilities and Shareholders’ Equity
Liabilities:
Core deposits	$	905,965		$	795,261
Retail certificates of deposit		303,601			349,971
Wholesale deposits		70,379			76,008
Federal Home Loan Bank advances		205,500			213,500
Junior subordinated notes		14,433			14,433
Other borrowings		4,463			9,299
Post employment benefits		9,205			9,305
Accrued interest payable		1,730			1,647
Other liabilities		5,771			4,145
Total liabilities		1,521,047			1,473,569
Commitments and contingencies (Note 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; 6,925,283 and 6,917,703 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		—			—
Common stock held by Rabbi Trust, at cost; 17,672 shares at September 30, 2019 and December 31, 2018		(379	)		(379	)
Additional paid in capital		74,816			74,051
Retained earnings		102,600			92,624
Accumulated other comprehensive gain (loss)		5,939			(3,424	)
Total shareholders’ equity		182,976			162,872
Total liabilities and shareholders’ equity	$	1,704,023		$	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 September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
	(Unaudited)			(Unaudited)		(Unaudited)		(Unaudited)
Interest income:
Interest and fees on loans	$	13,444		$	12,621	$	39,598	$	36,981
Interest on tax exempt loans		102			106		314		290
Taxable securities		1,945			1,827		6,014		5,173
Tax-exempt securities		760			695		2,279		1,852
Interest-earning deposits		564			528		1,520		1,309
Other		181			201		559		544
Total interest and dividend income		16,996			15,978		50,284		46,149
Interest expense:
Deposits		3,633			2,331		9,963		5,540
Federal Home Loan Bank advances		1,315			1,091		4,094		2,841
Junior subordinated notes		142			141		423		421
Other borrowings		52			123		277		352
Total interest expense		5,142			3,686		14,757		9,154
Net interest income		11,854			12,292		35,527		36,995
Provision for loan losses		—			336		246		1,054
Net interest income after provision for loan losses		11,854			11,956		35,281		35,941
Noninterest income:
Servicing income, net		51			180		126		313
Mortgage banking		475			233		1,079		755
Gain on sale of SBA loans		290			257		387		547
Loss on sale of investments		—			—		—		(520	)
Equity securities (losses) gains		(30	)		191		500		183
Service charges on deposit accounts		406			406		1,205		1,242
Interchange fees, net		305			276		849		795
Bank owned life insurance		189			195		554		589
Legal settlement		—			—		1,750		—
Other		372			227		878		775
Total noninterest income		2,058			1,965		7,328		4,679
Noninterest expenses:
Compensation and employee benefits		5,802			5,882		17,532		17,151
Net occupancy		1,052			1,128		3,256		3,342
Federal deposit insurance		(3	)		191		280		618
Professional and advisory		179			413		763		1,023
Data processing		526			532		1,529		1,607
Marketing and advertising		159			227		594		671
Merger-related expenses		295			96		3,229		564
Net cost of operation of real estate owned		46			59		76		202
Other		861			1,013		2,944		2,925
Total noninterest expenses		8,917			9,541		30,203		28,103
Income before taxes		4,995			4,380		12,406		12,517
Income tax expense		998			857		2,430		2,325
Net income	$	3,997		$	3,523	$	9,976	$	10,192
Earnings per common share:
Basic	$	0.58		$	0.51	$	1.44	$	1.48
Diluted	$	0.56		$	0.50	$	1.42	$	1.45
Weighted average common shares outstanding:
Basic		6,923,114			6,891,672		6,920,880		6,889,130
Diluted		7,089,850			7,031,150		7,029,164		7,023,174

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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	3,997		$	3,523		$	9,976		$	10,192
Other comprehensive income (loss):
Change in unrealized holding gains and losses on securities available for sale		2,455			(2,318	)		12,889			(8,181	)
Reclassification adjustment for securities losses realized in net income		—			—			—			947
Change in unrealized holding gains and losses on cash flow hedge		(85	)		93			(531	)		303
Reclassification adjustment for cash flow hedge effectiveness		(49	)		(149	)		(172	)		(347	)
Other comprehensive income (loss), before tax		2,321			(2,374	)		12,186			(7,278	)
Income tax effect related to items of other comprehensive income (loss)		(532	)		538			(2,823	)		1,635
Other comprehensive income (loss), after tax		1,789			(1,836	)		9,363			(5,643	)
Comprehensive income	$	5,786		$	1,687		$	19,339		$	4,549

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

Nine Months Ended September 30, 2019 and 2018

(Unaudited)

(Dollars in thousands)

	Common Stock				Additional Paid  in Capital			Retained  Earnings			Accumulated Other Comprehensive Income (Loss)			Common Stock held by Rabbi Trust			Total
	Shares		Amount
Balance 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	)
Balance at March 31, 2019		6,919,212		—		74,320			96,439			545			(379	)		170,925
Net income		—		—		—			2,164			—			—			2,164
Other comprehensive income, net of tax		—		—		—			—			3,605			—			3,605
Stock compensation expense		—		—		290			—			—			—			290
Stock options exercised, net of 342 surrendered		553		—		(10	)		—			—			—			(10	)
Vesting of restricted stock units, net of 801 shares surrendered		2,799		—		(24	)		—			—			—			(24	)
Balance at June 30, 2019		6,922,564		—		74,576			98,603			4,150			(379	)		176,950
Net income		—		—		—			3,997			—			—			3,997
Other comprehensive income, net of tax		—		—		—			—			1,789			—			1,789
Stock compensation expense		—		—		290			—			—			—			290
Vesting of restricted stock units, net of 1,681 shares surrendered		2,719		—		(50	)		—			—			—			(50	)
Balance at September 30, 2019		6,925,283	$	—	$	74,816		$	102,600		$	5,939		$	(379	)	$	182,976
Balance at 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 at March 31, 2018		6,888,415		—		73,360			82,291			(3,396	)		(379	)		151,876
Net income		—		—		—			3,087			—			—			3,087
Other comprehensive loss, net of tax		—		—		—			—			(425	)		—			(425	)
Stock compensation expense		—		—		258			—			—			—			258
Vesting of restricted stock units, net of 343 shares surrendered		3,257		—		(10	)		—			—			—			(10	)
Balance at June 30, 2018		6,891,672		—		73,608			85,378			(3,821	)		(379	)		154,786
Net income		—		—		—			3,523			—			—			3,523
Other comprehensive loss, net of tax		—		—		—			—			(1,836	)		—			(1,836	)
Stock compensation expense		—		—		257			—			—			—			257
Balance at September 30, 2018		6,891,672	$	—	$	73,865		$	88,901		$	(5,657	)	$	(379	)	$	156,730

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 Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	9,976		$	10,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		944			(255	)
Investment amortization, net		2,448			2,672
Equity securities income		(500	)		(183	)
Provision for loan losses		246			1,054
Provision for real estate owned		35			83
Share-based compensation expense		870			772
Deferred tax expense		1,815			1,796
Loss on sales of investments		—			520
Income on bank owned life insurance, net		(554	)		(589	)
Mortgage banking income, net		(1,079	)		(755	)
Gain on sales of SBA loans		(387	)		(547	)
Gain on sale of fixed assets		(10	)		—
Gain on sale of other investment		(113	)		—
Net realized gain on sale of real estate owned		(50	)		(16	)
Loans originated for sale		(35,059	)		(36,982	)
Proceeds from sale of loans originated for sale		31,242			38,159
Net change in operating assets and liabilities:
Accrued interest receivable		280			(753	)
Loan servicing rights		317			(15	)
Other assets		(3,168	)		(3,381	)
Postemployment benefits		(100	)		(287	)
Accrued interest payable		83			423
Other liabilities		1,180			(4,233	)
Net cash provided by operating activities		8,416			7,675
Cash flows from investing activities:
Activity for investment securities available for sale:
Purchases		—			(107,204	)
Maturities/calls and principal repayments		20,852			32,832
Sales		—			54,174
Proceeds from sale of Visa Class B restricted shares		—			427
Net increase in loans		(847	)		(62,647	)
Proceeds from sale of real estate owned		272			410
Proceeds from settlement of BOLI policies		1,115			—
Proceeds from sale of fixed assets		100			—
Purchase of fixed assets		(107	)		(3,551	)
Purchase of Small Business Investment Company holdings, at cost		(1,154	)		(118	)
Proceeds from sale of other investment		122			—
Purchase of other investments, at cost		—			(78	)
Redemption of other investments, at cost		387			425
Net cash provided by (used in) investing activities		20,740			(85,330	)
Cash flows from financing activities:
Net increase in deposits		56,705			92,614
Net increase in escrow deposits		2,157			1,970
Net (decrease) increase in other borrowings		(4,836	)		773
Proceeds from FHLB advances		195,000			255,500
Repayment of FHLB advances		(203,000	)		(265,500	)
Cash (paid for) received upon exercise of stock options		(10	)		117
Cash paid for shares surrendered upon vesting of restricted stock		(95	)		(21	)
Net cash provided by financing activities		45,921			85,453
Increase in cash and cash equivalents		75,077			7,798
Cash and cash equivalents, beginning of period		69,119			109,467
Cash and cash equivalents, end of period	$	144,196		$	117,265
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits and other borrowings	$	14,831		$	9,460
Income taxes		804			4,070
Noncash investing and financing activities:
Real estate acquired in satisfaction of mortgage loans	$	1,061		$	1,502
Loans originated for the disposition of real estate owned		209			774
Loan sales/investments to be settled		1,710			2,169
Reclassification for adoption of Accounting Standards Update 2016-01		—			617

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 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 under the Securities Act of 1933, as amended. 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 (as amended, the “2018 Form 10-K”). In the opinion of management, these interim consolidated 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.

8

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.

Merger with First Citizens BancShares, Inc.

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.

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. 

Approval of the proposed merger by Entegra’s shareholders has been received. Completion of the proposed merger remains subject to the receipt of required regulatory approvals and the satisfaction or waiver of other customary conditions, and is expected to occur during the fourth quarter of 2019.

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.

9

In September 2016, the Financial Accounting Standards Board (“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 that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2. INVESTMENT SECURITIES

The following table presents the holdings of our equity securities as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,947	$	6,178

Equity securities with a fair value of $6.3 million as of September 30, 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 September 30, 2019 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity. There were losses of $30 thousand on equity securities and gains of $0.5 million for the three and nine months ended September 30, 2019, respectively. There were gains on equity securities of $0.2 million for both the three and nine months ended September 30, 2018.

The amortized cost and estimated fair values of available-for-sale (“AFS”) investment securities as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,423	$	184	$	(349	)	$	33,258
Municipal Securities		113,789		6,367		—			120,156
Mortgage-backed Securities - Guaranteed		73,818		783		(767	)		73,834
Collateralized Mortgage Obligations - Guaranteed		21,428		382		(36	)		21,774
Collateralized Mortgage Obligations - Non Guaranteed		63,647		1,642		(25	)		65,264
Collateralized Loan Obligations		15,511		—		(290	)		15,221
Corporate bonds		19,412		437		(29	)		19,820
	$	341,028	$	9,795	$	(1,496	)	$	349,327

10

	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 the fair value of AFS investment securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 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)
Available-for-Sale:
U.S. Treasury & Government Agencies	$	19,818	$	226	$	6,912	$	123	$	26,730	$	349
Mortgage-backed Securities - Guaranteed		901		6		37,332		761		38,233		767
Collateralized Mortgage Obligations - Guaranteed		1,799		8		1,797		28		3,596		36
Collateralized Mortgage Obligations - Non Guaranteed		3,003		12		2,748		13		5,751		25
Collateralized Loan Obligations		5,984		30		9,237		260		15,221		290
Corporate Bonds		—		—		1,032		29		1,032		29
	$	31,505	$	282	$	59,058	$	1,214	$	90,563	$	1,496

	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)
Available-for-Sale:
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 unrealized losses is detailed in the table below. The Company believes all unrealized losses as of September 30, 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.

	September 30, 2019
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
U.S. Treasury & Government Agencies		13		5		18
Mortgage-backed Securities - Guaranteed		1		39		40
Collateralized Mortgage Obligations - Guaranteed		1		1		2
Collateralized Mortgage Obligations - Non Guaranteed		2		5		7
Collateralized loan obligation		3		5		8
Corporate bonds		—		1		1
		20		56		76

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
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 obligation		6		1		7
Corporate bonds		3		4		7
		88		130		218

The Company received proceeds from sales of investment securities classified as AFS and corresponding gross realized gains and losses as follows:

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
AFS
Gross proceeds	$	—	$	54,174
Gross realized gains		—		77
Gross realized losses		—		1,024
Visa Class B Restricted Shares
Gross proceeds		—		427
Gross realized gains		—		427
Gross realized losses		—		—
Total
Gross proceeds	$	—	$	54,601
Gross realized gains		—		504
Gross realized losses		—		1,024

There were no investment security sales for the three or nine months ended September 30, 2019.

The Company had securities pledged against deposits and borrowings of approximately $160.7 million and $155.8 million at September 30, 2019 and December 31, 2018, respectively.

The amortized cost and estimated fair value of investments in debt securities at September 30, 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.

12

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Less than 1 year	$	1,990	$	1,996
Over 1 year through 5 years		6,952		6,107
After 5 years through 10 years		31,457		33,331
Over 10 years		141,736		147,021
		182,135		188,455
Mortgage-backed securities		158,893		160,872
Total	$	341,028	$	349,327

NOTE 3. LOANS RECEIVABLE

Loans receivable as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to-four family residential	$	336,098		$	325,560
Commercial real estate		482,831			498,106
Home equity loans and lines of credit		45,822			48,679
Residential construction		57,687			39,533
Other construction and land		101,988			104,645
Total real estate loans		1,024,426			1,016,523
Commercial and industrial		45,652			54,410
Consumer		6,989			6,842
Total commercial and consumer		52,641			61,252
Loans receivable, gross		1,077,067			1,077,775
Less:  Net deferred loan fees		(1,030	)		(1,000	)
Acquired loans fair value discount		(697	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		1,088			245
Unamortized premium		232			333
Unamortized discount		(79	)		(236	)
Loans receivable, net of deferred fees	$	1,076,581		$	1,076,069

The Bank had $279.9 million and $256.1 million of loans pledged as collateral to secure funding availability with the Federal Home Loan Bank of Atlanta (“FHLB”) at September 30, 2019 and December 31, 2018, respectively. The Bank also had $124.0 million and $114.4 million of loans pledged as collateral to secure funding availability with the Federal Reserve Bank (“FRB”) Discount Window at September 30, 2019 and December 31, 2018, respectively.

13

Included in loans receivable and other borrowings at September 30, 2019 are $4.5 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 and nine month periods ended September 30, 2019 and 2018:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Discount on purchased loans, beginning of period	$	180		$	399		$	236		$	710
Accretion		(101	)		(67	)		(157	)		(378	)
Discount on purchased loans, end of period	$	79		$	332		$	79		$	332

 The following table presents the activity related to the fair value discount on loans from business combinations for the three and nine month periods ended September 30, 2019 and 2018:

	For the Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Fair value discount, beginning of period	$	789		$	1,395		$	1,048		$	2,012
Accretion		(92	)		(193	)		(351	)		(810	)
Fair value discount, end of period	$	697		$	1,202		$	697		$	1,202

14

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 September 30, 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	$	3,979		$	5,264		$	521		$	567	$	1,143	$	596	$	124		$	12,194
Provision		(123	)		(118	)		18			86		89		120		(72	)		—
Charge-offs		—			(1	)		(49	)		—		—		—		(12	)		(62	)
Recoveries		85			3			25			—		8		18		38			177
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240	$	734	$	78		$	12,309

	Three Months Ended September 30, 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	$	3,772		$	4,902	$	552		$	453	$	1,146	$	633		$	67		$	11,525
Provision		33			141		209			12		42		26			(127	)		336
Charge-offs		(6	)		—		(219	)		—		—		(45	)		(17	)		(287	)
Recoveries		1			—		—			1		16		2			152			172
Ending balance	$	3,800		$	5,043	$	542		$	466	$	1,204	$	616		$	75		$	11,746

15

	Nine Months Ended September 30, 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		(69	)		52			62			201		(32	)		161			(129	)		246
Charge-offs		(4	)		(93	)		(258	)		—		(1	)		(59	)		(105	)		(520	)
Recoveries		105			59			151			—		23			24			236			598
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240		$	734		$	78		$	12,309

	Nine Months Ended September 30, 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		(117	)		711			162			162		136		182			(182	)		1,054
Charge-offs		(116	)		(35	)		(260	)		—		—		(79	)		(75	)		(565	)
Recoveries		15			3			24			1		43		10			274			370
Ending balance	$	3,800		$	5,043		$	542		$	466	$	1,204	$	616		$	75		$	11,746

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:

	September 30, 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	$	39	$	41	$	—	$	—	$	44	$	226	$	—	$	350
Collectively evaluated for impairment		3,902		5,107		515		653		1,196		508		78		11,959
	$	3,941	$	5,148	$	515	$	653	$	1,240	$	734	$	78	$	12,309
Loans Receivable
Individually evaluated for impairment	$	1,976	$	3,489	$	283	$	—	$	1,270	$	1,170	$	—	$	8,188
Collectively evaluated for impairment		334,715		478,013		45,708		57,629		100,501		44,738		7,089		1,068,393
	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

16

	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.

17

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 lien holders 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 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.

18

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

September 30, 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	$	2,778	$	9,441	$	—	$	200	$	715	$	713	$	116	$	13,963
2		—		10,253		—		—		—		925		—		11,178
3		30,315		85,865		4,773		10,758		20,902		13,019		16		165,648
4		136,075		278,495		3,546		28,060		54,123		18,525		411		519,235
5		24,948		83,575		687		3,619		15,208		10,908		4		138,949
6		375		8,541		—		1		1,239		478		—		10,634
7		624		4,668		—		—		182		1,292		—		6,766
		195,115		480,838		9,006		42,638		92,369		45,860		547		866,373
Ungraded Loan Exposure:
Performing		140,800		664		36,916		14,991		9,351		48		6,541		209,311
Nonperforming		776		—		69		—		51		—		1		897
Subtotal		141,576		664		36,985		14,991		9,402		48		6,542		210,208
Total	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

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.

19

	September 30, 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	$	3,440	$	404	$	652	$	4,496	$	332,195	$	336,691
Commercial real estate		773		2,909		587		4,269		477,233		481,502
Home equity and lines of credit		264		—		69		333		45,658		45,991
Residential construction		—		—		1		1		57,628		57,629
Other construction and land		175		16		198		389		101,382		101,771
Commercial		15		6		969		990		44,918		45,908
Consumer		70		—		1		71		7,018		7,089
Total	$	4,737	$	3,335	$	2,477	$	10,549	$	1,066,032	$	1,076,581
	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

20

Impaired Loans

The following table presents investments in loans considered to be impaired and related information on those impaired loans as of September 30, 2019 and December 31, 2018.

	September 30, 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	$	1,440	$	1,593	$	—	$	845	$	923	$	—
Commercial real estate		1,896		4,279		—		3,835		6,207		—
Home equity and lines of credit		283		283		—		283		283		—
Other construction and land		537		676		—		365		366		—
	$	4,156	$	6,831	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	536	$	536	$	39	$	2,055	$	2,055	$	79
Commercial real estate		1,593		1,593		41		2,184		2,184		27
Home equity and lines of credit		—		—		—		30		30		—
Other construction and land		733		733		44		1,012		1,012		54
Commercial		1,170		1,170		226		276		276		7
	$	4,032	$	4,032	$	350	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	1,976	$	2,129	$	39	$	2,900	$	2,978	$	79
Commercial real estate		3,489		5,872		41		6,019		8,391		27
Home equity and lines of credit		283		283		—		313		313		—
Other construction and land		1,270		1,409		44		1,377		1,378		54
Commercial		1,170		1,170		226		276		276		7
	$	8,188	$	10,863	$	350	$	10,885	$	13,336	$	167

21

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 September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	1,597	$	20	$	2,247	$	23	$	1,607	$	62	$	2,264	$	69
Commercial real estate		4,280		20		4,790		32		4,286		62		5,920		97
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		677		6		692		6		681		18		695		16
	$	6,837	$	50	$	8,157	$	65	$	6,857	$	155	$	9,307	$	195
Loans with a valuation allowance
One-to-four family residential	$	540	$	8	$	825	$	11	$	545	$	24	$	831	$	32
Commercial real estate		1,598		22		2,172		22		1,610		66		2,184		68
Other construction and land		762		11		842		11		796		34		854		34
Commercial		1,158		5		281		5		1,166		16		285		17
	$	4,058	$	46	$	4,120	$	49	$	4,117	$	140	$	4,154	$	151
Total
One-to-four family residential	$	2,137	$	28	$	3,072	$	34	$	2,152	$	86	$	3,095	$	101
Commercial real estate		5,878		42		6,962		54		5,896		128		8,104		165
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		1,439		17		1,534		17		1,477		52		1,549		50
Commercial		1,158		5		281		5		1,166		16		285		17
	$	10,895	$	96	$	12,277	$	114	$	10,974	$	295	$	13,461	$	346

Nonperforming Loans

The following table summarizes the balances of non-performing loans as of September 30, 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.

	September 30, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,132	$	1,037
Commercial real estate		1,859		3,266
Home equity loans and lines of credit		69		178
Residential construction		1		—
Other construction and land		233		256
Commercial		975		120
Consumer		1		—
Non-performing loans	$	4,270	$	4,857

22

TDRs

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

	September 30, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	1,617	$	—	$	1,617
Commercial real estate		2,332		1,152		3,484
Home equity and lines of credit		283		—		283
Other construction and land		1,087		182		1,269
Commercial		263		—		263
	$	5,582	$	1,334	$	6,916

	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

Loan modifications that were deemed TDRs at the time of the modification during the periods presented are summarized in the table below:

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
(Dollars in thousands)	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Extended payment terms
Commercial real estate		—	$	—		1	$	206

There were no loan modifications that were deemed TDRs at the time of the modification during the three or nine month periods ended September 30, 2019.

There were no TDRs that defaulted during the three month and nine month periods ending September 30, 2019 and 2018 and which were modified as TDRs within the previous 12 months.

23

NOTE 5. GOODWILL AND OTHER INTANGIBLES

The Company had $23.9 million of goodwill as of September 30, 2019 and December 31, 2018.

The Company had $3.1 million and $3.6 million of core deposit intangibles as of September 30, 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 Nine Months Ending			As of and for the Year Ending
	September 30,			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		(1,781	)		(1,263	)
Core deposit intangible, net	$	3,059		$	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 nine months ended September 30, 2019 and 2018 and the year ended December 31, 2018:

	As of and for the								As of and for the Year Ended
	Nine Months Ended September 30,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	211,356	$	—	$	199,224	$	—	$	184,404	$	—
Interest-bearing demand		186,201		273		206,967		282		209,085		374
Money Market		463,289		4,185		372,428		1,687		356,086		2,637
Savings		45,119		41		52,874		44		50,716		59
Time Deposits		373,980		5,464		424,539		3,527		420,949		5,048
	$	1,279,945	$	9,963	$	1,256,032	$	5,540	$	1,221,240	$	8,118

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

	September 30,				December 31,
(Dollars in thousands)	2019		2018		2018
Wholesale money market	$	—	$	49,595	$	5,030
Wholesale time deposits		70,379		71,880		70,978
	$	70,379	$	121,475	$	76,008

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NOTE 7. BORROWINGS

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

	September 30, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
2019	$	50,500		2.53	%	$	168,500		2.52	%
2020		150,000		2.34	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	205,500		2.40	%	$	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 no balance outstanding on the revolving credit loan facility as of September 30, 2019 and had drawn $5.0 million as of December 31, 2018.

The Company also had other borrowings of $4.5 million and $4.3 million at September 30, 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.

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.

25

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 September 30, 2019, the Company had two derivatives in a total net liability position of $1.8 million under these agreements and recognized the right to reclaim cash collateral of $1.8 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)
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	97	$	354	$	1,760	$	462
Total	$	97	$	354	$	1,760	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	79	$	34	$	16	$	22
Total	$	79	$	34	$	16	$	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.

26

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 September 30,
	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	$	16,996		$	5,142		$	15,978		$	3,686
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		120			—			(182	)		—
Derivatives designated as hedging instruments		(148	)		—			187			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive income into income		—			(49	)		—			(149	)

	Nine months ended September 30,
	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	$	50,284		$	14,757		$	46,149		$	9,154
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		843			—			(263	)		—
Derivatives designated as hedging instruments		(893	)		—			261			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive loss into income		—			(172	)		—			(347	)

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.

27

As of September 30, 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	September 30, 2019		September 30, 2019
Loans receivable (1)	$	90,639	$	1,088

⁽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 September 30, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $90.6 million, the cumulative basis adjustment associated with the hedging relationship was $1.1 million, and the amount of the designated hedged items 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 structure of the swap agreements designated as cash flow hedges is 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						As of and for the						As of and for the
		Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
Interest rate swaps	Location	2019			2018			2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(85	)	$	93		$	(531	)	$	303		$	2
Amounts reclassified from AOCI into income	Interest expense		(49	)		(149	)		(172	)		(347	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(134	)	$	(56	)	$	(703	)	$	(44	)	$	(429	)

Derivatives Not Designated as Hedging Instruments

Mortgage Derivatives

Mortgage derivative fair value assets and liabilities are described above. At September 30, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans.

28

	As of September 30,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	8,003	$	1,627
Forward sales commitment		12,750		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 September 30,						Nine Months Ended September 30,
Interest rate products	Location	2019			2018			2019			2018
		(Dollars in thousands)
Amount of gain (loss) recognized in income on forward commitments	Noninterest income	$	(29	)	$	12		$	(124	)	$	(33	)
Amount of gain (loss) recognized in income on interest rate lock commitments	Noninterest income		(15	)		(46	)		30			(17	)
Amount of loss recognized in income on derivatives not designated as hedging instruments		$	(44	)	$	(34	)	$	(94	)	$	(50	)

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NOTE 9. INCOME TAXES

The components of net deferred taxes as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,817	$	2,703
Deferred compensation and post-employment benefits		1,820		1,854
Non-accrual interest		259		245
Valuation reserve for other real estate		253		191
North Carolina NOL carryover		91		293
Federal NOL carryover		—		1,231
AMT credit carryover		—		316
General federal business credit carryover		310		691
Unrealized losses on securities		344		1,061
Loan basis differences		42		50
Fixed assets		144		123
Core deposit intangible		186		129
Derivative instruments		121		—
Other		1,542		1,207
Total deferred tax assets		7,929		10,094
Deferred tax liabilities:
Loan servicing rights		579		653
Goodwill		754		495
Core deposit intangible		61		74
Deferred loan costs		1,018		1,001
Prepaid expenses		14		14
Unrealized gains on securities		2,448		105
Derivative instruments		14		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		5,058		2,543
Net deferred tax asset	$	2,871	$	7,551

The following table summarizes the amount and expiration dates of the Company’s unused net operating losses as of September 30, 2019:

(Dollars in thousands)	Amount		Expiration Dates
North Carolina	$	6,311		2026-2029
Federal General Business Credit Carryforwards	$	310		2038

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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 September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2019		2018		2019		2018
Numerator:
Net income	$	3,997	$	3,523	$	9,976	$	10,192
Denominator:
Weighted-average common shares outstanding - basic		6,923,114		6,891,672		6,920,880		6,889,130
Effect of dilutive securities:
Stock options		121,076		90,580		75,283		92,465
Restricted stock units		45,660		48,898		33,001		42,119
Weighted-average common shares outstanding - diluted		7,089,850		7,031,150		7,029,164		7,023,714
Earnings per share - basic	$	0.58	$	0.51	$	1.44	$	1.48
Earnings per share - diluted	$	0.56	$	0.50	$	1.42	$	1.45

The following table presents stock options that are not deemed dilutive in calculating diluted earnings per share for the respective periods in the table above:

	Average Stock Price								Anti-dilutive Shares
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Stock options	$	29.93	$	28.25	$	27.08	$	28.44		11,900		30,438		44,900		23,721

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NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the components of accumulated other comprehensive income (“AOCI”) and changes in those components as of and for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
(Dollars in thousands)
Balance, beginning of period	$	4,496		$	(346	)	$	4,150
Change in net unrealized holding gains on securities available for sale		2,455			—			2,455
Change in unrealized holding losses on cash flow hedge		—			(85	)		(85	)
Reclassification adjustment for cash flow hedge effectiveness		—			(49	)		(49	)
Income tax effect		(560	)		28			(532	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Three Months Ended September 30, 2018
(Dollars in thousands)
Balance, beginning of period	$	(4,271	)	$	450		$	(3,821	)
Change in net unrealized holding losses on securities available for sale		(2,318	)		—			(2,318	)
Change in unrealized holding gains on cash flow hedge		—			93			93
Reclassification adjustment for cash flow hedge effectiveness		—			(149	)		(149	)
Income tax effect		524			14			538
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

32

	Nine Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
	(Dollars in thousands)
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in net unrealized holding losses on securities available for sale		12,889			—			12,889
Change in unrealized holding gains on cash flow hedge		—			(531	)		(531	)
Reclassification adjustment for cash flow effectiveness		—			(172	)		(172	)
Income tax effect		(2,970	)		147			(2,823	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Nine Months Ended September 30, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in net unrealized holding losses on securities available for sale		(8,181	)		—			(8,181	)
Reclassification adjustment for net securities gains realized in net income		947			—			947
Change in unrealized holding gains on cash flow hedge		—			303			303
Reclassification adjustment for cash flow effectiveness		—			(347	)		(347	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		1,615			20			1,635
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

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

	Three Months Ended September 30						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	—		$	—		$	(947	)	Loss on sale of investments, net
Income tax effect		—			—			—			213		Income tax expense
Reclassified out of AOCI, net of tax		—			—			—			(734	)	Net income
Cash flow hedge
Interest expense- effective portion		—			99			—			223		Interest expense - FHLB advances
Interest expense- effective portion		49			50			172			124		Interest expense - Junior subordinated notes
Income tax effect		(11	)		(33	)		(39	)		(78	)	Income tax expense
Reclassified out of AOCI, net of tax		38			116			133			269		Net income
Total reclassified out of AOCI, net of tax	$	38		$	116		$	133		$	(465	)	Net income

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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:

	September 30, 2019
	(Dollars in thousands)
Lines of credit	$	159,801
Standby letters of credit		1,078
	$	160,879

As of September 30, 2019, the Company had outstanding commitments to originate loans as follows:

	September 30, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	20,965		3.13% to 6.99%
Variable		4,869		2.88% to 6.49%
	$	25,834

The allowance for unfunded commitments was $0.1 million at September 30, 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 September 30, 2019 and December 31, 2018.

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

NOTE 13. FAIR VALUE

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, Fair Value Measurements and Disclosures (“ASC 820”), 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).

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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 September 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 AFS investment 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.

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Also included in AFS investment 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.

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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:

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,947	$	—	$	—	$	6,947
Securities available for sale:
U.S. Treasury & Government Agencies		5,079		28,179		—		33,258
Municipal Securities		—		120,156		—		120,156
Mortgage-backed Securities - Guaranteed		—		73,834		—		73,834
Collateralized Mortgage Obligations - Guaranteed		—		21,774		—		21,774
Collateralized Mortgage Obligations - Non Guaranteed		—		65,264		—		65,264
Collateralized Loan Obligations		—		15,221				15,221
Corporate bonds		—		19,326		494		19,820
Total securities available for sale		5,079		343,754		494		349,327
Mortgage loans held for sale		—		—		5,221		5,221
Loan servicing rights		—		—		2,520		2,520
Interest rate swaps		—		97		—		97
Mortgage derivatives		—		—		79		79
Total recurring assets at fair value	$	12,026	$	343,851	$	8,314	$	364,191
Liabilities:
Interest rate swaps	$	—	$	1,760	$	—	$	1,760
Mortgage derivatives		—		—		16		16
Total recurring liabilities at fair value	$	—	$	1,760	$	16	$	1,776

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	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

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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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	$	6,683		$	4,404		$	5,773		$	3,321
AFS securities
Fair value adjustment		—			—			1			—
Mortgage loans held for sale		1,647			651			2,790			1,821
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		133			129			225			374
Fair value adjustment		(176	)		(43	)		(542	)		(359	)
Mortgage derivative gains(losses) included in other income		11			(34	)		51			(50	)
Balance at end of period	$	8,298		$	5,107		$	8,298		$	5,107

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:

Small Business Administration (“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.

Real Estate Owned (“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.

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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:

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	1,440	$	1,440
Commercial real estate		—		—		1,896		1,896
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		537		537
Real estate owned:
One-to-four family residential		—		—		349		349
Commercial real estate		—		—		1,485		1,485
Other construction and land		—		—		1,254		1,254
Total assets	$	—	$	—	$	7,244	$	7,244

	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 September 30, 2019 or December 31, 2018.

Impaired loans totaling $4.0 million at September 30, 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.

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The following table provides information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 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	100% - 108%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	11% - 21%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	100% - 106%
Mortgage derivatives	External pricing model	Pull-through rate	72% - 100%
SBIC	Indicative value provided by fund	Current operations and financial condition	N/A

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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 September 30, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	144,196	$	144,196	$	144,196	$	—	$	—
Equity securities		6,947		6,947		6,947		—		—
Securities available for sale		349,327		349,327		5,079		343,754		494
Loans held for sale		11,142		11,817		—		6,596		5,221
Loans receivable, net		1,076,581		1,048,805		—		—		1,048,805
Other investments, at cost		11,652		11,652		—		11,652		—
Accrued interest receivable		6,163		6,163		—		6,163		—
BOLI		32,461		32,461		—		32,461		—
Loan servicing rights		2,520		2,520		—		—		2,520
Mortgage derivatives		79		79		—		—		79
Interest rate swaps		97		97		—		97		—
SBIC investments		4,993		4,993		—		—		4,993
Liabilities:
Demand deposits	$	905,965	$	905,965	$	—	$	905,965	$	—
Time deposits		373,980		379,529		—		—		379,529
Federal Home Loan Bank advances		205,500		204,846		—		204,846		—
Junior subordinated debentures		14,433		13,292		—		13,292		—
Other borrowings		4,463		4,697		—		4,697		—
Accrued interest payable		1,730		1,730		—		1,730		—
Mortgage derivatives		16		16		—		—		16
Interest rate swaps		1,760		1,760		—		1,760		—

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			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 September 30, 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 6.32 years as of September 30, 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 September 30, 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.

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Maturities of lease liabilities as of September 30, 2019 were as follows:

(Dollard in thousands)	Operating Leases
2019	$	36
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		441
Discount effect of cash flows		(55	)
Total lease liability	$	386

The total operating lease costs were $51,000 and $156,000 for the three months and nine months ended September 30, 2019, respectively.

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. These forward-looking statements speak only as of the date they are made, and 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.

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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;

· 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 with BancShares is pending;

· The merger with BancShares could disrupt our current operations or affect our ability to retain or recruit key employees;

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

· The success of our growth strategy depends on our ability to identify and retain individuals with experience and relationships in relevant markets;

· 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;

· 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;

· 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;

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· 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;

· Imposition of trade barriers and tariffs;

· 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;

· 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.

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”) “Risk Factors” in our definitive proxy statement, as filed with the SEC on June 25, 2019 and our other filings with the SEC.

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 September 30, 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.

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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.

Merger with First Citizens BancShares, Inc.

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.

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. 

Approval of the proposed merger by Entegra’s shareholders has been received. Completion of the proposed merger remains subject to the receipt of required regulatory approvals and the satisfaction or waiver of other customary conditions, and is expected to occur during the fourth quarter of 2019.

Earnings Summary

Net income for the three and nine months ended September 30, 2019 was $4.0 million and $10.3 million, respectively, compared to $3.5 million and $10.2 million for the same periods in 2018, respectively. The increase in net income for the three months ended September 30, 2019 was primarily the result of an increase in noninterest income of $0.1 million and a decrease in noninterest expense of $0.6 million, partially offset by a decrease in net interest income of $0.4 million. The increase in net income for the nine months ended September 30, 2019 was primarily the result of an increase in noninterest income of $2.6, partially offset by a decrease in net interest income of $1.5 million and an increase in noninterest expenses of $2.1 million.

Net interest income decreased $0.4 million, or 3.6%, to $11.9 million for the three months ended September 30, 2019, compared to $12.3 million for the same period in 2018. Net interest income decreased $1.5 million, or 4.0%, to $35.5 million for the nine months ended September 30, 2019, compared to $37.0 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, taxable investments and taxable loans. Net interest margin was 3.08% for the three months ended September 30, 2019, compared to 3.26% for the same period in 2018, and 3.14% and 3.38% for the nine months ended September 30, 2019 and 2018, respectively.

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Noninterest income increased $0.1 million, or 4.7%, to $2.1 million for the three months ended September 30, 2019, compared to $2.0 million for the same period in 2018. Increases in mortgage banking and Small Business Investment Company holdings (“SBIC”) earnings were partially offset by decreases in equity securities gains and reduced net servicing income.

Noninterest income increased $2.6 million, or 56.6%, to $7.3 million for the nine months ended September 30, 2019, compared to $4.7 million for the same period in 2018, primarily as the result of the settlement of a dispute with a former advisor for $1.75 million related the acquisition of Chattahoochee Bank of Georgia and increases in mortgage banking, equity security gains, and SBIC earnings, partially offset by decreases in net servicing income and gains on sale of SBA loans. There were no losses on the sale of investments for the nine months ended September 30, 2019 compared to $0.5 million for the same period in 2018.

Noninterest expense decreased $0.6 million, or 6.5%, to $8.9 million for the three months ended September 30, 2019, compared to $9.5 million for the same period in 2018. The decrease was primarily related to reduced professional and advisory expenses as a result of the previously announced merger with BancShares. Compensation and employee benefits includes $0.4 million in additional employee expenses related to an ongoing audit of certain calculations under the Company’s 401k plan for years 2012-2018. These costs partially offset a reduction in compensation and employee benefits for the three months ended September 30, 2019 compared to the same period in 2018 due to the pending merger with Bancshares. The decrease in Federal Deposit Insurance Corporation (“FDIC”) deposit insurance premiums was due primarily to the small bank credits awarded when the FDIC deposit insurance fund reserve ratio reached 1.35%. These decreases were partially offset by increased merger-related expenses. Noninterest expense increased $2.1 million, or 7.5%, to $30.2 million for the nine months ended September 30, 2019, compared to $28.1 million for the same period in 2018. The increases were primarily related to increased merger-related expenses, partially offset by reduced FDIC deposit insurance premiums, professional and advisory expenses, and net cost of operation of real estate owned (“REO”).

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.

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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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
(Dollars in thousands, except per share data)
Adjusted Noninterest Expense
Noninterest expense (GAAP)	$	8,917		$	9,541		$	30,203		$	28,103
Merger-related expenses		(295	)		(96	)		(3,229	)		(564	)
Adjusted noninterest expense (Non-GAAP)	$	8,622		$	9,445		$	26,974		$	27,539
Adjusted Net Income
Net income (GAAP)	$	3,997		$	3,523		$	9,976		$	10,192
Loss (gain) on sale of investments		—			—			—			411
Equity securities (gains) losses		24			(151	)		(395	)		(145	)
Legal settlement		—			—			(1,383	)		—
401k audit loss estimate		286			—			286			—
Merger-related expenses		233			76			2,551			446
Adjusted net income (Non-GAAP)	$	4,540		$	3,448		$	11,035		$	10,904
Adjusted Diluted Earnings Per Share
Diluted earnings per share (GAAP)	$	0.56		$	0.50		$	1.42		$	1.45
Loss (gain) on sale of investments		—			—			—			0.06
Equity securities (gains) losses		0.01			(0.02	)		(0.06	)		(0.02	)
Legal settlement		—			—			(0.20	)		—
401k audit loss estimate		0.04			—			0.04			—
Merger-related expenses		0.03			0.01			0.37			0.06
Adjusted diluted earnings per share (Non-GAAP)	$	0.64		$	0.49		$	1.57		$	1.55
Adjusted Return on Average Assets
Return on Average Assets (GAAP)		0.95	%		0.86	%		0.80	%		0.84	%
Loss (gain) on sale of investments		0.00	%		0.00	%		0.00	%		0.03	%
Equity securities (gains) losses		0.01	%		-0.04	%		-0.03	%		-0.01	%
Legal settlement		0.00	%		0.00	%		-0.11	%		0.00	%
401k audit loss estimate		0.07	%		0.00	%		0.02	%		0.00	%
Merger-related expenses		0.06	%		0.02	%		0.20	%		0.04	%
Adjusted Return on Average Assets (Non-GAAP)		1.08	%		0.84	%		0.88	%		0.90	%
Adjusted Return on Tangible Average Equity
Return on Average Equity (GAAP)		8.86	%		9.00	%		7.70	%		8.84	%
Loss (gain) on sale of investments		0.00	%		0.00	%		0.00	%		0.36	%
Equity securities (gains) losses		0.05	%		-0.47	%		-0.30	%		-0.17	%
Legal settlement		0.00	%		0.00	%		-1.07	%		0.00	%
401k audit loss estimate		0.64	%		0.00	%		0.22	%		0.00	%
Merger-related expenses		0.52	%		0.19	%		1.97	%		0.39	%
Effect of goodwill and intangibles		1.77	%		1.98	%		1.59	%		2.13	%
Adjusted Return on Average Tangible Equity (Non-GAAP)		11.84	%		10.70	%		10.11	%		11.55	%
Adjusted Efficiency Ratio
Efficiency ratio (GAAP)		64.10	%		66.92	%		70.48	%		67.44	%
Gain (loss) on sale of investments		0.00	%		0.00	%		0.00	%		-1.23	%
Equity securities gains (losses)		-0.14	%		0.90	%		0.82	%		0.28	%
Legal settlement		0.00	%		0.00	%		2.96	%		0.00	%
401k audit loss estimate		-2.56	%		0.00	%		-0.83	%		0.00	%
Merger-related expenses		-2.12	%		-0.67	%		-7.88	%		-0.94	%
Adjusted Efficiency Ratio (Non-GAAP)		59.29	%		67.15	%		65.55	%		65.55	%
	As Of
	September 30, 2019			December 31, 2018
	(Dollars in thousands, except share data)
Tangible Assets
Total Assets	$	1,704,023		$	1,636,441
Goodwill and Intangibles		(26,962	)		(27,480	)
Tangible Assets	$	1,677,061		$	1,608,961
Tangible Book Value Per Share
Book Value (GAAP)	$	182,976		$	162,872
Goodwill and intangibles		(26,962	)		(27,480	)
Book Value (Tangible)	$	156,014		$	135,392
Outstanding shares		6,925,283			6,917,703
Tangible Book Value Per Share	$	22.53		$	19.57

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Financial Condition at September 30, 2019 and December 31, 2018

Total assets increased $67.6 million, or an annualized rate of 5.51%, to $1.70 billion at September 30, 2019 from $1.64 billion at December 31, 2018. This increase in assets was primarily due to increases in cash and cash equivalents of $75.1 million, from $69.1 million at December 31, 2018 to $144.2 million at September 30, 2019, and loans held for sale, which increased $3.5 million, or an annualized rate of 62.9%, to $11.1 million at September 30, 2019 from $7.6 million at December 31, 2018. Core deposits increased $110.7 million to $906.0 million, or 13.9%, at September 30, 2019 from $795.3 million at December 31, 2018. Core deposits represented 71% of the Company’s deposit portfolio at September 30, 2019 compared to 65% at December 31, 2018.

Total liabilities increased $47.5 million to $1.52 billion at September 30, 2019 from $1.47 billion at December 31, 2018, due primarily to the $58.7 million increase in deposits, partially offset by the $8.0 million decrease in Federal Home Loan Bank (“FHLB”) borrowings and the $5.0 million decrease in other borrowings.

Total shareholders’ equity increased $20.1 million to $183.0 million at September 30, 2019, compared to $162.9 million at December 31, 2018. This increase was primarily attributable to $10.0 million of net income and $9.9 million of after-tax increase in market value of investment securities available for sale. Tangible book value per share, a non-GAAP measure, increased $2.96 to $22.53 at September 30, 2019 from $19.57 at December 31, 2018.

Investment Securities

The following table presents the holdings of our equity securities as of September 30, 2019 and December 31, 2018:

	September 30, 2019		December 31, 2018
	(Dollars in thousands)
Mutual funds	$	6,947	$	6,178

Equity securities with a fair value of $6.3 million as of September 30, 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 September 30, 2019 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity. There were losses of $30 thousand on equity securities and gains of $0.5 million for the three and nine months ended September 30, 2019, respectively. There were gains on equity securities of $0.2 million for both the three and nine months ended September 30, 2018.

The following table shows the amortized cost and fair value for our available-for-sale (“AFS”) investment securities portfolio as of the dates indicated:

	September 30, 2019				December 31, 2018
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
U.S. Treasury & Government Agencies	$	33,423	$	33,258	$	34,068	$	33,990
Municipal Securities		113,789		120,156		115,860		114,402
Mortgage-backed Securities - Guaranteed		73,818		73,834		86,664		85,184
Collateralized Mortgage Obligations - Guaranteed		21,428		21,774		22,492		21,889
Collateralized Mortgage Obligations - Non Guaranteed		63,647		65,264		69,774		69,171
Collateralized Loan Obligations		15,511		15,221		15,534		15,077
Corporate bonds		19,412		19,820		19,936		20,025
	$	341,028	$	349,327	$	364,328	$	359,738

AFS investment securities decreased $10.4 million to $349.3 million at September 30, 2019 from $359.7 million at December 31, 2018.

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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.

	September 30,						December 31,
	2019						2018
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One-to-four family residential	$	336,098			31.2	%	$	325,560			30.2	%
Commercial		482,831			44.8			498,106			46.2
Home equity loans and lines of credit		45,822			4.3			48,679			4.5
Residential construction		57,687			5.4			39,533			3.7
Other construction and land		101,988			9.5			104,645			9.7
Commercial		45,652			4.2			54,410			5.1
Consumer		6,989			0.6			6,842			0.6
Total loans, gross	$	1,077,067			100.0	%	$	1,077,775			100.0	%
Less:
Deferred loan fees, net		(1,030	)					(1,000	)
Acquired loans fair value discount		(697	)					(1,048	)
Hedged loans basis adjustment		1,088						245
Unamortized premium		232						333
Unamortized discount		(79	)					(236	)
Total loans, net of deferred fees	$	1,076,581					$	1,076,069
Percentage of total assets		64.7	%					65.8	%

Net loans increased $0.5 million to $1.077 billion at September 30, 2019 from $1.076 billion at December 31, 2018. Most of our loan growth is concentrated in residential construction with an increase of $18.2 million, or 45.9% as compared to the relative balance 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.

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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.

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 delinquencies at the dates indicated. We have no loans past due 90 days and over that are still accruing interest as of September 30, 2019 or December 31, 2018.

	September 30, 2019
	30-59 Days Past Due			60-89 Days Past Due			90 Days and Over Past Due			Total Delinquent Loans
	(Dollars in thousands)
One-to-four family residential	$	3,440		$	404		$	652		$	4,496
Commercial real estate		773			2,909			587			4,269
Home equity and lines of credit		264			—			69			333
Residential construction		—			—			1			1
Other construction and land		175			16			198			389
Commercial		15			6			969			990
Consumer		70			—			1			71
Total delinquent loans	$	4,737		$	3,335		$	2,477		$	10,549
% of total loans, net		0.44	%		0.31	%		0.23	%		0.98	%
	December 31, 2018
	30-59 Days Past Due			60-89 Days Past Due			90 Days and Over Past Due			Total Past Due
	(Dollars in thousands)
One-to-four family residential	$	3,562		$	1,317		$	84		$	4,963
Commercial real estate		2,615			—			1,782			4,397
Home equity and lines of credit		400			457			73			930
Residential construction		—			—			1			1
Other construction and land		613			32			64			709
Commercial		307			25			121			453
Consumer		27			4			—			31
Total	$	7,524		$	1,835		$	2,125		$	11,484
% of total loans, net		0.70	%		0.17	%		0.20	%		1.07	%

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Delinquent loans decreased $1.0 million to $10.5 million at September 30, 2019 from $11.5 million at December 31, 2018. The decrease in delinquencies was due primarily to collection efforts and the favorable resolution of several relationships.

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 REO. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.

	September 30,			December 31,
	2019			2018
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One-to-four family residential	$	1,132		$	1,037
Commercial		1,859			3,266
Home equity loans and lines of credit		69			178
Residential construction		1			—
Other construction and land		233			256
Commercial		975			120
Consumer		1			—
Total non-performing loans		4,270			4,857
REO:
One-to-four family residential		349			228
Commercial real estate		1,485			949
Other construction and land		1,254			1,316
Total foreclosed real estate		3,088			2,493
Total non-performing assets	$	7,358		$	7,350
Troubled debt restructurings still accruing	$	5,582		$	7,588
Ratios:
Non-performing loans to total loans		0.40	%		0.45	%
Non-performing assets to total assets		0.43	%		0.45	%

Non-performing loans to total loans was 0.40% at September 30, 2019 compared to 0.45% at December 31, 2018. Non-performing assets to total assets declined to 0.43% at September 30, 2019 from 0.45% at December 31, 2018.

REO increased $0.6 million, or 23.9%, to $3.1 million at September 30, 2019 from $2.5 million at December 31, 2018 primarily as a result of the addition of a one-to-four residential property and two commercial real estate properties partially offset by the sale of a one-to-four residential property.

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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.

	September 30,			December 31,
	2019			2018
	(Dollars in thousands)
Classified loans:
Substandard	$	7,663		$	8,169
Doubtful		—			—
Loss		—			—
Total classified loans:		7,663			8,169
As a % of total loans, net		0.71	%		0.76	%
Special mention		10,634			9,987
Total criticized loans	$	18,297		$	18,156
As a % of total loans, net		1.70	%		1.81	%

Total classified loans decreased $0.5 million to $7.7 million at September 30, 2019 from $8.2 million at December 31, 2018. Total criticized loans to total loans decreased to 1.70% at September 30, 2019 from 1.81% 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 (recovery)/loss rates ranging from approximately -0.3% to 0.5%.

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.

54

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 September 30,						As of or for the Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	$	12,194		$	11,525		$	11,985		$	10,887
Charge-offs:
Real Estate:
One-to-four family residential		—			6			4			116
Commercial		1			—			93			35
Home equity loans and lines of credit		49			219			258			260
Residential construction		—			—			—			—
Other construction and land		—			—			1			—
Commercial		—			45			59			79
Consumer		11			17			105			75
Total charge-offs		61			287			520			565
Recoveries:
Real Estate:
One-to-four family residential		85			1			105			15
Commercial		3			—			59			3
Home equity loans and lines of credit		25			—			151			24
Residential construction		—			1			—			1
Other construction and land		8			16			23			43
Commercial		18			2			24			10
Consumer		37			152			236			274
Total recoveries		176			172			598			370
Net charge-offs (recoveries)		(115	)		115			(78	)		195
Provision for loan losses		—			336			246			1,054
Balance at end of period	$	12,309		$	11,746		$	12,309		$	11,746
Ratios:
Net charge-offs (recoveries) to average loans outstanding		(0.04	)%		0.04	%		(0.01	)%		0.02	%
Allowance to non-performing loans at period end		288.27	%		273.35	%		288.27	%		273.35	%
Allowance to total loans at period end		1.14	%		1.10	%		1.14	%		1.10	%

Our allowance as a percentage of total loans increased to 1.14% at September 30, 2019 from 1.10% at September 30, 2018, primarily as the result of loan growth and provision related to acquired loans. The remaining fair value discount on acquired loans was $0.6 million as of September 30, 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 increased to 288.27% at September 30, 2019, compared to 246.76% at December 31, 2018 and 273.35% at September 30, 2018.

55

REO

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

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
One-to-four family residential	$	349	$	288
Commercial real estate		1,485		544
Other construction and land		1,254		1,736
Total	$	3,088	$	2,568

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance, beginning of period	$	2,959		$	2,874		$	2,493		$	2,568
Additions		349			—			1,061			749
Disposals		(185	)		(7	)		(431	)		(432	)
Writedowns		(35	)		(65	)		(35	)		(83	)
Balance, end of period	$	3,088		$	2,802		$	3,088		$	2,802

REO increased $0.6 million, or 23.9%, to $3.1 million at September 30, 2019 from $2.6 million at December 31, 2018. Our policy continues to be to aggressively market REO for sale, including recording write-downs when necessary.

Net Deferred Tax Assets

Deferred income 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 $4.7 million to $2.9 million at September 30, 2019 compared to $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.

56

Deposits

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

	September 30, 2019					December 31, 2018
	Balance		Percent			Balance		Percent
	(Dollars in thousands)
Deposit type:
Noninterest-bearing demand accounts	$	211,356		16.5	%	$	184,404		15.1	%
Interest-bearing demand accounts		186,201		14.5			209,085		17.1
Money market accounts - retail		463,289		36.2			351,056		28.7
Money market accounts - wholesale		—		—			5,030		0.4
Savings accounts		45,119		3.5			50,716		4.2
Time deposits - retail		303,601		23.7			349,971		28.7
Time deposits - wholesale		70,379		5.6			70,978		5.8
Total deposits	$	1,279,945		100.0	%	$	1,221,240		100.0	%

Core deposits increased $110.7 million to $906.0 million at September 30, 2019 from $795.3 million at December 31, 2018. Retail certificates of deposit decreased $46.4 million to $303.6 million at September 30, 2019 from $350.0 million at December 31, 2018. Wholesale deposits decreased $5.6 million to $70.4 million at September 30, 2019 from $76.0 million at December 31, 2018. We continue to focus on gathering core deposits, which increased to 71% of the Company’s deposit portfolio at September 30, 2019 from 65% at December 31, 2018.

FHLB Advances

FHLB advances decreased $8.0 million to $205.5 million at September 30, 2019 from $213.5 million at December 31, 2019. FHLB advances are secured by qualifying one-to-four family permanent and commercial real estate 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 did not have an outstanding balance on the revolving credit loan facility as of September 30, 2019.

The Company also had other borrowings at September 30, 2019 of $4.5 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 September 30, 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 September 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 both September 30, 2019 and at December 31, 2018.

57

Equity

Total shareholders’ equity increased $20.4 million to $183.3 million at September 30, 2019, compared to $162.9 million at December 31, 2018. This increase was primarily attributable to $10.3 million of net income and $9.9 million of after-tax increase in market value of investment securities available for sale.

Comparison of Operating Results for the Three Months Ended September 30, 2019 and September 30, 2018.

General. Net income for the three months ended September 30, 2019 was $4.0 million, compared to $3.5 million for the same period in 2018. The increase in net income for the three months ended September 30, 2019 was primarily the result of increases in noninterest income of $0.1 million and decreased noninterest expenses of $0.6 million, partially offset by decreases in net interest income of $0.4 million.

Net Interest Income. Net interest income decreased $0.4 million, or 3.6%, to $11.9 million for the three months ended September 30, 2019, compared to $12.3 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, taxable investments and taxable loans. The tax-equivalent net interest margin was 3.08% for the three months ended September 30, 2019, compared to 3.26% 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.

58

	For the Three Months Ended September 30,
	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	$	1,077,666		$	13,444		4.95	%	$	1,050,667		$	12,622		4.77	%
Loans, tax exempt(1)		16,011			129		3.20	%		16,757			134		3.18	%
Investments - taxable		245,460			1,945		3.17	%		248,077			1,827		2.95	%
Investment tax exempt(1)		108,245			962		3.55	%		94,019			880		3.74	%
Interest earning deposits		96,028			564		2.33	%		99,572			528		2.10	%
Other investments, at cost		11,709			181		6.13	%		12,039			201		6.62	%
Total interest-earning assets		1,555,119			17,225		4.39	%		1,521,131			16,192		4.22	%
Noninterest-earning assets		122,447								123,662
Total assets	$	1,677,566							$	1,644,793
Interest-bearing liabilities:
Savings accounts	$	46,982		$	14		0.12	%	$	53,287		$	15		0.11	%
Time deposits		384,364			1,906		1.97	%		423,419			1,404		1.32	%
Money market accounts		434,032			1,631		1.49	%		355,057			814		0.91	%
Interest bearing transaction accounts		186,935			82		0.17	%		205,732			98		0.19	%
Total interest bearing deposits		1,052,313			3,633		1.37	%		1,037,495			2,331		0.89	%
FHLB advances		205,500			1,315		2.50	%		213,500			1,091		2.00	%
Junior subordinated debentures		14,433			142		3.85	%		14,433			141		3.82	%
Other borrowings		4,351			52		4.74	%		9,399			123		5.19	%
Total interest-bearing liabilities		1,276,597			5,142		1.60	%		1,274,827			3,686		1.15	%
Noninterest-bearing deposits		203,808								198,001
Other non interest bearing liabilities		16,760								15,431
Total liabilities		1,497,165								1,488,259
Total equity		180,401								156,534
Total liabilities and equity	$	1,677,566							$	1,644,793
Tax-equivalent net interest income				$	12,083							$	12,506
Net interest-earning assets(2)	$	278,522							$	246,304
Average interest-earning assets to interest-bearing liabilities		121.82	%							119.32	%
Tax-equivalent net interest rate spread(3)							2.80	%							3.08	%
Tax-equivalent net interest margin(4)							3.08	%							3.26	%

(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.

59

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 September 30, 2019
	Compared to the Three Months Ended September 30, 2018
	Increase (decrease) due to:
	Volume			Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale (1)	$	334		$	488		$	822
Loans, tax exempt (2)		(6	)		1			(5	)
Investment - taxable		(19	)		137			118
Investments - tax exempt (2)		128			(46	)		82
Interest-earning deposits		(19	)		55			36
Other investments, at cost		(5	)		(15	)		(20	)
Total interest-earning assets		413			620			1,033
Interest-bearing liabilities:
Savings accounts		(2	)		1			(1	)
Time deposits		(139	)		642			503
Money market accounts		211			606			817
Interest bearing transaction accounts		(8	)		(8	)		(16	)
FHLB advances		(41	)		265			224
Junior subordinated debentures		—			—			—
Other borrowings		(61	)		(10	)		(71	)
Total interest-bearing liabilities		(40	)		1,496			1,456
Change in tax-equivalent net interest income	$	453		$	(876	)	$	(423	)

(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 $11.9 million for the three months ended September 30, 2019, compared to $12.3 million for the same period in 2018. As indicated in the table above, the decline in tax- equivalent net interest income of $0.9 million attributable to an unfavorable movement in rates was partially offset by a $0.5 million improvement in volume.

The increase in tax-equivalent net interest income of $0.5 million related to volume was primarily the result of higher average loan and tax exempt investment balances which increased $27.0 million and $14.2 million, respectively, and lower average time deposits which decreased $39.1 million for the three months ended September 30, 2019 compared to the same period in 2018. The increase in average loan and tax exempt investment balances and lower time deposits was partially offset by increases of $79.0 million in money market balances.

The decrease in tax-equivalent net interest income of $0.9 million related to rate was primarily the result of increased costs on time deposits, money markets, and FHLB advances. These increased costs were partially offset by increased yields on taxable loans and taxable investments.

60

Our tax-equivalent net interest rate spread decreased to 2.80% for the three months ended September 30, 2019, compared to 3.08% for the three months ended September 30, 2018, and our tax-equivalent net interest margin was 3.08% for the three months ended September 30, 2019, compared to 3.26% for the same period in 2018.

Provision for Loan Losses. We recorded a provision for loan losses for the three months ended September 30, 2018 of $0.3 million due to organic loan growth and acquired loans. There was no provision for loan losses recorded for the three months ended September 30, 2019. 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 September 30, 2019 and 2018:

	Three Months Ended September 30,
	2019			2018		Change
	(Dollars in thousands)
Servicing income, net	$	51		$	180	$	(129	)
Mortgage banking		475			233		242
Gain on sale of SBA loans		290			257		33
Equity securities (losses) gains		(30	)		191		(221	)
Service charges on deposit accounts		406			406		—
Interchange fees, net		305			276		29
Bank owned life insurance		189			195		(6	)
Other		372			227		145
Total	$	2,058		$	1,965	$	93

Servicing income, net decreased $0.1 million for the three months ended September 30, 2019 compared to the same period in 2018 as a result of a decrease in the valuation of loan servicing rights.

Mortgage banking increased $0.2 million for the three months ended September 30, 2019 compared to the same period in 2018 due to increased volume, including higher refinance volume.

Equity securities gains decreased $0.2 million for the three months ended September 30, 2019 compared to the same period in 2018 due to decreased market valuation.

Other noninterest income increased $0.1 million for the three months ended September 30, 2019 compared to the same period in 2018 as a result of increased SBIC earnings.

61

Noninterest Expense. The following table summarizes the components of noninterest expense and the corresponding change between the three months ended September 30, 2019 and 2018:

	Three Months Ended September 30,
	2019			2018		Change
	(Dollars in thousands)
Compensation and employee benefits	$	5,802		$	5,882	$	(80	)
Net occupancy		1,052			1,128		(76	)
Federal deposit insurance		(3	)		191		(194	)
Professional and advisory		179			413		(234	)
Data processing		526			532		(6	)
Marketing and advertising		159			227		(68	)
Merger-related expenses		295			96		199
Net cost of operation of REO		46			59		(13	)
Other		861			1,013		(152	)
Total noninterest expenses	$	8,917		$	9,541	$	(624	)

Compensation and employee benefits decreased $0.1 million for the three months ended September 30, 2019 compared to the same period in 2018 due to staff attrition related to the previously announced pending merger with BancShares, partially offset by an estimate of certain employee expenses related to an ongoing 401k audit of years 2012-2018.

Federal deposit insurance expense decreased $0.2 million for the three months ended September 30, 2019 compared to the same period in 2018 due to assessment credits received related to the FDIC deposit insurance reserve excess.

Professional and advisory expenses decreased $0.2 million as a result of non-renewal of ancillary contracts due to the previously announced merger with BancShares.

Merger-related expenses increased $0.2 million in the three months ended September 30, 2019 compared to the same period in 2018 due to expenses related primarily to the proposed merger with BancShares.

Other noninterest expenses decreased $0.2 million for the three months ended September 30, 2019 compared to the same period in 2018 due to reduced loan related expenses.

Income Taxes. We recorded $1.0 million of income tax expense for the three months ended September 30, 2019 compared to $0.9 million for the same period in 2018. Income tax expense for the three months ending September 30, 2019 and 2018 benefitted from tax-exempt income related to municipal bond investment and bank owned life insurance (BOLI”) income resulting in effective tax rates of 19.98% and 19.57%, respectively.

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

Comparison of Operating Results for the Nine Months Ended September 30, 2019 and September 30, 2018.

General. Net income for the nine months ended September 30, 2019 was $10.0 million, compared to $10.2 million for the same period in 2018. The increase in net income for the nine months ended September 30, 2019 was primarily the result of an increase in noninterest income of $2.6 million, partially offset by a decrease in net interest income of $1.5 million and an increase in noninterest expense of $2.1 million.

Net Interest Income. Net interest income decreased $1.5 million, or 4.0%, for the nine months ended September 30, 2019 compared to the same period in 2018. The decrease in net interest income was primarily due to increased money market balances and costs of deposits and borrowings partially offset by to higher volumes in the loan portfolio, as well as an increase in the yields taxable investments and loans. The tax-equivalent net interest margin decreased to 3.14% for the nine months ended September 30, 2019 as compared to 3.38% 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.

62

	For the Nine Months Ended September 30,
	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	$	1,075,358		$	39,598		4.92	%	$	1,030,421		$	36,981		4.80	%
Loans, tax exempt(1)		16,543			397		3.21	%		15,947			367		3.08	%
Investments - taxable		250,634			6,014		3.20	%		253,129			5,173		2.72	%
Investment tax exempt(1)		105,496			2,885		3.65	%		84,890			2,344		3.68	%
Interest earning deposits		81,638			1,520		2.49	%		91,400			1,309		1.91	%
Other investments, at cost		11,872			559		6.30	%		12,259			544		5.93	%
Total interest-earning assets		1,541,541			50,973		4.42	%		1,488,046			46,718		4.20	%
Noninterest-earning assets		122,356								127,331
Total assets	$	1,663,897							$	1,615,377
Interest-bearing liabilities:
Savings accounts	$	48,550		$	41		0.11	%	$	52,222		$	44		0.11	%
Time deposits		401,350			5,464		1.82	%		414,802			3,527		1.14	%
Money market accounts		404,303			4,185		1.38	%		335,722			1,687		0.67	%
Interest bearing transaction accounts		195,257			273		0.19	%		208,550			282		0.18	%
Total interest bearing deposits		1,049,460			9,963		1.27	%		1,011,296			5,540		0.73	%
FHLB advances		208,856			4,094		2.58	%		219,178			2,841		1.71	%
Junior subordinated debentures		14,433			423		3.86	%		14,433			421		3.85	%
Other borrowings		6,994			277		5.30	%		9,113			352		5.16	%
Total interest-bearing liabilities		1,279,743			14,757		1.54	%		1,254,020			9,154		0.98	%
Noninterest-bearing deposits		195,899								190,902
Other non interest bearing liabilities		15,470								16,719
Total liabilities		1,491,112								1,461,641
Total equity		172,785								153,736
Total liabilities and equity	$	1,663,897							$	1,615,377
Tax-equivalent net interest income				$	36,216							$	37,564
Net interest-earning assets(2)	$	261,798							$	234,026
Average interest-earning assets to interest-bearing liabilities		120.46	%							118.66	%
Tax-equivalent net interest rate spread(3)							2.88	%							3.22	%
Tax-equivalent net interest margin(4)							3.14	%							3.38	%

(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.

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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 Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018
	Increase (decrease) due to:
	Volume			Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale (1)	$	1,639		$	978		$	2,617
Loans, tax exempt (2)		14			16			30
Investment - taxable		(52	)		893			841
Investments - tax exempt (2)		563			(22	)		541
Interest-earning deposits		(151	)		362			211
Other investments, at cost		(18	)		33			15
Total interest-earning assets		1,995			2,260			4,255
Interest-bearing liabilities:
Savings accounts	$	(3	)	$	0		$	(3	)
Time deposits		(118	)		2,055			1,937
Money market accounts		404			2,094			2,498
Interest bearing transaction accounts		(18	)		9			(9	)
FHLB advances		(136	)		1,389			1,253
Junior subordinated debentures		—			—			—
Other borrowings		(84	)		11			(73	)
Total interest-bearing liabilities	$	45		$	5,558		$	5,603
Change in tax-equivalent net interest income	$	1,950			(3,298	)		(1,348	)

Net interest income before provision for loan losses decreased to $35.5 million for the nine months ended September 30, 2019, compared to $37.0 million for the same period in 2018. As indicated in the table above, the decline of $3.3 million in net interest income earned attributable to an unfavorable movement in rates was partially offset by the increase in tax-equivalent net interest income of $2.0 million attributable to an improvement in volume.

The increase in tax-equivalent net interest income of $2.0 million related to volume was primarily the result of higher average loan and tax exempt investment balances which increased $44.9 million and $20.6 million, respectively, and lower time deposits and FHLB advances which decreased $13.5 million and $10.3 million, respectively, for the nine months ended September 30, 2019 compared to the same period in 2018. The increase in average loan and tax exempt investment balances and lower time deposits and FHLB advances was partially offset by decreases of $9.8 million in interest-earning deposits and increases of $68.6 million in money market balances.

The decrease in tax-equivalent net interest income of $3.3 million related to rate was primarily the result of increased costs on time deposits, money markets, and FHLB advances. These increased costs were partially offset by increased yields on taxable loans, taxable investments, and interest-earning deposits.

Our tax-equivalent net interest rate spread decreased to 2.88% for the nine months ended September 30, 2019, compared to 3.22% for the nine months ended September 30, 2018, and our tax-equivalent net interest margin was 3.14% for the nine months ended September 30, 2019, compared to 3.38% for the same period in 2018.

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Provision for Loan Losses. We recorded a provision for loan losses for the nine months ended September 30, 2019 of $0.2 million due to organic loan growth and acquired loans compared to $1.1 million 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 nine month periods ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019		2018			Change
	(Dollars in thousands)
Servicing income, net	$	126	$	313		$	(187	)
Mortgage banking		1,079		755			324
Gain on sale of SBA loans		387		547			(160	)
Loss on sale of investments, net		—		(520	)		520
Equity securities gains		500		183			317
Service charges on deposit accounts		1,205		1,242			(37	)
Interchange fees, net		849		795			54
Bank owned life insurance		554		589			(35	)
Legal settlement income		1,750		—			1,750
Other		878		775			103
Total	$	7,328	$	4,679		$	2,649

Servicing income, net decreased $0.2 million for the nine months ended September 30, 2019 compared to the same period in 2018 as a result of a decrease in the valuation of loan servicing rights.

Mortgage banking increased $0.3 million for the nine months ended September 30, 2019 compared to the same period in 2018 due to increased volume, including refinances.

Gains on sales of SBA loans decreased $0.2 million during the nine months ended September 30, 2019 as a result of decreased volume.

There have been no sales of AFS investment securities during the nine months ended September 30, 2019.

Equity securities gains increased $0.3 million for the nine months ended September 30, 2019, compared to the same period in 2018, due to improvements in market valuation.

The legal settlement income in the nine months ended September 30, 2019 relates to the settlement of a dispute with a former advisor related the acquisition of Chattahoochee Bank of Georgia.

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Noninterest Expense. The following table summarizes the components of noninterest expense and the corresponding change between the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019		2018		Change
	(Dollars in thousands)
Compensation and employee benefits	$	17,532	$	17,151	$	381
Net occupancy		3,256		3,342		(86	)
Federal deposit insurance		280		618		(338	)
Professional and advisory		763		1,023		(260	)
Data processing		1,529		1,607		(78	)
Marketing and advertising		594		671		(77	)
Merger-related expenses		3,229		564		2,665
Net cost of operation of REO		76		202		(126	)
Other		2,944		2,925		19
Total noninterest expenses	$	30,203	$	28,103	$	2,100

Compensation and employee benefits increased $0.4 million for the nine months ended September 30, 2019, as compared to 2018, primarily as a result of an estimate of certain employee expenses related to an ongoing 401k audit for years 2012-2018.

Federal deposit insurance decreased $0.3 million for the nine months ended September 30, 2019, as compared to 2018, due to an increase in premium credits based on an increase in certain regulatory ratios and assessment credits received related to the FDIC deposit insurance reserve excess.

Professional and advisory expenses decreased $0.3 million as a result of non-renewal of ancillary contracts due to the previously announced merger with BancShares.

Merger-related expenses increased $2.7 million for the nine months ended September 30, 2019, as compared to 2018, due to expenses related to the now-terminated merger with SmartFinancial and the currently proposed merger with BancShares.

Net cost of operation of REO decreased $0.1 million for the nine months ended September 30, 2019, as compared to 2018, primarily as the result of limited REO activity.

Income Taxes. We recorded $2.4 million of income tax expense for the nine months ended September 30, 2019, compared to $2.3 million for the same period in 2018. Income tax expense for the nine months ending September 30, 2019 and 2018 benefitted from tax-exempt income related to municipal bond investments and BOLI income resulting in effective tax rates of 19.6% and 18.6%, 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 state income tax purposes and do not have a material current tax liability or receivable.

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 September 30, 2019.

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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 September 30, 2019, cash and cash equivalents totaled $114.2 million. Included in this total was $78.0 million held at the FRB, $8.1 million held at the FHLB, and $40.4 million held at a correspondent bank in an interest-earning account.

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 unaudited consolidated financial statements of this Form 10-Q. The following summarizes the most significant sources and uses of liquidity during the nine months ended September 30, 2019 and 2018:

	Nine Months Ended September 30,
	2019			2018
	(Dollars in thousands)
Operating activities:
Loans originated for sale	$	(35,059	)	$	(36,982	)
Proceeds from loans originated for sale		31,242			38,159
Investing activities:
Purchases of investments	$	—		$	(107,204	)
Maturities and principal repayments of investments		20,852			32,832
Sales of investments		—			54,174
Net increase in loans		(847	)		(62,647	)
Proceeds from settlement of BOLI policies		1,115			—
Financing activities:
Net increase in deposits	$	56,705		$	92,614
Net (decrease) increase in other borrowings		(4,836	)		773
Proceeds from FHLB advances		195,000			255,500
Repayment of FHLB advances		(203,000	)		(265,500	)

At September 30, 2019, we had $25.8 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $159.8 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.

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.

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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 line with NexBank SSB. The following summarizes our borrowing capacity as of September 30, 2019:

	Total		Used		Unused
(Dollars in thousands)	Capacity		Capacity		Capacity
FHLB
Loan collateral capacity	$	220,646
Pledgeable marketable securities		49,010
FHLB totals		269,656	$	205,500	$	64,156
FRB		53,570		—		53,570
Fed funds lines		15,000		—		15,000
Holding Company revolving line of credit		15,000		—		15,000
	$	353,226	$	205,500	$	147,726

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.

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 risk-based capital measures. 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.

The tables below summarize capital ratios and related information in accordance with Basel III as measured at September 30, 2019 and December 31, 2018.

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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 September 30, 2019:
Tier 1 Leverage Capital	$	159,604		9.71	%	$	65,752		>4%	$	82,190		>5%
Common Equity Tier 1 Capital	$	159,604		13.68	%	$	81,679		>7.0%	$	75,845		>6.5%
Tier 1 Risk-based Capital	$	159,604		13.68	%	$	99,182		>8.5%	$	93,348		>8%
Total Risk-based Capital	$	172,013		14.74	%	$	122,519		>10.5%	$	116,685		>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 September 30, 2019 and December 31, 2018, includes capital conservation buffer of 2.5% and 1.875%, respectively.

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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 September 30, 2019:
Tier I Leverage Capital	$	164,995		10.03	%	$	65,815		>4%
Common Equity Tier 1 Capital	$	150,562		12.89	%	$	81,793		>7.0%
Tier I Risk-based Capital	$	164,995		14.12	%	$	99,321		>8.5%
Total Risk Based Capital	$	177,405		15.18	%	$	122,690		>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 September 30, 2019 and December 31, 2018, includes capital conservation buffer of 2.5% and 1.875%, respectively.

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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 Asset-Liability Committee (“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.

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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.

	September 30, 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		6.9			29.0			(2.2	)		(2.3	)
+300		5.2			26.0			(1.4	)		(1.8	)
+200		3.5			22.0			(0.7	)		(1.3	)
+100		1.9			14.0			(0.2	)		(1.5	)
-		—			—			—			—
-100		(4.8	)		(21.0	)		(2.2	)		4.8

The results from the rate shock analysis on NII are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means assets will reprice at a faster pace than liabilities during the short-term horizon. The implications of an asset sensitive balance sheet will differ depending upon the change in market rates. For example, with an asset sensitive balance sheet in a declining interest rate environment, the interest rate on assets will decrease at a faster pace than liabilities. This situation generally results in a decrease in NII and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, the interest rate on assets will increase at a faster pace than liabilities. This situation generally results in an increase in NII and operating income. As indicated in the table above, a 200 basis point increase in rates would result in a 3.5% increase in NII as of September 30, 2019 as compared to a 0.7% decrease in NII as of December 31, 2018, suggesting that there is a benefit for the Company to net interest income in rising interest rates The Company generally seeks to remain neutral to the impact of 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 decreased from December 31, 2018 to September 30, 2019. For example, as indicated in the table above, a 200 basis point increase in rates would result in a 22.0% increase in EVE as of September 30, 2019 as compared to a 1.3% decrease in EVE as of December 31, 2018.

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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 September 30, 2019. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer each concluded that as of September 30, 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 September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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 September 30, 2019, except as described below.

Two lawsuits challenging the proposed merger with BancShares were filed on June 20, 2019. The lawsuits are captioned Karp v. Edwards et al, No. 1:19-cv-05798, filed in the United States District Court for the Southern District of New York, and Parshall v. Entegra Financial Corp. et al., No. 1:19-cv-01152, filed in the United States District Court for the District of Delaware. Both lawsuits name as defendants Entegra, its directors, BancShares, First Citizens Bank and Merger Sub and seek, among other relief, an order enjoining completion of the proposed merger.

The Karp lawsuit is an individual action alleging that all defendants violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by failing to disclose certain facts about certain financial projections of Entegra and financial analysis performed by Entegra’s financial advisor. The complaint further alleges that Entegra’s directors violated Section 20(a) of the Exchange Act by acting as control persons.

The Parshall lawsuit is a putative class action filed on behalf of the shareholders of Entegra. The complaint alleges that Entegra and its directors violated Section 14(a) of the Exchange Act by failing to disclose certain facts about certain financial projections of Entegra, financial analysis performed by Entegra’s financial advisor, and fees received and prior services performed by Entegra’s financial advisor. The complaint further alleges that Entegra’s directors, BancShares, First Citizens Bank and Merger Sub violated Section 20(a) of the Exchange Act by acting as control persons.

On July 25, 2019, Entegra filed with the SEC a Form 8-K and supplemental proxy materials providing information that mooted the Karp and Parshall plaintiffs’ claims. Entegra did so without agreeing with plaintiffs that any such disclosure was material (and specifically denying such materiality).  Counsel to the Karp and Parshall plaintiffs have dismissed such actions and agreed not to seek injunctive relief against the proposed merger with BancShares. Entegra understands that such counsel may seek attorneys’ fees and expenses from it to compensate such counsel for the benefits allegedly provided to Entegra’s shareholders. Entegra denies that any such benefit was so provided. Entegra cannot predict what amount plaintiffs’ counsel will seek and/or whether any court will award any fees in connection with either lawsuit.

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.

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Item 6. Exhibits

Exhibit No.	Description
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 of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial Statements filed in XBRL format.

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

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EXHIBIT INDEX

Exhibit No.	Description
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 of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Financial Statements filed in XBRL format.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER 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 (the “registrant”);

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

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER 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 (the “registrant”);

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

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer 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 September 30, 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: November 8, 2019	/s/ Roger D. Plemens
	Roger D. Plemens
	President and Chief Executive Officer
Dated: November 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.

*****

XML

INVESTMENT SECURITIES (Details 3) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Gross proceeds		$ 54,174
Gross realized gains		504
Gross realized losses		1,024
Securities pledged against deposits	$ 160,700		$ 155,800
Available-for-sale Securities [Member]
Gross proceeds		55,174
Gross realized gains		77
Gross realized losses		1,024
Visa Class B Restricted Shares [Member]
Gross proceeds		427
Gross realized gains		427
Gross realized losses

XML

LEASES (Tables)

9 Months Ended

Sep. 30, 2019

Schedule Of Unrealized Losses That Were Recognized Within Other Comprehensive Income At Time Of Transfer To Held To Maturity [Table Text Block]

Schedule of Future minimum lease payments

Maturities of lease liabilities as of September 30, 2019 were as follows: 

(Dollard in thousands)	Operating Leases
2019	$	36
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		441
Discount effect of cash flows		(55	)
Total lease liability	$	386

XML

EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2019		2018		2019		2018
Numerator:
Net income	$	3,997	$	3,523	$	9,976	$	10,192
Denominator:
Weighted-average common shares outstanding - basic		6,923,114		6,891,672		6,920,880		6,889,130
Effect of dilutive securities:
Stock options		121,076		90,580		75,283		92,465
Restricted stock units		45,660		48,898		33,001		42,119
Weighted-average common shares outstanding - diluted		7,089,850		7,031,150		7,029,164		7,023,714
Earnings per share - basic	$	0.58	$	0.51	$	1.44	$	1.48
Earnings per share - diluted	$	0.56	$	0.50	$	1.42	$	1.45

The following table presents stock options that are not deemed dilutive in calculating diluted earnings per share for the respective periods in the table above: 

	Average Stock Price								Anti-dilutive Shares
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Stock options	$	29.93	$	28.25	$	27.08	$	28.44		11,900		30,438		44,900		23,721

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 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 September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,947	$	6,178

Equity securities with a fair value of $6.3 million as of September 30, 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 September 30, 2019 are in a mutual fund that qualifies under the Community Reinvestment Act (“CRA”) as CRA activity. There were losses of $30 thousand on equity securities and gains of $0.5 million for the three and nine months ended September 30, 2019, respectively. There were gains on equity securities of $0.2 million for both the three and nine months ended September 30, 2018.

The amortized cost and estimated fair values of available-for-sale (“AFS”) investment securities as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,423	$	184	$	(349	)	$	33,258
Municipal Securities		113,789		6,367		—			120,156
Mortgage-backed Securities - Guaranteed		73,818		783		(767	)		73,834
Collateralized Mortgage Obligations - Guaranteed		21,428		382		(36	)		21,774
Collateralized Mortgage Obligations - Non Guaranteed		63,647		1,642		(25	)		65,264
Collateralized Loan Obligations		15,511		—		(290	)		15,221
Corporate bonds		19,412		437		(29	)		19,820
	$	341,028	$	9,795	$	(1,496	)	$	349,327

	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 the fair value of AFS investment securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 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)
Available-for-Sale:
U.S. Treasury & Government Agencies	$	19,818	$	226	$	6,912	$	123	$	26,730	$	349
Mortgage-backed Securities - Guaranteed		901		6		37,332		761		38,233		767
Collateralized Mortgage Obligations - Guaranteed		1,799		8		1,797		28		3,596		36
Collateralized Mortgage Obligations - Non Guaranteed		3,003		12		2,748		13		5,751		25
Collateralized Loan Obligations		5,984		30		9,237		260		15,221		290
Corporate Bonds		—		—		1,032		29		1,032		29
	$	31,505	$	282	$	59,058	$	1,214	$	90,563	$	1,496

	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)
Available-for-Sale:
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 unrealized losses is detailed in the table below. The Company believes all unrealized losses as of September 30, 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.

	September 30, 2019
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
U.S. Treasury & Government Agencies		13		5		18
Mortgage-backed Securities - Guaranteed		1		39		40
Collateralized Mortgage Obligations - Guaranteed		1		1		2
Collateralized Mortgage Obligations - Non Guaranteed		2		5		7
Collateralized loan obligation		3		5		8
Corporate bonds		—		1		1
		20		56		76

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
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 obligation		6		1		7
Corporate bonds		3		4		7
		88		130		218

The Company received proceeds from sales of investment securities classified as AFS and corresponding gross realized gains and losses as follows:

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
AFS
Gross proceeds	$	—	$	54,174
Gross realized gains		—		77
Gross realized losses		—		1,024
Visa Class B Restricted Shares
Gross proceeds		—		427
Gross realized gains		—		427
Gross realized losses		—		—
Total
Gross proceeds	$	—	$	54,601
Gross realized gains		—		504
Gross realized losses		—		1,024

There were no investment security sales for the three or nine months ended September 30, 2019.

The Company had securities pledged against deposits and borrowings of approximately $160.7 million and $155.8 million at September 30, 2019 and December 31, 2018, respectively.

The amortized cost and estimated fair value of investments in debt securities at September 30, 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	$	1,990	$	1,996
Over 1 year through 5 years		6,952		6,107
After 5 years through 10 years		31,457		33,331
Over 10 years		141,736		147,021
		182,135		188,455
Mortgage-backed securities		158,893		160,872
Total	$	341,028	$	349,327

XML

GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 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 September 30, 2019 and December 31, 2018.

The Company had $3.1 million and $3.6 million of core deposit intangibles as of September 30, 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 Nine Months Ending			As of and for the Year Ending
	September 30,			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		(1,781	)		(1,263	)
Core deposit intangible, net	$	3,059		$	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.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 3,997	$ 3,523	$ 9,976	$ 10,192
Other comprehensive income (loss):
Change in unrealized holding gains and losses on securities available for sale	2,455	(2,318)	12,889	(8,181)
Reclassification adjustment for securities losses (gains) realized in net income				947
Change in unrealized holding gains and losses on cash flow hedge	(85)	93	(531)	303
Reclassification adjustment for cash flow hedge effectiveness	(49)	(149)	(172)	(347)
Other comprehensive income (loss), before tax	2,321	(2,374)	12,186	(7,278)
Income tax effect related to items of other comprehensive income (loss)	(532)	538	(2,823)	1,635
Other comprehensive income (loss), after tax	1,789	(1,836)	9,363	(5,643)
Comprehensive income	$ 5,786	$ 1,687	$ 19,339	$ 4,549

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 04, 2019
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2019
Current Fiscal Year End Date	--12-31
Entity File Number	001-35302
Entity Registrant Name	Entegra Financial Corp.
Entity Central Index Key	0001522327
Entity Tax Identification Number	45-2460660
Entity Incorporation, State or Country Code	NC
Entity Address, Address Line One	14 One Center Court
Entity Address, Address Line Two	Franklin
Entity Address, City or Town	North Carolina
Entity Address, State or Province	NC
Entity Address, Postal Zip Code	28734
City Area Code	828
Local Phone Number	524-7000
Trading Symbol	ENFC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	false
Entity Common Stock, Shares Outstanding		6,927,523
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019
Title of Twelve (b) Security	Common Stock, no par value per share

XML

INCOME TAXES

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9. INCOME TAXES

The components of net deferred taxes as of September 30, 2019 and December 31, 2018 are summarized as follows: 

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,817	$	2,703
Deferred compensation and post-employment benefits		1,820		1,854
Non-accrual interest		259		245
Valuation reserve for other real estate		253		191
North Carolina NOL carryover		91		293
Federal NOL carryover		—		1,231
AMT credit carryover		—		316
General federal business credit carryover		310		691
Unrealized losses on securities		344		1,061
Loan basis differences		42		50
Fixed assets		144		123
Core deposit intangible		186		129
Derivative instruments		121		—
Other		1,542		1,207
Total deferred tax assets		7,929		10,094
Deferred tax liabilities:
Loan servicing rights		579		653
Goodwill		754		495
Core deposit intangible		61		74
Deferred loan costs		1,018		1,001
Prepaid expenses		14		14
Unrealized gains on securities		2,448		105
Derivative instruments		14		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		5,058		2,543
Net deferred tax asset	$	2,871	$	7,551

The following table summarizes the amount and expiration dates of the Company’s unused net operating losses as of September 30, 2019: 

(Dollars in thousands)	Amount		Expiration Dates
North Carolina	$	6,311		2026-2029
Federal General Business Credit Carryforwards	$	310		2038

XML

LEASES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Total Operating Lease Cost	$ 51	$ 156

XML

FAIR VALUE DISCLOSURES (Details 3) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets measured at fair value on nonrecurring basis	$ 364,191	$ 371,572
Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on nonrecurring basis	8,314	5,795
Fair Value, Measurements, Nonrecurring [Member]
Assets measured at fair value on nonrecurring basis	7,224	7,821
Impaired loans measured at present value	4,000	5,600
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on nonrecurring basis	7,224	7,821
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | One-to-four family residential
Assets measured at fair value on nonrecurring basis	1,440	845
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	1,896	3,835
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Home Equity Line of Credit [Member]
Assets measured at fair value on nonrecurring basis	283	283
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	537	365
Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member] | One-to-four family residential
Assets measured at fair value on nonrecurring basis	1,440	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	1,896	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	283	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	537	365
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | One-to-four family residential
Assets measured at fair value on nonrecurring basis	349	228
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Commercial Real Estate Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	1,485	949
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Other Portfolio Segment [Member]
Assets measured at fair value on nonrecurring basis	1,257	1,316
Fair Value, Measurements, Nonrecurring [Member] | Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member] | One-to-four family residential
Assets measured at fair value on nonrecurring basis	349	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	1,485	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	$ 1,254	$ 1,316

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ALLOWANCE FOR LOAN LOSSES (Details 6) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Average Investment in Impaired Loans, without a valuation allowance	$ 6,857	$ 9,307	$ 6,837	$ 8,157
Interest Income Recognized, without a valuation allowance	155	195	50	65
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	4,117	4,154	4,058	4,120
Interest Income Recognized, with a valuation allowance	140	151	46	49
Average Investment in Impaired Loans	10,974	13,461	10,895	12,277
Interest Income Recognized	295	346	96	114
One-to-four family residential
Average Investment in Impaired Loans, without a valuation allowance	1,607	2,264	1,597	2,247
Interest Income Recognized, without a valuation allowance	62	69	20	23
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	545	831	540	825
Interest Income Recognized, with a valuation allowance	24	32	8	11
Average Investment in Impaired Loans	2,152	3,095	2,137	3,072
Interest Income Recognized	86	101	28	34
Commercial Real Estate Portfolio Segment [Member]
Average Investment in Impaired Loans, without a valuation allowance	4,286	5,920	4,280	4,790
Interest Income Recognized, without a valuation allowance	62	97	20	32
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	1,610	2,184	1,598	2,172
Interest Income Recognized, with a valuation allowance	66	68	22	22
Average Investment in Impaired Loans	5,896	8,104	5,878	6,962
Interest Income Recognized	128	165	42	54
Home Equity Line of Credit [Member]
Average Investment in Impaired Loans, without a valuation allowance	283	428	283	428
Interest Income Recognized, without a valuation allowance	13	13	4	4
Average Investment in Impaired Loans	283	428	283	428
Interest Income Recognized	13	13	4	4
Other Portfolio Segment [Member]
Average Investment in Impaired Loans, without a valuation allowance	681	695	677	692
Interest Income Recognized, without a valuation allowance	18	16	6	6
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	796	854	762	842
Interest Income Recognized, with a valuation allowance	34	34	11	11
Average Investment in Impaired Loans	1,477	1,549	1,439	1,534
Interest Income Recognized	52	50	17	17
Commercial Portfolio Segment [Member]
Average Investment in Impaired Loans, Interest Income Recognized, with a valuation allowance	1,166	285	1,158	281
Interest Income Recognized, with a valuation allowance	16	17	5	5
Average Investment in Impaired Loans	1,166	285	1,158	281
Interest Income Recognized	$ 16	$ 17	$ 5	$ 5

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DEPOSITS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Deposits By Type [Line Items]
Balance	$ 1,279,945	$ 1,256,032	$ 1,279,945	$ 1,256,032	$ 1,221,240
Interest Expense	3,633	2,331	9,963	5,540	8,118
Noninterest-bearing demand [Member]
Deposits By Type [Line Items]
Balance	211,356	199,224	211,356	199,224	184,404
Interest Expense
Interest-bearing Deposits [Member]
Deposits By Type [Line Items]
Balance	186,201	206,967	186,201	206,967	209,085
Interest Expense			273	282	374
Money Market Funds [Member]
Deposits By Type [Line Items]
Balance	463,289	372,428	463,289	372,428	356,086
Interest Expense			4,185	1,687	2,637
Savings Deposits [Member]
Deposits By Type [Line Items]
Balance	45,119	52,874	45,119	52,874	50,716
Interest Expense			41	44	59
Time deposit [Member]
Deposits By Type [Line Items]
Balance	$ 373,980	$ 424,539	373,980	424,539	420,949
Interest Expense			$ 5,464	$ 3,527	$ 5,048

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest Income	$ 16,996	$ 15,978	$ 50,284	$ 46,149
Interest Expenses	5,142	3,686	14,757	9,154
Fair Value Hedging Relationships [Member] | Hedged Assets [Member]
Interest Income	120	(182)	843	(263)
Fair Value Hedging Relationships [Member] | Interest Rate Swap - Derivatives Designated As Hedging Instruments [Member]
Interest Income	(148)	187	(893)	261
Cash Flow Hedging Relationships [Member] | Interest Rate Swap - Accumulated Other Comprehensive Loss Into Income [Member]
Interest Expenses	$ (49)	$ (149)	$ (172)	$ (347)

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 6) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Amount of gain (loss) recognized in income	$ (44)	$ (34)	$ (94)	$ (50)
Interest Rate Lock Commitments [Member]
Amount of gain (loss) recognized in income	(15)	(46)	30	(17)
Forward Sales Commitments [Member]
Amount of gain (loss) recognized in income	(29)	$ 12	(124)	$ (33)
Residential Real Estate [Member] | Interest Rate Lock Commitments [Member]
Fair value Derivative Assets and Liabilities	8,003		8,003		$ 1,627
Residential Real Estate [Member] | Forward Sales Commitments [Member]
Fair value Derivative Assets and Liabilities	$ 12,750		$ 12,750		$ 3,500

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Balance, beginning of period	$ 4,150	$ (3,821)	$ (23)	$ (3,424)	$ (23)	$ (23)
Change in net unrealized holding losses on securities available for sale	2,455	(2,318)		12,889	(8,181)
Reclassification adjustment for net securities losses realized in net income					947
Change in unrealized holding gains and losses on cash flow hedge	(85)	93		(531)	303	2
Reclassification adjustment for cash flow hedge effectiveness	(49)	(149)		(172)	(347)	(431)
Cumulative effect of change in accounting principle					9
Income tax effect	(532)	538		(2,823)	1,635
Balance, end of period	5,939	(5,657)		5,939	(5,657)	(3,424)
Available-for-sale Securities [Member]
Balance, beginning of period	4,496	(4,271)	(455)	(3,528)	(455)	(455)
Change in net unrealized holding losses on securities available for sale	2,455	(2,318)		12,889	(8,181)
Reclassification adjustment for net securities losses realized in net income					947
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	(560)	524		(2,970)	1,615
Balance, end of period	6,391	(6,065)		6,391	(6,065)	(3,528)
Cash Flow Hedge [Member]
Balance, beginning of period	(346)	450	$ 432	104	432	432
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	(85)	93		(531)	303
Reclassification adjustment for cash flow hedge effectiveness	(49)	(149)		(172)	(347)
Cumulative effect of change in accounting principle
Income tax effect	28	14		147	20
Balance, end of period	$ (452)	$ 408		$ (452)	$ 408	$ 104

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ALLOWANCE FOR LOAN LOSSES (Details 5) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	$ 4,156	$ 5,328
Unpaid Principal Balance, without a valuation allowance	6,831	7,779
Recorded Balance, Recorded Balance, with a valuation allowance	4,032	5,557
Unpaid Principal Balance, with a valuation allowance	4,032	5,557
Recorded Balance	8,188	10,885
Unpaid Principal Balance	10,863	13,336
Specific Allowance	350	167
One-to-four family residential
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	1,440	845
Unpaid Principal Balance, without a valuation allowance	1,593	923
Recorded Balance, Recorded Balance, with a valuation allowance	536	2,055
Unpaid Principal Balance, with a valuation allowance	536	2,055
Recorded Balance	1,976	2,900
Unpaid Principal Balance	2,129	2,978
Specific Allowance	39	79
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	1,896	3,835
Unpaid Principal Balance, without a valuation allowance	4,279	6,207
Recorded Balance, Recorded Balance, with a valuation allowance	1,593	2,184
Unpaid Principal Balance, with a valuation allowance	1,593	2,184
Recorded Balance	3,489	6,019
Unpaid Principal Balance	5,872	8,391
Specific Allowance	41	27
Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	283	283
Unpaid Principal Balance, without a valuation allowance	283	283
Recorded Balance, Recorded Balance, with a valuation allowance		30
Unpaid Principal Balance, with a valuation allowance		30
Recorded Balance	283	313
Unpaid Principal Balance	283	313
Specific Allowance
Other Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, without a valuation allowance	537	365
Unpaid Principal Balance, without a valuation allowance	676	366
Recorded Balance, Recorded Balance, with a valuation allowance	733	1,012
Unpaid Principal Balance, with a valuation allowance	733	1,012
Recorded Balance	1,270	1,377
Unpaid Principal Balance	1,409	1,378
Specific Allowance	44	54
Commercial Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Balance, Recorded Balance, with a valuation allowance	1,170	276
Unpaid Principal Balance, with a valuation allowance	1,170	276
Recorded Balance	1,170	276
Unpaid Principal Balance	1,170	276
Specific Allowance	$ 226	$ 7

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ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	$ 12,194	$ 11,525	$ 11,985	$ 10,887
Provision		336	246	1,054
Charge-offs	(62)	(287)	(520)	(565)
Recoveries	177	172	598	370
Balance, end of period	12,309	11,746	12,309	11,746
One-to-four family residential
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	3,979	3,772	3,909	4,018
Provision	(123)	33	(69)	(117)
Charge-offs		(6)	(4)	(116)
Recoveries	85	1	105	15
Balance, end of period	3,941	3,800	3,941	3,800
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	5,264	4,902	5,130	4,364
Provision	(118)	141	52	711
Charge-offs	(1)		(93)	(35)
Recoveries	3		59	3
Balance, end of period	5,148	5,043	5,148	5,043
Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	521	552	560	616
Provision	18	209	62	162
Charge-offs	(49)	(219)	(258)	(260)
Recoveries	25		151	24
Balance, end of period	515	542	515	542
Residential construction
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	567	453	452	303
Provision	86	12	201	162
Charge-offs
Recoveries		1		1
Balance, end of period	653	466	653	466
Other Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,143	1,146	1,250	1,025
Provision	89	42	(32)	136
Charge-offs			(1)
Recoveries	8	16	23	43
Balance, end of period	1,240	1,204	1,240	1,204
Commercial Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	596	633	608	503
Provision	120	26	161	182
Charge-offs		(45)	(59)	(79)
Recoveries	18	2	24	10
Balance, end of period	734	616	734	616
Consumer Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	124	67	76	58
Provision	(72)	(127)	(129)	(182)
Charge-offs	(12)	(17)	(105)	(75)
Recoveries	38	152	236	274
Balance, end of period	$ 78	$ 75	$ 78	$ 75

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LOANS RECEIVABLE (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	$ 1,077,067		$ 1,077,775
Less: Net deferred loan fees	(1,030)		(1,000)
Fair value discount	(697)	$ (789)	(1,048)	$ (1,202)	$ (1,395)	$ (2,012)
Hedged loans basis adjustment	1,088		245
Unamortized premium	232		333
Unamortized discount	(79)		(236)
Loans Receivable	1,076,581		1,076,069
One-to-four family residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	336,098		325,560
Loans Receivable	336,691		325,155
Commercial Real Estate Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	482,831		498,106
Loans Receivable	481,502		496,549
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	45,822		48,679
Loans Receivable	45,991		48,825
Residential construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	57,687		39,533
Loans Receivable	57,629		39,488
Other Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	101,988		104,645
Loans Receivable	101,771		104,464
Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	1,024,426		1,016,523
Commercial Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	45,652		54,410
Loans Receivable	45,908		54,643
Consumer Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	6,989		6,842
Loans Receivable	7,089		6,945
Commercial and Consumer Loan [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans receivable, gross	$ 52,641		$ 61,252

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FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE DISCLOSURES

NOTE 13. FAIR VALUE

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, Fair Value Measurements and Disclosures (“ASC 820”), 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 September 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 AFS investment 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 AFS investment 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: 

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,947	$	—	$	—	$	6,947
Securities available for sale:
U.S. Treasury & Government Agencies		5,079		28,179		—		33,258
Municipal Securities		—		120,156		—		120,156
Mortgage-backed Securities - Guaranteed		—		73,834		—		73,834
Collateralized Mortgage Obligations - Guaranteed		—		21,774		—		21,774
Collateralized Mortgage Obligations - Non Guaranteed		—		65,264		—		65,264
Collateralized Loan Obligations		—		15,221				15,221
Corporate bonds		—		19,326		494		19,820
Total securities available for sale		5,079		343,754		494		349,327
Mortgage loans held for sale		—		—		5,221		5,221
Loan servicing rights		—		—		2,520		2,520
Interest rate swaps		—		97		—		97
Mortgage derivatives		—		—		79		79
Total recurring assets at fair value	$	12,026	$	343,851	$	8,314	$	364,191
Liabilities:
Interest rate swaps	$	—	$	1,760	$	—	$	1,760
Mortgage derivatives		—		—		16		16
Total recurring liabilities at fair value	$	—	$	1,760	$	16	$	1,776

	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	$	6,683		$	4,404		$	5,773		$	3,321
AFS securities
Fair value adjustment		—			—			1			—
Mortgage loans held for sale		1,647			651			2,790			1,821
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		133			129			225			374
Fair value adjustment		(176	)		(43	)		(542	)		(359	)
Mortgage derivative gains(losses) included in other income		11			(34	)		51			(50	)
Balance at end of period	$	8,298		$	5,107		$	8,298		$	5,107

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:

Small Business Administration (“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.

Real Estate Owned (“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: 

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	1,440	$	1,440
Commercial real estate		—		—		1,896		1,896
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		537		537
Real estate owned:
One-to-four family residential		—		—		349		349
Commercial real estate		—		—		1,485		1,485
Other construction and land		—		—		1,254		1,254
Total assets	$	—	$	—	$	7,244	$	7,244

	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 September 30, 2019 or December 31, 2018.

Impaired loans totaling $4.0 million at September 30, 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 September 30, 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	100% - 108%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	11% - 21%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	100% - 106%
Mortgage derivatives	External pricing model	Pull-through rate	72% - 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 September 30, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	144,196	$	144,196	$	144,196	$	—	$	—
Equity securities		6,947		6,947		6,947		—		—
Securities available for sale		349,327		349,327		5,079		343,754		494
Loans held for sale		11,142		11,817		—		6,596		5,221
Loans receivable, net		1,076,581		1,048,805		—		—		1,048,805
Other investments, at cost		11,652		11,652		—		11,652		—
Accrued interest receivable		6,163		6,163		—		6,163		—
BOLI		32,461		32,461		—		32,461		—
Loan servicing rights		2,520		2,520		—		—		2,520
Mortgage derivatives		79		79		—		—		79
Interest rate swaps		97		97		—		97		—
SBIC investments		4,993		4,993		—		—		4,993
Liabilities:
Demand deposits	$	905,965	$	905,965	$	—	$	905,965	$	—
Time deposits		373,980		379,529		—		—		379,529
Federal Home Loan Bank advances		205,500		204,846		—		204,846		—
Junior subordinated debentures		14,433		13,292		—		13,292		—
Other borrowings		4,463		4,697		—		4,697		—
Accrued interest payable		1,730		1,730		—		1,730		—
Mortgage derivatives		16		16		—		—		16
Interest rate swaps		1,760		1,760		—		1,760		—

			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		—

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LOANS RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2019

Loans Receivable

Loan Receivable

Loans receivable as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to-four family residential	$	336,098		$	325,560
Commercial real estate		482,831			498,106
Home equity loans and lines of credit		45,822			48,679
Residential construction		57,687			39,533
Other construction and land		101,988			104,645
Total real estate loans		1,024,426			1,016,523
Commercial and industrial		45,652			54,410
Consumer		6,989			6,842
Total commercial and consumer		52,641			61,252
Loans receivable, gross		1,077,067			1,077,775
Less:  Net deferred loan fees		(1,030	)		(1,000	)
Acquired loans fair value discount		(697	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		1,088			245
Unamortized premium		232			333
Unamortized discount		(79	)		(236	)
Loans receivable, net of deferred fees	$	1,076,581		$	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 and nine month periods ended September 30, 2019 and 2018:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Discount on purchased loans, beginning of period	$	180		$	399		$	236		$	710
Accretion		(101	)		(67	)		(157	)		(378	)
Discount on purchased loans, end of period	$	79		$	332		$	79		$	332

 The following table presents the activity related to the fair value discount on loans from business combinations for the three and nine month periods ended September 30, 2019 and 2018: 

	For the Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Fair value discount, beginning of period	$	789		$	1,395		$	1,048		$	2,012
Accretion		(92	)		(193	)		(351	)		(810	)
Fair value discount, end of period	$	697		$	1,202		$	697		$	1,202

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BORROWINGS (Tables)

9 Months Ended

Sep. 30, 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 (dollars in thousands): 

	September 30, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
2019	$	50,500		2.53	%	$	168,500		2.52	%
2020		150,000		2.34	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	205,500		2.40	%	$	213,500		2.58	%

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INCOME TAXES (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Deferred tax assets:
Allowance for loan losses	$ 2,817	$ 2,703
Deferred compensation and post-employment benefits	1,820	1,854
Non-accrual interest	259	245
Valuation reserve for other real estate	253	191
North Carolina NOL carryover	91	293
Federal NOL carryover		1,231
AMT credit carryover		316
General federal business credit carryover	310	691
Unrealized losses on securities	344	1,061
Loan basis differences	42	50
Fixed assets	144	123
Core deposit intangible	186	129
Derivative instruments	121
Other	1,542	1,207
Total deferred tax assets	7,929	10,094
Deferred tax liabilities:
Loan servicing rights	579	653
Goodwill	754	495
Core deposit intangible	61	74
Deferred loan costs	1,018	1,001
Prepaid expenses	14	14
Unrealized gains on securities	2,448	105
Derivative instruments	14	29
Investment in partnerships	170	155
Other		17
Total deferred tax liabilities	5,058	2,543
Net deferred tax asset	$ 2,871	$ 7,551

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense - Junior subordinated notes	$ 142	$ 141	$ 423	$ 421
Cash Flow Hedge [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense - FHLB advances		99		223
Interest expense - Junior subordinated notes	49	50	172	124
Tax effect	(11)	(33)	(39)	(78)
Impact, net of tax	38	116	133	269
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Impact, net of tax	38	116	133	(465)
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				(947)
Tax effect				213
Impact, net of tax				$ (734)

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LOANS RECEIVABLE (Detail Narrative) - USD ($) $ in Thousands	Sep. 30, 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	$ 124,000	$ 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	$ 279,900	$ 256,100

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INVESTMENT SECURITIES (Details 4) $ in Thousands	Sep. 30, 2019 USD ($)
Default Rate [Member]
Available for sale, Less than 1 year, Amortized Cost	$ 1,990
Available for sale, Over 1 year through 5 years, Amortized Cost	6,952
Available for sale, After 5 years through 10 years, Amortized Cost	31,457
Available for sale, Over 10 years, Amortized Cost	141,736
Available for sale, Before Amortized Cost Available for sale, Mortgage-backed securities, Amortized Cost	182,135
Available for sale, Mortgage-backed securities, Amortized Cost	158,893
Available for sale, Total, Amortized Cost	341,028
Available for Sale, Less than 1 year, Fair Value	1,996
Available for Sale, Over 1 year through 5 years, Fair Value	6,107
Available for Sale, After 5 years through 10 years, Fair Value	33,331
Available for Sale, Over 10 years, Fair Value	147,021
Available for sale, Before Amortized Cost Available for sale, Mortgage-backed securities, Fair Value	188,455
Available for Sale, Mortgage-backed securities, Fair Value	160,872
Available for Sale, Total, Fair Value	$ 349,327

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ALLOWANCE FOR LOAN LOSSES (Details 4) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Total Past Due	$ 10,549	$ 11,484
Current	1,066,032	1,064,585
Loans Receivable	1,076,581	1,076,069
30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	4,737	7,524
60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	2,631	1,835
90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	2,477	2,125
One-to-four family residential
Financing Receivable, Past Due [Line Items]
Total Past Due	4,496	4,963
Current	332,195	320,192
Loans Receivable	336,691	325,155
One-to-four family residential | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	3,440	3,562
One-to-four family residential | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	404	1,317
One-to-four family residential | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	652	84
Commercial real estate
Financing Receivable, Past Due [Line Items]
Total Past Due	4,269	4,397
Current	477,233	492,152
Loans Receivable	481,502	496,549
Commercial real estate | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	773	2,615
Commercial real estate | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	2,909
Commercial real estate | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	587	1,782
Home equity and lines of credit
Financing Receivable, Past Due [Line Items]
Total Past Due	333	930
Current	45,658	47,895
Loans Receivable	45,991	48,825
Home equity and lines of credit | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	264	400
Home equity and lines of credit | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due		457
Home equity and lines of credit | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	69	73
Residential construction
Financing Receivable, Past Due [Line Items]
Total Past Due	1	1
Current	57,628	39,487
Loans Receivable	57,629	39,488
Residential construction | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due
Residential construction | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due
Residential construction | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	1	1
Other construction and land
Financing Receivable, Past Due [Line Items]
Total Past Due	389	709
Current	101,382	103,755
Loans Receivable	101,771	104,464
Other construction and land | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	175	613
Other construction and land | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	16	32
Other construction and land | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	198	64
Commercial
Financing Receivable, Past Due [Line Items]
Total Past Due	990	453
Current	44,918	54,190
Loans Receivable	45,908	54,643
Commercial | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	15	307
Commercial | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	6	25
Commercial | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	969	121
Consumer
Financing Receivable, Past Due [Line Items]
Total Past Due	71	31
Current	7,018	6,914
Loans Receivable	7,089	6,945
Consumer | 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	70	27
Consumer | 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due		4
Consumer | 90 Days and Over Past Due
Financing Receivable, Past Due [Line Items]
Total Past Due	$ 1

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

9 Months Ended

Sep. 30, 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)
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	97	$	354	$	1,760	$	462
Total	$	97	$	354	$	1,760	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	79	$	34	$	16	$	22
Total	$	79	$	34	$	16	$	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 September 30,
	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	$	16,996		$	5,142		$	15,978		$	3,686
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		120			—			(182	)		—
Derivatives designated as hedging instruments		(148	)		—			187			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive income into income		—			(49	)		—			(149	)

	Nine months ended September 30,
	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	$	50,284		$	14,757		$	46,149		$	9,154
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		843			—			(263	)		—
Derivatives designated as hedging instruments		(893	)		—			261			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive loss into income		—			(172	)		—			(347	)

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

As of September 30, 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	September 30, 2019		September 30, 2019
Loans receivable (1)	$	90,639	$	1,088

⁽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 September 30, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $90.6 million, the cumulative basis adjustment associated with the hedging relationship was $1.1 million, and the amount of the designated hedged items was $25.0 million.

Schedule of Structure of the Swap Agreements

The structure of the swap agreements designated as cash flow hedges is 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						As of and for the						As of and for the
		Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
Interest rate swaps	Location	2019			2018			2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(85	)	$	93		$	(531	)	$	303		$	2
Amounts reclassified from AOCI into income	Interest expense		(49	)		(149	)		(172	)		(347	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(134	)	$	(56	)	$	(703	)	$	(44	)	$	(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 September 30, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans.

	As of September 30,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	8,003	$	1,627
Forward sales commitment		12,750		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 September 30,						Nine Months Ended September 30,
Interest rate products	Location	2019			2018			2019			2018
		(Dollars in thousands)
Amount of gain (loss) recognized in income on forward commitments	Noninterest income	$	(29	)	$	12		$	(124	)	$	(33	)
Amount of gain (loss) recognized in income on interest rate lock commitments	Noninterest income		(15	)		(46	)		30			(17	)
Amount of loss recognized in income on derivatives not designated as hedging instruments		$	(44	)	$	(34	)	$	(94	)	$	(50	)

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LEASES

9 Months Ended

Sep. 30, 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 September 30, 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 6.32 years as of September 30, 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 September 30, 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 September 30, 2019 were as follows: 

(Dollard in thousands)	Operating Leases
2019	$	36
2020		69
2021		53
2022		53
2023		53
Thereafter		177
Total undiscounted lease payments		441
Discount effect of cash flows		(55	)
Total lease liability	$	386

The total operating lease costs were $51,000 and $156,000 for the three months and nine months ended September 30, 2019, respectively.

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ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 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 September 30, 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	$	3,979		$	5,264		$	521		$	567	$	1,143	$	596	$	124		$	12,194
Provision		(123	)		(118	)		18			86		89		120		(72	)		—
Charge-offs		—			(1	)		(49	)		—		—		—		(12	)		(62	)
Recoveries		85			3			25			—		8		18		38			177
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240	$	734	$	78		$	12,309

	Three Months Ended September 30, 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	$	3,772		$	4,902	$	552		$	453	$	1,146	$	633		$	67		$	11,525
Provision		33			141		209			12		42		26			(127	)		336
Charge-offs		(6	)		—		(219	)		—		—		(45	)		(17	)		(287	)
Recoveries		1			—		—			1		16		2			152			172
Ending balance	$	3,800		$	5,043	$	542		$	466	$	1,204	$	616		$	75		$	11,746

	Nine Months Ended September 30, 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		(69	)		52			62			201		(32	)		161			(129	)		246
Charge-offs		(4	)		(93	)		(258	)		—		(1	)		(59	)		(105	)		(520	)
Recoveries		105			59			151			—		23			24			236			598
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240		$	734		$	78		$	12,309

	Nine Months Ended September 30, 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		(117	)		711			162			162		136		182			(182	)		1,054
Charge-offs		(116	)		(35	)		(260	)		—		—		(79	)		(75	)		(565	)
Recoveries		15			3			24			1		43		10			274			370
Ending balance	$	3,800		$	5,043		$	542		$	466	$	1,204	$	616		$	75		$	11,746

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:

	September 30, 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	$	39	$	41	$	—	$	—	$	44	$	226	$	—	$	350
Collectively evaluated for impairment		3,902		5,107		515		653		1,196		508		78		11,959
	$	3,941	$	5,148	$	515	$	653	$	1,240	$	734	$	78	$	12,309
Loans Receivable
Individually evaluated for impairment	$	1,976	$	3,489	$	283	$	—	$	1,270	$	1,170	$	—	$	8,188
Collectively evaluated for impairment		334,715		478,013		45,708		57,629		100,501		44,738		7,089		1,068,393
	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

	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:

September 30, 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	$	2,778	$	9,441	$	—	$	200	$	715	$	713	$	116	$	13,963
2		—		10,253		—		—		—		925		—		11,178
3		30,315		85,865		4,773		10,758		20,902		13,019		16		165,648
4		136,075		278,495		3,546		28,060		54,123		18,525		411		519,235
5		24,948		83,575		687		3,619		15,208		10,908		4		138,949
6		375		8,541		—		1		1,239		478		—		10,634
7		624		4,668		—		—		182		1,292		—		6,766
		195,115		480,838		9,006		42,638		92,369		45,860		547		866,373
Ungraded Loan Exposure:
Performing		140,800		664		36,916		14,991		9,351		48		6,541		209,311
Nonperforming		776		—		69		—		51		—		1		897
Subtotal		141,576		664		36,985		14,991		9,402		48		6,542		210,208
Total	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

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.

	September 30, 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	$	3,440	$	404	$	652	$	4,496	$	332,195	$	336,691
Commercial real estate		773		2,909		587		4,269		477,233		481,502
Home equity and lines of credit		264		—		69		333		45,658		45,991
Residential construction		—		—		1		1		57,628		57,629
Other construction and land		175		16		198		389		101,382		101,771
Commercial		15		6		969		990		44,918		45,908
Consumer		70		—		1		71		7,018		7,089
Total	$	4,737	$	3,335	$	2,477	$	10,549	$	1,066,032	$	1,076,581
	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 September 30, 2019 and December 31, 2018.

	September 30, 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	$	1,440	$	1,593	$	—	$	845	$	923	$	—
Commercial real estate		1,896		4,279		—		3,835		6,207		—
Home equity and lines of credit		283		283		—		283		283		—
Other construction and land		537		676		—		365		366		—
	$	4,156	$	6,831	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	536	$	536	$	39	$	2,055	$	2,055	$	79
Commercial real estate		1,593		1,593		41		2,184		2,184		27
Home equity and lines of credit		—		—		—		30		30		—
Other construction and land		733		733		44		1,012		1,012		54
Commercial		1,170		1,170		226		276		276		7
	$	4,032	$	4,032	$	350	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	1,976	$	2,129	$	39	$	2,900	$	2,978	$	79
Commercial real estate		3,489		5,872		41		6,019		8,391		27
Home equity and lines of credit		283		283		—		313		313		—
Other construction and land		1,270		1,409		44		1,377		1,378		54
Commercial		1,170		1,170		226		276		276		7
	$	8,188	$	10,863	$	350	$	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 September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	1,597	$	20	$	2,247	$	23	$	1,607	$	62	$	2,264	$	69
Commercial real estate		4,280		20		4,790		32		4,286		62		5,920		97
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		677		6		692		6		681		18		695		16
	$	6,837	$	50	$	8,157	$	65	$	6,857	$	155	$	9,307	$	195
Loans with a valuation allowance
One-to-four family residential	$	540	$	8	$	825	$	11	$	545	$	24	$	831	$	32
Commercial real estate		1,598		22		2,172		22		1,610		66		2,184		68
Other construction and land		762		11		842		11		796		34		854		34
Commercial		1,158		5		281		5		1,166		16		285		17
	$	4,058	$	46	$	4,120	$	49	$	4,117	$	140	$	4,154	$	151
Total
One-to-four family residential	$	2,137	$	28	$	3,072	$	34	$	2,152	$	86	$	3,095	$	101
Commercial real estate		5,878		42		6,962		54		5,896		128		8,104		165
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		1,439		17		1,534		17		1,477		52		1,549		50
Commercial		1,158		5		281		5		1,166		16		285		17
	$	10,895	$	96	$	12,277	$	114	$	10,974	$	295	$	13,461	$	346

Schedule of Nonperforming Loans

The following table summarizes the balances of non-performing loans as of September 30, 2019 and December 31, 2018.

	September 30, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,132	$	1,037
Commercial real estate		1,859		3,266
Home equity loans and lines of credit		69		178
Residential construction		1		—
Other construction and land		233		256
Commercial		975		120
Consumer		1		—
Non-performing loans	$	4,270	$	4,857

Summary of TDR Loans

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

	September 30, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	1,617	$	—	$	1,617
Commercial real estate		2,332		1,152		3,484
Home equity and lines of credit		283		—		283
Other construction and land		1,087		182		1,269
Commercial		263		—		263
	$	5,582	$	1,334	$	6,916

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FAIR VALUE DISCLOSURES (Tables)

9 Months Ended

Sep. 30, 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: 

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Assets:
Equity securities	$	6,947	$	—	$	—	$	6,947
Securities available for sale:
U.S. Treasury & Government Agencies		5,079		28,179		—		33,258
Municipal Securities		—		120,156		—		120,156
Mortgage-backed Securities - Guaranteed		—		73,834		—		73,834
Collateralized Mortgage Obligations - Guaranteed		—		21,774		—		21,774
Collateralized Mortgage Obligations - Non Guaranteed		—		65,264		—		65,264
Collateralized Loan Obligations		—		15,221				15,221
Corporate bonds		—		19,326		494		19,820
Total securities available for sale		5,079		343,754		494		349,327
Mortgage loans held for sale		—		—		5,221		5,221
Loan servicing rights		—		—		2,520		2,520
Interest rate swaps		—		97		—		97
Mortgage derivatives		—		—		79		79
Total recurring assets at fair value	$	12,026	$	343,851	$	8,314	$	364,191
Liabilities:
Interest rate swaps	$	—	$	1,760	$	—	$	1,760
Mortgage derivatives		—		—		16		16
Total recurring liabilities at fair value	$	—	$	1,760	$	16	$	1,776

	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of period	$	6,683		$	4,404		$	5,773		$	3,321
AFS securities
Fair value adjustment		—			—			1			—
Mortgage loans held for sale		1,647			651			2,790			1,821
Loan servicing right activity, included in servicing income, net
Capitalization from loans sold		133			129			225			374
Fair value adjustment		(176	)		(43	)		(542	)		(359	)
Mortgage derivative gains(losses) included in other income		11			(34	)		51			(50	)
Balance at end of period	$	8,298		$	5,107		$	8,298		$	5,107

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: 

	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Collateral dependent impaired loans:
One-to-four family residential	$	—	$	—	$	1,440	$	1,440
Commercial real estate		—		—		1,896		1,896
Home equity loans and lines of credit		—		—		283		283
Other construction and land		—		—		537		537
Real estate owned:
One-to-four family residential		—		—		349		349
Commercial real estate		—		—		1,485		1,485
Other construction and land		—		—		1,254		1,254
Total assets	$	—	$	—	$	7,244	$	7,244

	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 September 30, 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	100% - 108%
Loan servicing rights	Discounted Cash Flows	Prepayment speed	11% - 21%
		Discount rate	10% - 14%
Mortgage loans held for sale	External pricing model	Recent trade pricing	100% - 106%
Mortgage derivatives	External pricing model	Pull-through rate	72% - 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 September 30, 2019
	Carrying
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3
Assets:
Cash and equivalents	$	144,196	$	144,196	$	144,196	$	—	$	—
Equity securities		6,947		6,947		6,947		—		—
Securities available for sale		349,327		349,327		5,079		343,754		494
Loans held for sale		11,142		11,817		—		6,596		5,221
Loans receivable, net		1,076,581		1,048,805		—		—		1,048,805
Other investments, at cost		11,652		11,652		—		11,652		—
Accrued interest receivable		6,163		6,163		—		6,163		—
BOLI		32,461		32,461		—		32,461		—
Loan servicing rights		2,520		2,520		—		—		2,520
Mortgage derivatives		79		79		—		—		79
Interest rate swaps		97		97		—		97		—
SBIC investments		4,993		4,993		—		—		4,993
Liabilities:
Demand deposits	$	905,965	$	905,965	$	—	$	905,965	$	—
Time deposits		373,980		379,529		—		—		379,529
Federal Home Loan Bank advances		205,500		204,846		—		204,846		—
Junior subordinated debentures		14,433		13,292		—		13,292		—
Other borrowings		4,463		4,697		—		4,697		—
Accrued interest payable		1,730		1,730		—		1,730		—
Mortgage derivatives		16		16		—		—		16
Interest rate swaps		1,760		1,760		—		1,760		—

			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		—

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2019

Income Taxes

Schedule of Components of Income Tax Expense (Benefit)

The components of net deferred taxes as of September 30, 2019 and December 31, 2018 are summarized as follows: 

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,817	$	2,703
Deferred compensation and post-employment benefits		1,820		1,854
Non-accrual interest		259		245
Valuation reserve for other real estate		253		191
North Carolina NOL carryover		91		293
Federal NOL carryover		—		1,231
AMT credit carryover		—		316
General federal business credit carryover		310		691
Unrealized losses on securities		344		1,061
Loan basis differences		42		50
Fixed assets		144		123
Core deposit intangible		186		129
Derivative instruments		121		—
Other		1,542		1,207
Total deferred tax assets		7,929		10,094
Deferred tax liabilities:
Loan servicing rights		579		653
Goodwill		754		495
Core deposit intangible		61		74
Deferred loan costs		1,018		1,001
Prepaid expenses		14		14
Unrealized gains on securities		2,448		105
Derivative instruments		14		29
Investment in partnerships		170		155
Other		—		17
Total deferred tax liabilities		5,058		2,543
Net deferred tax asset	$	2,871	$	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 as of September 30, 2019: 

(Dollars in thousands)	Amount		Expiration Dates
North Carolina	$	6,311		2026-2029
Federal General Business Credit Carryforwards	$	310		2038

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INVESTMENT SECURITIES (Details 2) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Held to maturity, Less Than 12 Months Fair Value	$ 20	$ 88
Held to maturity, Over 12 Months Fair Value	56	130
Held to maturity, Fair Value	76	218
Available for sale, Less Than 12 Months Fair Value	31,505	122,678
Available for sale, Less Than 12 Months Unrealized Losses	282	1,596
Available for sale, Over 12 Months Fair Value	59,058	152,331
Available for sale, Over 12 Months Unrealized Losses	1,214	3,780
Available for sale, Fair Value	90,563	275,009
Available for sale, Unrealized Losses	1,496	5,376
U.S. Government Agencies [Member]
Held to maturity, Less Than 12 Months Fair Value	13	14
Held to maturity, Over 12 Months Fair Value	5
Held to maturity, Fair Value	18	14
Available for sale, Less Than 12 Months Fair Value	19,818	23,423
Available for sale, Less Than 12 Months Unrealized Losses	226	152
Available for sale, Over 12 Months Fair Value	6,912
Available for sale, Over 12 Months Unrealized Losses	123
Available for sale, Fair Value	26,730	23,423
Available for sale, Unrealized Losses	349	152
Municipal Securities [Member]
Held to maturity, Less Than 12 Months Fair Value		31
Held to maturity, Over 12 Months Fair Value		52
Held to maturity, Fair Value		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		56,153
Available for sale, Over 12 Months Unrealized Losses		1,246
Available for sale, Fair Value		89,181
Available for sale, Unrealized Losses		1,667
Mortgage-backed Securities - Guaranteed [Member]
Held to maturity, Less Than 12 Months Fair Value	1	21
Held to maturity, Over 12 Months Fair Value	39	43
Held to maturity, Fair Value	40	64
Available for sale, Less Than 12 Months Fair Value	901	27,692
Available for sale, Less Than 12 Months Unrealized Losses	6	370
Available for sale, Over 12 Months Fair Value	37,332	45,619
Available for sale, Over 12 Months Unrealized Losses	761	1,208
Available for sale, Fair Value	38,233	73,311
Available for sale, Unrealized Losses	767	1,578
Collateralized Mortgage Obligations - Guaranteed [Member]
Held to maturity, Less Than 12 Months Fair Value	1	1
Held to maturity, Over 12 Months Fair Value	1	8
Held to maturity, Fair Value	2	9
Available for sale, Less Than 12 Months Fair Value	1,799	2,042
Available for sale, Less Than 12 Months Unrealized Losses	8	19
Available for sale, Over 12 Months Fair Value	1,797	15,294
Available for sale, Over 12 Months Unrealized Losses	28	631
Available for sale, Fair Value	3,596	17,336
Available for sale, Unrealized Losses	36	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	5	22
Held to maturity, Fair Value	7	34
Available for sale, Less Than 12 Months Fair Value	3,003	22,383
Available for sale, Less Than 12 Months Unrealized Losses	12	185
Available for sale, Over 12 Months Fair Value	2,748	30,471
Available for sale, Over 12 Months Unrealized Losses	13	543
Available for sale, Fair Value	5,751	52,854
Available for sale, Unrealized Losses	25	728
Collateralized mortgage obligations [Member]
Held to maturity, Less Than 12 Months Fair Value	3	6
Held to maturity, Over 12 Months Fair Value	5	1
Held to maturity, Fair Value	8	7
Available for sale, Less Than 12 Months Fair Value	5,984	11,618
Available for sale, Less Than 12 Months Unrealized Losses	30	404
Available for sale, Over 12 Months Fair Value	9,237	1,449
Available for sale, Over 12 Months Unrealized Losses	260	54
Available for sale, Fair Value	15,221	13,067
Available for sale, Unrealized Losses	290	458
Corporate debt securities [Member]
Held to maturity, Less Than 12 Months Fair Value		3
Held to maturity, Over 12 Months Fair Value	1	4
Held to maturity, Fair Value	1	7
Available for sale, Less Than 12 Months Fair Value		2,492
Available for sale, Less Than 12 Months Unrealized Losses		45
Available for sale, Over 12 Months Fair Value	1,032	3,345
Available for sale, Over 12 Months Unrealized Losses	29	98
Available for sale, Fair Value	1,032	5,837
Available for sale, Unrealized Losses	$ 29	$ 143

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CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest income:
Interest and fees on loans	$ 13,444	$ 12,621	$ 39,598	$ 36,981
Interest on tax exempt loans	102	106	314	290
Taxable securities	1,945	1,827	6,014	5,173
Tax-exempt securities	760	695	2,279	1,852
Interest-earning deposits	564	528	1,520	1,309
Other	181	201	559	544
Total interest and dividend income	16,996	15,978	50,284	46,149
Interest expense:
Deposits	3,633	2,331	9,963	5,540
Federal Home Loan Bank advances	1,315	1,091	4,094	2,841
Junior subordinated notes	142	141	423	421
Other borrowings	52	123	277	352
Interest Expense	5,142	3,686	14,757	9,154
Net interest income	11,854	12,292	35,527	36,995
Provision for loan losses		336	246	1,054
Net interest income after provision for loan losses	11,854	11,956	35,281	35,941
Noninterest income:
Servicing (loss) income, net	51	180	126	313
Mortgage banking	475	233	1,079	755
Gain on sale of SBA loans	290	257	387	547
Loss on sale of investments, net				(520)
Equity securities gains (losses)	(30)	191	500	183
Service charges on deposit accounts	406	406	1,205	1,242
Interchange fees, net	305	276	849	795
Bank owned life insurance	189	195	554	589
Legal settlement income			1,750
Other	372	227	878	775
Total noninterest income	2,058	1,965	7,328	4,679
Noninterest expenses:
Compensation and employee benefits	5,802	5,882	17,532	17,151
Net occupancy	1,052	1,128	3,256	3,342
Federal deposit insurance	(3)	191	280	618
Professional and advisory	179	413	763	1,023
Data processing	526	532	1,529	1,607
Marketing and advertising	159	227	594	671
Merger-related expenses	295	96	3,229	564
Net cost of operation of real estate owned	46	59	76	202
Other	861	1,013	2,944	2,925
Total noninterest expenses	8,917	9,541	30,203	28,103
Income before taxes	4,995	4,380	12,406	12,517
Income tax expense (benefit)	998	857	2,430	2,325
Net income	$ 3,997	$ 3,523	$ 9,976	$ 10,192
Earnings per common share:
Earnings per share - basic	$ 0.58	$ 0.51	$ 1.44	$ 1.48
Earnings per share - diluted	$ 0.56	$ 0.50	$ 1.42	$ 1.45
Weighted average common shares outstanding:
Common shares outstanding - Basic	6,923,114	6,891,672	6,920,880	6,889,130
Common shares outstanding - Diluted	7,089,850	7,031,150	7,029,164	7,023,714

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DEPOSITS

9 Months Ended

Sep. 30, 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 nine months ended September 30, 2019 and 2018 and the year ended December 31, 2018: 

	As of and for the								As of and for the Year Ended
	Nine Months Ended September 30,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	211,356	$	—	$	199,224	$	—	$	184,404	$	—
Interest-bearing demand		186,201		273		206,967		282		209,085		374
Money Market		463,289		4,185		372,428		1,687		356,086		2,637
Savings		45,119		41		52,874		44		50,716		59
Time Deposits		373,980		5,464		424,539		3,527		420,949		5,048
	$	1,279,945	$	9,963	$	1,256,032	$	5,540	$	1,221,240	$	8,118

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

	September 30,				December 31,
(Dollars in thousands)	2019		2018		2018
Wholesale money market	$	—	$	49,595	$	5,030
Wholesale time deposits		70,379		71,880		70,978
	$	70,379	$	121,475	$	76,008

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2019		2018		2019		2018
Numerator:
Net income	$	3,997	$	3,523	$	9,976	$	10,192
Denominator:
Weighted-average common shares outstanding - basic		6,923,114		6,891,672		6,920,880		6,889,130
Effect of dilutive securities:
Stock options		121,076		90,580		75,283		92,465
Restricted stock units		45,660		48,898		33,001		42,119
Weighted-average common shares outstanding - diluted		7,089,850		7,031,150		7,029,164		7,023,714
Earnings per share - basic	$	0.58	$	0.51	$	1.44	$	1.48
Earnings per share - diluted	$	0.56	$	0.50	$	1.42	$	1.45

The following table presents stock options that are not deemed dilutive in calculating diluted earnings per share for the respective periods in the table above: 

	Average Stock Price								Anti-dilutive Shares
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018		2019		2018
Stock options	$	29.93	$	28.25	$	27.08	$	28.44		11,900		30,438		44,900		23,721

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ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 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 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 under the Securities Act of 1933, as amended. 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 (as amended, the “2018 Form 10-K”). In the opinion of management, these interim consolidated 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.

Merger with First Citizens BancShares, Inc.

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.

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. 

Approval of the proposed merger by Entegra’s shareholders has been received. Completion of the proposed merger remains subject to the receipt of required regulatory approvals and the satisfaction or waiver of other customary conditions, and is expected to occur during the fourth quarter of 2019.

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 September 2016, the Financial Accounting Standards Board (“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 that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

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LEASES (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Leases [Abstract]
2019	$ 36
2020	69
2021	53
2022	53
2023	53
Thereafter	177
Total undiscounted lease payments	441
Discount effect of cash flows	(55)
Total lease liability	$ 386

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FAIR VALUE DISCLOSURES (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Interest Expense Federal Home Loan Bank Advances
Balance at beginning of period	$ 6,683	$ 4,404	$ 5,773	$ 3,321
Fair value adjustment to AFS securities			1
Mortgage loans held for sale	1,647	651	2,790	1,821
Capitalization from loans sold	133	129	225	374
Fair value adjustment	(176)	(43)	(542)	(359)
Mortgage derivative gains included in Other income	11	(34)	51	(50)
Balance at end of period	$ 8,298	$ 5,107	$ 8,298	$ 5,107

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 3) - USD ($) $ in Thousands		Sep. 30, 2019	Dec. 31, 2018
Loan Receivable		$ 1,076,581	$ 1,076,069
Hedged Assets [Member]
Loan Receivable	[1]	90,639
Hedged Assets [Member] | Fair Value Hedging Relationships [Member]
Loan Receivable	[1]	$ 1,088

[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 September 30, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $90.6 million, the cumulative basis adjustment associated with the hedging relationship was $1.1 million, and the amount of the designated hedged items was $25.0 million.

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ALLOWANCE FOR LOAN LOSSES (Details 7) - Nonperforming Financing Receivable [Member] - Loans [Member] - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	$ 4,270	$ 4,857
One-to-four family residential
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	1,132	1,037
Commercial Real Estate Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	1,859	3,266
Home Equity Line of Credit [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	69	178
Residential construction
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	233	256
Commercial Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	975	120
Consumer Portfolio Segment [Member]
Non Performing Loan Receivables and Other Assets [Line Items]
Finance receivable, non-accrual	$ 1

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DEPOSITS (Details 2) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Disclosure Deposits Details 3Abstract
Wholesale money market		$ 5,030	$ 49,595
Wholesale time deposits	70,379	70,978	71,880
Total	$ 70,379	$ 76,008	$ 121,475

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ALLOWANCE FOR LOAN LOSSES (Details 2) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Allowance for loan losses
Individually evaluated for impairment	$ 350		$ 167
Collectively evaluated for impairment	11,959		11,818
Balance, end of period	12,309	$ 12,194	11,985	$ 11,746	$ 11,525	$ 10,887
Loans Receivable
Individually evaluated for impairment	8,188		10,885
Collectively evaluated for impairment	1,068,393		1,065,184
Loans Receivable	1,076,581		1,076,069
One-to-four family residential
Allowance for loan losses
Individually evaluated for impairment	39		79
Collectively evaluated for impairment	3,902		3,830
Balance, end of period	3,941	3,979	3,909	3,800	3,772	4,018
Loans Receivable
Individually evaluated for impairment	1,976		2,900
Collectively evaluated for impairment	334,715		322,255
Loans Receivable	336,691		325,155
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	41		27
Collectively evaluated for impairment	5,107		5,103
Balance, end of period	5,148	5,264	5,130	5,043	4,902	4,364
Loans Receivable
Individually evaluated for impairment	3,489		6,019
Collectively evaluated for impairment	478,013		490,530
Loans Receivable	481,502		496,549
Home Equity Line of Credit [Member]
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment	515		560
Balance, end of period	515	521	560	542	552	616
Loans Receivable
Individually evaluated for impairment	283		313
Collectively evaluated for impairment	45,708		48,512
Loans Receivable	45,991		48,825
Residential construction
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment	653		452
Balance, end of period	653	567	452	466	453	303
Loans Receivable
Individually evaluated for impairment
Collectively evaluated for impairment	57,629		39,488
Loans Receivable	57,629		39,488
Other Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	44		54
Collectively evaluated for impairment	1,196		1,196
Balance, end of period	1,240	1,143	1,250	1,204	1,146	1,025
Loans Receivable
Individually evaluated for impairment	1,270		1,377
Collectively evaluated for impairment	100,501		103,087
Loans Receivable	101,771		104,464
Commercial Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment	226		7
Collectively evaluated for impairment	508		601
Balance, end of period	734	596	608	616	633	503
Loans Receivable
Individually evaluated for impairment	1,170		276
Collectively evaluated for impairment	44,738		54,367
Loans Receivable	45,908		54,643
Consumer Portfolio Segment [Member]
Allowance for loan losses
Individually evaluated for impairment
Collectively evaluated for impairment	78		76
Balance, end of period	78	$ 124	76	$ 75	$ 67	$ 58
Loans Receivable
Individually evaluated for impairment
Collectively evaluated for impairment	7,089		6,945
Loans Receivable	$ 7,089		$ 6,945

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LOANS RECEIVABLE (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Discount on purchased loans, beginning of period			$ 1,000
Discount on purchased loans, end of period	$ 1,030		1,030
Federal Deposit Insurance Corporation [Member]
Discount on purchased loans, beginning of period	180	$ 399	236	$ 710
Accretion	(101)	(67)	(157)	(378)
Discount on purchased loans, end of period	$ 79	$ 332	$ 79	$ 332

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 5) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Loans and Leases Receivable Commitments, Fixed Interest Rates
Amount of gain (loss) recognized in AOCI on derivatives	$ (85)	$ 93	$ (531)	$ 303	$ 2
Amount of gain (loss) reclassified from AOCI into income	(49)	(149)	(172)	(347)	(431)
Amount of gain (loss) recognized in consolidated statement of comprehensive income	$ (134)	$ (56)	$ (703)	$ (44)	$ (429)

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 3,997	$ 2,164	$ 3,815	$ 3,523	$ 3,087	$ 3,582	$ 9,976	$ 10,192
Weighted average shares outstanding	6,923,114			6,891,672			6,920,880	6,889,130
Effect of dilutive stock options	121,076			90,580			75,283	92,465
Effect of dilutive restricted stock units	45,660			48,898			33,001	42,119
Weighted-average common shares outstanding - diluted	7,089,850			7,031,150			7,029,164	7,023,714
Earnings per share - basic	$ 0.58			$ 0.51			$ 1.44	$ 1.48
Earnings per share - diluted	0.56			0.50			1.42	1.45
Equity Option [Member]
Average Stock Price	$ 29.93			$ 28.25			$ 27.08	$ 28.44
Anti-Dilutaive Shares	11,900			30,438			44,900	23,721

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COMMITMENTS AND CONTINGENCIES (Details 2) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Fixed	$ 20,965
Variable	4,869
Total	$ 25,834
Minimum [Member]
Fixed (as a percent)	3.13%
Variable (as a percent)	2.88%
Maximum [Member]
Fixed (as a percent)	6.99%
Variable (as a percent)	6.49%

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2019

Investment Securities

Schedule of holdings of our trading account

The following table presents the holdings of our equity securities as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
	(Dollars in thousands)
Mutual funds	$	6,947	$	6,178

Schedule of investment securities available for sale

The amortized cost and estimated fair values of available-for-sale (“AFS”) investment securities as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30, 2019
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
U.S. Treasury & Government Agencies	$	33,423	$	184	$	(349	)	$	33,258
Municipal Securities		113,789		6,367		—			120,156
Mortgage-backed Securities - Guaranteed		73,818		783		(767	)		73,834
Collateralized Mortgage Obligations - Guaranteed		21,428		382		(36	)		21,774
Collateralized Mortgage Obligations - Non Guaranteed		63,647		1,642		(25	)		65,264
Collateralized Loan Obligations		15,511		—		(290	)		15,221
Corporate bonds		19,412		437		(29	)		19,820
	$	341,028	$	9,795	$	(1,496	)	$	349,327

	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 the fair value of AFS investment securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	September 30, 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)
Available-for-Sale:
U.S. Treasury & Government Agencies	$	19,818	$	226	$	6,912	$	123	$	26,730	$	349
Mortgage-backed Securities - Guaranteed		901		6		37,332		761		38,233		767
Collateralized Mortgage Obligations - Guaranteed		1,799		8		1,797		28		3,596		36
Collateralized Mortgage Obligations - Non Guaranteed		3,003		12		2,748		13		5,751		25
Collateralized Loan Obligations		5,984		30		9,237		260		15,221		290
Corporate Bonds		—		—		1,032		29		1,032		29
	$	31,505	$	282	$	59,058	$	1,214	$	90,563	$	1,496

	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)
Available-for-Sale:
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

	September 30, 2019
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
U.S. Treasury & Government Agencies		13		5		18
Mortgage-backed Securities - Guaranteed		1		39		40
Collateralized Mortgage Obligations - Guaranteed		1		1		2
Collateralized Mortgage Obligations - Non Guaranteed		2		5		7
Collateralized loan obligation		3		5		8
Corporate bonds		—		1		1
		20		56		76

	December 31, 2018
	Less Than 12 Months		More Than 12 Months		Total
Available-for-Sale:
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 obligation		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 investment securities classified as AFS and corresponding gross realized gains and losses as follows:

	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
AFS
Gross proceeds	$	—	$	54,174
Gross realized gains		—		77
Gross realized losses		—		1,024
Visa Class B Restricted Shares
Gross proceeds		—		427
Gross realized gains		—		427
Gross realized losses		—		—
Total
Gross proceeds	$	—	$	54,601
Gross realized gains		—		504
Gross realized losses		—		1,024

Amortized Cost and Estimated Fair Value of Securities by Contractual Maturity

The amortized cost and estimated fair value of investments in debt securities at September 30, 2019, by contractual maturity, is shown below.

	Available-for-Sale
	Amortized Cost		Fair Value
	(Dollars in thousands)
Less than 1 year	$	1,990	$	1,996
Over 1 year through 5 years		6,952		6,107
After 5 years through 10 years		31,457		33,331
Over 10 years		141,736		147,021
		182,135		188,455
Mortgage-backed securities		158,893		160,872
Total	$	341,028	$	349,327

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DEPOSITS (Tables)

9 Months Ended

Sep. 30, 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 nine months ended September 30, 2019 and 2018 and the year ended December 31, 2018: 

	As of and for the								As of and for the Year Ended
	Nine Months Ended September 30,								December 31,
	2019				2018				2018
(Dollars in thousands)	Balance		Interest Expense		Balance		Interest Expense		Balance		Interest Expense
Noninterest-bearing demand	$	211,356	$	—	$	199,224	$	—	$	184,404	$	—
Interest-bearing demand		186,201		273		206,967		282		209,085		374
Money Market		463,289		4,185		372,428		1,687		356,086		2,637
Savings		45,119		41		52,874		44		50,716		59
Time Deposits		373,980		5,464		424,539		3,527		420,949		5,048
	$	1,279,945	$	9,963	$	1,256,032	$	5,540	$	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: 

	September 30,				December 31,
(Dollars in thousands)	2019		2018		2018
Wholesale money market	$	—	$	49,595	$	5,030
Wholesale time deposits		70,379		71,880		70,978
	$	70,379	$	121,475	$	76,008

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ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 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 September 30, 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	$	3,979		$	5,264		$	521		$	567	$	1,143	$	596	$	124		$	12,194
Provision		(123	)		(118	)		18			86		89		120		(72	)		—
Charge-offs		—			(1	)		(49	)		—		—		—		(12	)		(62	)
Recoveries		85			3			25			—		8		18		38			177
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240	$	734	$	78		$	12,309

	Three Months Ended September 30, 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	$	3,772		$	4,902	$	552		$	453	$	1,146	$	633		$	67		$	11,525
Provision		33			141		209			12		42		26			(127	)		336
Charge-offs		(6	)		—		(219	)		—		—		(45	)		(17	)		(287	)
Recoveries		1			—		—			1		16		2			152			172
Ending balance	$	3,800		$	5,043	$	542		$	466	$	1,204	$	616		$	75		$	11,746

	Nine Months Ended September 30, 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		(69	)		52			62			201		(32	)		161			(129	)		246
Charge-offs		(4	)		(93	)		(258	)		—		(1	)		(59	)		(105	)		(520	)
Recoveries		105			59			151			—		23			24			236			598
Ending balance	$	3,941		$	5,148		$	515		$	653	$	1,240		$	734		$	78		$	12,309

	Nine Months Ended September 30, 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		(117	)		711			162			162		136		182			(182	)		1,054
Charge-offs		(116	)		(35	)		(260	)		—		—		(79	)		(75	)		(565	)
Recoveries		15			3			24			1		43		10			274			370
Ending balance	$	3,800		$	5,043		$	542		$	466	$	1,204	$	616		$	75		$	11,746

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:

	September 30, 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	$	39	$	41	$	—	$	—	$	44	$	226	$	—	$	350
Collectively evaluated for impairment		3,902		5,107		515		653		1,196		508		78		11,959
	$	3,941	$	5,148	$	515	$	653	$	1,240	$	734	$	78	$	12,309
Loans Receivable
Individually evaluated for impairment	$	1,976	$	3,489	$	283	$	—	$	1,270	$	1,170	$	—	$	8,188
Collectively evaluated for impairment		334,715		478,013		45,708		57,629		100,501		44,738		7,089		1,068,393
	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

	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 lien holders 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 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:

September 30, 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	$	2,778	$	9,441	$	—	$	200	$	715	$	713	$	116	$	13,963
2		—		10,253		—		—		—		925		—		11,178
3		30,315		85,865		4,773		10,758		20,902		13,019		16		165,648
4		136,075		278,495		3,546		28,060		54,123		18,525		411		519,235
5		24,948		83,575		687		3,619		15,208		10,908		4		138,949
6		375		8,541		—		1		1,239		478		—		10,634
7		624		4,668		—		—		182		1,292		—		6,766
		195,115		480,838		9,006		42,638		92,369		45,860		547		866,373
Ungraded Loan Exposure:
Performing		140,800		664		36,916		14,991		9,351		48		6,541		209,311
Nonperforming		776		—		69		—		51		—		1		897
Subtotal		141,576		664		36,985		14,991		9,402		48		6,542		210,208
Total	$	336,691	$	481,502	$	45,991	$	57,629	$	101,771	$	45,908	$	7,089	$	1,076,581

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.

	September 30, 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	$	3,440	$	404	$	652	$	4,496	$	332,195	$	336,691
Commercial real estate		773		2,909		587		4,269		477,233		481,502
Home equity and lines of credit		264		—		69		333		45,658		45,991
Residential construction		—		—		1		1		57,628		57,629
Other construction and land		175		16		198		389		101,382		101,771
Commercial		15		6		969		990		44,918		45,908
Consumer		70		—		1		71		7,018		7,089
Total	$	4,737	$	3,335	$	2,477	$	10,549	$	1,066,032	$	1,076,581
	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 September 30, 2019 and December 31, 2018.

	September 30, 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	$	1,440	$	1,593	$	—	$	845	$	923	$	—
Commercial real estate		1,896		4,279		—		3,835		6,207		—
Home equity and lines of credit		283		283		—		283		283		—
Other construction and land		537		676		—		365		366		—
	$	4,156	$	6,831	$	—	$	5,328	$	7,779	$	—
Loans with a valuation allowance
One-to-four family residential	$	536	$	536	$	39	$	2,055	$	2,055	$	79
Commercial real estate		1,593		1,593		41		2,184		2,184		27
Home equity and lines of credit		—		—		—		30		30		—
Other construction and land		733		733		44		1,012		1,012		54
Commercial		1,170		1,170		226		276		276		7
	$	4,032	$	4,032	$	350	$	5,557	$	5,557	$	167
Total
One-to-four family residential	$	1,976	$	2,129	$	39	$	2,900	$	2,978	$	79
Commercial real estate		3,489		5,872		41		6,019		8,391		27
Home equity and lines of credit		283		283		—		313		313		—
Other construction and land		1,270		1,409		44		1,377		1,378		54
Commercial		1,170		1,170		226		276		276		7
	$	8,188	$	10,863	$	350	$	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 September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
	Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
	(Dollars in thousands)								(Dollars in thousands)
Loans without a valuation allowance
One-to-four family residential	$	1,597	$	20	$	2,247	$	23	$	1,607	$	62	$	2,264	$	69
Commercial real estate		4,280		20		4,790		32		4,286		62		5,920		97
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		677		6		692		6		681		18		695		16
	$	6,837	$	50	$	8,157	$	65	$	6,857	$	155	$	9,307	$	195
Loans with a valuation allowance
One-to-four family residential	$	540	$	8	$	825	$	11	$	545	$	24	$	831	$	32
Commercial real estate		1,598		22		2,172		22		1,610		66		2,184		68
Other construction and land		762		11		842		11		796		34		854		34
Commercial		1,158		5		281		5		1,166		16		285		17
	$	4,058	$	46	$	4,120	$	49	$	4,117	$	140	$	4,154	$	151
Total
One-to-four family residential	$	2,137	$	28	$	3,072	$	34	$	2,152	$	86	$	3,095	$	101
Commercial real estate		5,878		42		6,962		54		5,896		128		8,104		165
Home equity and lines of credit		283		4		428		4		283		13		428		13
Other construction and land		1,439		17		1,534		17		1,477		52		1,549		50
Commercial		1,158		5		281		5		1,166		16		285		17
	$	10,895	$	96	$	12,277	$	114	$	10,974	$	295	$	13,461	$	346

Nonperforming Loans

The following table summarizes the balances of non-performing loans as of September 30, 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.

	September 30, 2019		December 31, 2018
	(Dollars in thousands)
One-to-four family residential	$	1,132	$	1,037
Commercial real estate		1,859		3,266
Home equity loans and lines of credit		69		178
Residential construction		1		—
Other construction and land		233		256
Commercial		975		120
Consumer		1		—
Non-performing loans	$	4,270	$	4,857

TDRs

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

	September 30, 2019
	Performing		Nonperforming		Total
	TDRs		TDRs		TDRs
	(Dollars in thousands)
One-to-four family residential	$	1,617	$	—	$	1,617
Commercial real estate		2,332		1,152		3,484
Home equity and lines of credit		283		—		283
Other construction and land		1,087		182		1,269
Commercial		263		—		263
	$	5,582	$	1,334	$	6,916

	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

Loan modifications that were deemed TDRs at the time of the modification during the periods presented are summarized in the table below: 

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
(Dollars in thousands)	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Extended payment terms
Commercial real estate		—	$	—		1	$	206

There were no loan modifications that were deemed TDRs at the time of the modification during the three or nine month periods ended September 30, 2019.

There were no TDRs that defaulted during the three month and nine month periods ending September 30, 2019 and 2018 and which were modified as TDRs within the previous 12 months.

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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)		(3,382)
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, 2017		72,997	78,718	(23)	(379)	151,313
Beginning Balance (in shares) at Dec. 31, 2017	6,879,191
Net income (loss)						10,192
Stock compensation expense						772
Cumulative effect of change in accounting principle						9
Ending Balance at Sep. 30, 2018		73,865	88,901	(5,657)	(379)	156,730
Ending Balance (in shares) at Sep. 30, 2018	6,891,672
Beginning Balance at Mar. 31, 2018		73,360	82,291	(3,396)	(379)	151,876
Beginning Balance (in shares) at Mar. 31, 2018	6,888,415
Net income (loss)			3,087			3,087
Other comprehensive income, net of tax				(425)		(425)
Stock compensation expense		258				258
Vesting of restricted stock units, net shares surrendered		(10)				(10)
Vesting of restricted stock units, net shares surrendered (in shares)	3,257
Ending Balance at Jun. 30, 2018		73,608	85,378	(3,821)	(379)	154,786
Ending Balance (in shares) at Jun. 30, 2018	6,891,672
Net income (loss)			3,523			3,523
Other comprehensive income, net of tax				(1,836)		(1,836)
Stock compensation expense		257				257
Ending Balance at Sep. 30, 2018		73,865	88,901	(5,657)	(379)	156,730
Ending Balance (in shares) at Sep. 30, 2018	6,891,672
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
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)						9,976
Stock compensation expense						870
Ending Balance at Sep. 30, 2019		74,816	102,600	5,939	(379)	182,976
Ending Balance (in shares) at Sep. 30, 2019	6,925,283
Beginning Balance at Mar. 31, 2019		74,320	96,439	545	(379)	170,925
Beginning Balance (in shares) at Mar. 31, 2019	6,919,212
Net income (loss)			2,164			2,164
Other comprehensive income, net of tax				3,605		3,605
Stock compensation expense		290				290
Stock options exercised, net of shares surrendered		(10)				(10)
Stock options exercised, net of shares surrendered (in shares)	553
Vesting of restricted stock units, net shares surrendered		(24)				(24)
Vesting of restricted stock units, net shares surrendered (in shares)	2,799
Ending Balance at Jun. 30, 2019		74,576	98,603	4,150	(379)	176,950
Ending Balance (in shares) at Jun. 30, 2019	6,922,564
Net income (loss)			3,997			3,997
Other comprehensive income, net of tax				1,789		1,789
Stock compensation expense		290				290
Vesting of restricted stock units, net shares surrendered		(50)				(50)
Vesting of restricted stock units, net shares surrendered (in shares)	2,719
Ending Balance at Sep. 30, 2019		$ 74,816	$ 102,600	$ 5,939	$ (379)	$ 182,976
Ending Balance (in shares) at Sep. 30, 2019	6,925,283

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CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 17,662	$ 15,409
Interest-earning deposits	126,534	53,710
Cash and cash equivalents	144,196	69,119
Investments - equity securities	6,947	6,178
Investments - available for sale	349,327	359,738
Other investments, at cost	11,652	12,039
Loans held for sale (includes $5,221 and $2,431 at fair value)	11,142	7,570
Loans receivable,net	1,076,581	1,076,069
Allowance for loan losses	(12,309)	(11,985)
Fixed assets, net	25,430	26,385
Real estate owned	3,088	2,493
Accrued interest receivable	6,163	6,443
Bank owned life insurance	32,461	32,886
Small Business Investment Company Holdings, at cost	4,993	3,839
Net deferred tax asset	2,871	7,551
Loan servicing rights	2,520	2,837
Goodwill	23,903	23,903
Core deposit intangible	3,059	3,577
Other assets	11,999	7,799
Total assets	1,704,023	1,636,441
Liabilities:
Core deposits	905,965	795,261
Retail certificates of deposit	303,601	349,971
Wholesale deposits	70,379	76,008
Federal Home Loan Bank advances	205,500	213,500
Junior subordinated notes	14,433	14,433
Other borrowings	4,463	9,299
Post employment benefits	9,205	9,305
Accrued interest payable	1,730	1,647
Other liabilities	5,771	4,145
Total liabilities	1,521,047	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; 6,925,283 and 6,917,703 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Common stock held by Rabbi Trust, at cost; 17,672 shares at September 30, 2019 and December 31, 2018	(379)	(379)
Additional paid in capital	74,816	74,051
Retained earnings	102,600	92,624
Accumulated other comprehensive loss	5,939	(3,424)
Total shareholders' equity	182,976	162,872
Total liabilities and shareholders' equity	$ 1,704,023	$ 1,636,441

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 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 September 30, 2019, the Company had two derivatives in a total net liability position of $1.8 million under these agreements and recognized the right to reclaim cash collateral of $1.8 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)
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Interest rate swaps	$	97	$	354	$	1,760	$	462
Total	$	97	$	354	$	1,760	$	462
Derivatives not designated as hedging instruments:
Mortgage derivatives	$	79	$	34	$	16	$	22
Total	$	79	$	34	$	16	$	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 September 30,
	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	$	16,996		$	5,142		$	15,978		$	3,686
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		120			—			(182	)		—
Derivatives designated as hedging instruments		(148	)		—			187			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive income into income		—			(49	)		—			(149	)

	Nine months ended September 30,
	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	$	50,284		$	14,757		$	46,149		$	9,154
Amounts related to fair value hedging relationships
Interest rate swaps:
Hedged items		843			—			(263	)		—
Derivatives designated as hedging instruments		(893	)		—			261			—
Amounts related to cash flow hedging relationships
Interest rate swaps:
Amount reclassified from accumulated other comprehensive loss into income		—			(172	)		—			(347	)

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 September 30, 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	September 30, 2019		September 30, 2019
Loans receivable (1)	$	90,639	$	1,088

⁽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 September 30, 2019, the amortized cost basis of the closed portfolio used in the the hedging relationship was $90.6 million, the cumulative basis adjustment associated with the hedging relationship was $1.1 million, and the amount of the designated hedged items 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 structure of the swap agreements designated as cash flow hedges is 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						As of and for the						As of and for the
		Three Months Ended September 30,						Nine Months Ended September 30,						Year Ended December 31,
Interest rate swaps	Location	2019			2018			2019			2018			2018
Amounts recognized in AOCI on derivatives	OCI	$	(85	)	$	93		$	(531	)	$	303		$	2
Amounts reclassified from AOCI into income	Interest expense		(49	)		(149	)		(172	)		(347	)		(431	)
Amounts recognized in consolidated statement of comprehensive income		$	(134	)	$	(56	)	$	(703	)	$	(44	)	$	(429	)

Derivatives Not Designated as Hedging Instruments

Mortgage Derivatives

Mortgage derivative fair value assets and liabilities are described above. At September 30, 2019 and December 31, 2018, the Company had the following IRLCs and forward commitments for the future delivery of residential mortgage loans.

	As of September 30,		As of December 31,
(Dollars in thousands)	2019		2018
Mortgage derivatives
Interest rate lock commitments	$	8,003	$	1,627
Forward sales commitment		12,750		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 September 30,						Nine Months Ended September 30,
Interest rate products	Location	2019			2018			2019			2018
		(Dollars in thousands)
Amount of gain (loss) recognized in income on forward commitments	Noninterest income	$	(29	)	$	12		$	(124	)	$	(33	)
Amount of gain (loss) recognized in income on interest rate lock commitments	Noninterest income		(15	)		(46	)		30			(17	)
Amount of loss recognized in income on derivatives not designated as hedging instruments		$	(44	)	$	(34	)	$	(94	)	$	(50	)

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 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: 

	September 30, 2019
	(Dollars in thousands)
Lines of credit	$	159,801
Standby letters of credit		1,078
	$	160,879

As of September 30, 2019, the Company had outstanding commitments to originate loans as follows:

	September 30, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	20,965		3.13% to 6.99%
Variable		4,869		2.88% to 6.49%
	$	25,834

The allowance for unfunded commitments was $0.1 million at September 30, 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 September 30, 2019 and December 31, 2018.

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

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ORGANIZATION (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	Sep. 30, 2019	Apr. 23, 2019
Ownership percentage in Macon Capital Trust I	100.00%
SmartFinancial, Inc.[Member]
Termination Fees		$ 6,400
BancShares [Member]
Right to receive cash for Common Stock Outstanding, per Share		$ 30.18

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

9 Months Ended

Sep. 30, 2019

Accumulated Other Comprehensive Income Loss

Schedule of Accumulated other comprehensive income (loss)

The following table summarizes the components of accumulated other comprehensive income (“AOCI”) and changes in those components as of and for the three and nine months ended September 30, 2019 and 2018. 

	Three Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
(Dollars in thousands)
Balance, beginning of period	$	4,496		$	(346	)	$	4,150
Change in net unrealized holding gains on securities available for sale		2,455			—			2,455
Change in unrealized holding losses on cash flow hedge		—			(85	)		(85	)
Reclassification adjustment for cash flow hedge effectiveness		—			(49	)		(49	)
Income tax effect		(560	)		28			(532	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Three Months Ended September 30, 2018
(Dollars in thousands)
Balance, beginning of period	$	(4,271	)	$	450		$	(3,821	)
Change in net unrealized holding losses on securities available for sale		(2,318	)		—			(2,318	)
Change in unrealized holding gains on cash flow hedge		—			93			93
Reclassification adjustment for cash flow hedge effectiveness		—			(149	)		(149	)
Income tax effect		524			14			538
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

	Nine Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
	(Dollars in thousands)
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in net unrealized holding losses on securities available for sale		12,889			—			12,889
Change in unrealized holding gains on cash flow hedge		—			(531	)		(531	)
Reclassification adjustment for cash flow effectiveness		—			(172	)		(172	)
Income tax effect		(2,970	)		147			(2,823	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Nine Months Ended September 30, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in net unrealized holding losses on securities available for sale		(8,181	)		—			(8,181	)
Reclassification adjustment for net securities gains realized in net income		947			—			947
Change in unrealized holding gains on cash flow hedge		—			303			303
Reclassification adjustment for cash flow effectiveness		—			(347	)		(347	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		1,615			20			1,635
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

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 AOCI as of the dates indicated: 

	Three Months Ended September 30						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	—		$	—		$	(947	)	Loss on sale of investments, net
Income tax effect		—			—			—			213		Income tax expense
Reclassified out of AOCI, net of tax		—			—			—			(734	)	Net income
Cash flow hedge
Interest expense- effective portion		—			99			—			223		Interest expense - FHLB advances
Interest expense- effective portion		49			50			172			124		Interest expense - Junior subordinated notes
Income tax effect		(11	)		(33	)		(39	)		(78	)	Income tax expense
Reclassified out of AOCI, net of tax		38			116			133			269		Net income
Total reclassified out of AOCI, net of tax	$	38		$	116		$	133		$	(465	)	Net income

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 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	(1,781)	(1,263)
Finite Lived Core Deposits Net	3,059	$ 3,577
Amortization expense	$ 700

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details) - USD ($) $ in Thousands		Sep. 30, 2019	Dec. 31, 2018
Designated as Hedging Instrument [Member]
Asset derivatives, Fair value	[1]	$ 97	$ 354
Liability derivatives, Fair value	[1]	1,760	462
Designated as Hedging Instrument [Member] | Interest rate swaps [Member]
Asset derivatives, Fair value	[1]	97	354
Liability derivatives, Fair value	[1]	1,760	462
Designated as Hedging Instrument [Member] | Mortgage Derivatives [Member]
Asset derivatives, Fair value	[1]	79	34
Liability derivatives, Fair value	[1]	16	22
Not Designated as Hedging Instrument [Member]
Asset derivatives, Fair value	[1]	79	34
Liability derivatives, Fair value	[1]	$ 16	$ 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.

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FAIR VALUE DISCLOSURES (Details 4)	9 Months Ended
	Sep. 30, 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	100.00%
Corporate Bond [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	108.00%
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	11.00%
Discount rate	10.00%
Loan Servicing Rights[Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Prepayment Speed	21.00%
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	100.00%
Mortgage loans held for sale [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Recent trade pricing	106.00%
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	72.00%
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

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 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

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

9 Months Ended

Sep. 30, 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 (“AOCI”) and changes in those components as of and for the three and nine months ended September 30, 2019 and 2018. 

	Three Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
(Dollars in thousands)
Balance, beginning of period	$	4,496		$	(346	)	$	4,150
Change in net unrealized holding gains on securities available for sale		2,455			—			2,455
Change in unrealized holding losses on cash flow hedge		—			(85	)		(85	)
Reclassification adjustment for cash flow hedge effectiveness		—			(49	)		(49	)
Income tax effect		(560	)		28			(532	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Three Months Ended September 30, 2018
(Dollars in thousands)
Balance, beginning of period	$	(4,271	)	$	450		$	(3,821	)
Change in net unrealized holding losses on securities available for sale		(2,318	)		—			(2,318	)
Change in unrealized holding gains on cash flow hedge		—			93			93
Reclassification adjustment for cash flow hedge effectiveness		—			(149	)		(149	)
Income tax effect		524			14			538
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

	Nine Months Ended September 30, 2019
	Available for Sale Securities			Cash Flow Hedge			Total
	(Dollars in thousands)
Balance, beginning of period	$	(3,528	)	$	104		$	(3,424	)
Change in net unrealized holding losses on securities available for sale		12,889			—			12,889
Change in unrealized holding gains on cash flow hedge		—			(531	)		(531	)
Reclassification adjustment for cash flow effectiveness		—			(172	)		(172	)
Income tax effect		(2,970	)		147			(2,823	)
Balance, end of period	$	6,391		$	(452	)	$	5,939
	Nine Months Ended September 30, 2018
	(Dollars in thousands)
Balance, beginning of period	$	(455	)	$	432		$	(23	)
Change in net unrealized holding losses on securities available for sale		(8,181	)		—			(8,181	)
Reclassification adjustment for net securities gains realized in net income		947			—			947
Change in unrealized holding gains on cash flow hedge		—			303			303
Reclassification adjustment for cash flow effectiveness		—			(347	)		(347	)
Cumulative effect of change in accounting principle		9			—			9
Income tax effect		1,615			20			1,635
Balance, end of period	$	(6,065	)	$	408		$	(5,657	)

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

	Three Months Ended September 30						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018			Income Statement Line Item Affected
Available-for-sale securities
Losses recognized	$	—		$	—		$	—		$	(947	)	Loss on sale of investments, net
Income tax effect		—			—			—			213		Income tax expense
Reclassified out of AOCI, net of tax		—			—			—			(734	)	Net income
Cash flow hedge
Interest expense- effective portion		—			99			—			223		Interest expense - FHLB advances
Interest expense- effective portion		49			50			172			124		Interest expense - Junior subordinated notes
Income tax effect		(11	)		(33	)		(39	)		(78	)	Income tax expense
Reclassified out of AOCI, net of tax		38			116			133			269		Net income
Total reclassified out of AOCI, net of tax	$	38		$	116		$	133		$	(465	)	Net income

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ 9,976	$ 10,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	944	(255)
Investment amortization, net	2,448	2,672
Equity securities losses (gains)	(500)	(183)
Provision for loan losses	246	1,054
Provision for real estate owned	35	83
Share-based compensation expense	870	772
Deferred tax expense	1,815	1,796
Loss on sales of investments		520
Income on bank owned life insurance, net	(554)	(589)
Mortgage banking income, net	(1,079)	(755)
Gain on sales of SBA loans	(387)	(547)
Gain on sale of fixed assets	(10)
Gain on sale of other investment	(113)
Net realized gain on sale of real estate owned	(50)	(16)
Loans originated for sale	(35,059)	(36,982)
Proceeds from sale of loans originated for sale	31,242	38,159
Net change in operating assets and liabilities:
Accrued interest receivable	280	(753)
Loan servicing rights	317	(15)
Other assets	(3,168)	(3,381)
Postemployment benefits	(100)	(287)
Accrued interest payable	83	423
Other liabilities	1,180	(4,233)
Net cash provided by operating activities	8,416	7,675
Activity for investment securities:
Purchases		(107,204)
Maturities/calls and principal repayments	20,852	32,832
Sales		54,174
Proceeds from sale of Visa Class B restricted shares		427
Net increase in loans	(847)	(62,647)
Proceeds from sale of real estate owned	272	410
Proceeds from settlement of BOLI policies	1,115
Proceeds from sale of fixed assets	100
Purchase of fixed assets	(107)	(3,551)
Purchase of Small Business Investment Company Holdings, at cost	(1,154)	(118)
Proceeds from sale of other investment	122
Purchase of other investments, at cost		(78)
Redemption of other investments, at cost	387	425
Net cash provided by (used in) investing activities	20,740	(85,330)
Cash flows from financing activities:
Net increase in deposits	56,705	92,614
Net increase in escrow deposits	2,157	1,970
Net (decrease) increase in other borrowings	(4,836)	773
Proceeds from FHLB advances	195,000	255,500
Repayment of FHLB advances	(203,000)	(265,500)
Cash received (paid for shares surrendered) upon exercise of stock options	(10)	117
Cash paid for shares surrendered upon vesting of restricted stock	(95)	(21)
Net cash provided by financing activities	45,921	85,453
Increase (decrease) in cash and cash equivalents	75,077	7,798
Cash and cash equivalents, beginning of period	69,119	109,467
Cash and cash equivalents, end of period	144,196	117,265
Cash paid during the year for:
Interest on deposits and other borrowings	14,831	9,460
Income taxes	804	4,070
Noncash investing and financing activities:
Real estate acquired in satisfaction of mortgage loans	1,061	1,502
Loans originated for disposition of real estate owned	209	774
Loan sales/investments to be settled	1,710	2,169
Reclassification for adoption of Accounting Standards Update		$ 617

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LOANS RECEIVABLE

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

LOANS RECEIVABLE

NOTE 3. LOANS RECEIVABLE

Loans receivable as of September 30, 2019 and December 31, 2018 are summarized as follows:

	September 30,			December 31,
	2019			2018
	(Dollars in thousands)
Real estate mortgage loans:
One-to-four family residential	$	336,098		$	325,560
Commercial real estate		482,831			498,106
Home equity loans and lines of credit		45,822			48,679
Residential construction		57,687			39,533
Other construction and land		101,988			104,645
Total real estate loans		1,024,426			1,016,523
Commercial and industrial		45,652			54,410
Consumer		6,989			6,842
Total commercial and consumer		52,641			61,252
Loans receivable, gross		1,077,067			1,077,775
Less:  Net deferred loan fees		(1,030	)		(1,000	)
Acquired loans fair value discount		(697	)		(1,048	)
Hedged loans basis adjustment (See Note 8)		1,088			245
Unamortized premium		232			333
Unamortized discount		(79	)		(236	)
Loans receivable, net of deferred fees	$	1,076,581		$	1,076,069

The Bank had $279.9 million and $256.1 million of loans pledged as collateral to secure funding availability with the Federal Home Loan Bank of Atlanta (“FHLB”) at September 30, 2019 and December 31, 2018, respectively. The Bank also had $124.0 million and $114.4 million of loans pledged as collateral to secure funding availability with the Federal Reserve Bank (“FRB”) Discount Window at September 30, 2019 and December 31, 2018, respectively.

Included in loans receivable and other borrowings at September 30, 2019 are $4.5 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 and nine month periods ended September 30, 2019 and 2018:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Discount on purchased loans, beginning of period	$	180		$	399		$	236		$	710
Accretion		(101	)		(67	)		(157	)		(378	)
Discount on purchased loans, end of period	$	79		$	332		$	79		$	332

 The following table presents the activity related to the fair value discount on loans from business combinations for the three and nine month periods ended September 30, 2019 and 2018: 

	For the Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Fair value discount, beginning of period	$	789		$	1,395		$	1,048		$	2,012
Accretion		(92	)		(193	)		(351	)		(810	)
Fair value discount, end of period	$	697		$	1,202		$	697		$	1,202

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BORROWINGS

9 Months Ended

Sep. 30, 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 (dollars in thousands): 

	September 30, 2019					December 31, 2018
Year of Maturity	Balance		Weighted Average Rate			Balance		Weighted Average Rate
2019	$	50,500		2.53	%	$	168,500		2.52	%
2020		150,000		2.34	%		45,000		2.80	%
2024		5,000		2.81	%		—		—
	$	205,500		2.40	%	$	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 no balance outstanding on the revolving credit loan facility as of September 30, 2019 and had drawn $5.0 million as of December 31, 2018.

The Company also had other borrowings of $4.5 million and $4.3 million at September 30, 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.

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Loans at fair value	$ 5,221	$ 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	6,925,283	6,917,703
Common stock, shares outstanding	6,925,283	6,917,703
Common Stock held by Rabbi Trust	17,672	17,672

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INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Mutual funds	$ 6,947	$ 6,178
Amortized Cost	341,028	364,328
Gross Unrealized Gains	9,795	786
Gross Unrealized Losses	(1,496)	(5,376)
Estimated fair value	349,327	359,738
U.S. Government Agencies [Member]
Amortized Cost	33,423	34,068
Gross Unrealized Gains	184	74
Gross Unrealized Losses	(349)	(152)
Estimated fair value	33,258	33,990
Municipal Securities [Member]
Amortized Cost	113,789	115,860
Gross Unrealized Gains	6,367	209
Gross Unrealized Losses		(1,667)
Estimated fair value	120,156	114,402
Mortgage-backed Securities - Guaranteed [Member]
Amortized Cost	73,818	86,664
Gross Unrealized Gains	783	98
Gross Unrealized Losses	(767)	(1,578)
Estimated fair value	73,834	85,184
Collateralized Mortgage Obligations - Guaranteed [Member]
Amortized Cost	21,428	22,492
Gross Unrealized Gains	382	47
Gross Unrealized Losses	(36)	(650)
Estimated fair value	21,774	21,889
Collateralized Mortgage Obligations - Non Guaranteed [Member]
Amortized Cost	63,647	69,774
Gross Unrealized Gains	1,642	125
Gross Unrealized Losses	(25)	(728)
Estimated fair value	65,264	69,171
Collateralized mortgage obligations [Member]
Amortized Cost	15,511	15,534
Gross Unrealized Gains		1
Gross Unrealized Losses	(290)	(458)
Estimated fair value	15,221	15,077
Corporate debt securities [Member]
Amortized Cost	19,412	19,936
Gross Unrealized Gains	437	232
Gross Unrealized Losses	(29)	(143)
Estimated fair value	$ 19,820	$ 20,025

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2019

Commitments And Contingencies

Schedule of commitments to fund lines of credit

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

	September 30, 2019
	(Dollars in thousands)
Lines of credit	$	159,801
Standby letters of credit		1,078
	$	160,879

Schedule of Outstanding commitments to originate mortgage loans

As of September 30, 2019, the Company had outstanding commitments to originate loans as follows:

	September 30, 2019
	Amount		Range of Rates
	(Dollar in thousands)
Fixed	$	20,965		3.13% to 6.99%
Variable		4,869		2.88% to 6.49%
	$	25,834

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ALLOWANCE FOR LOAN LOSSES (Details 8) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($) Number	Sep. 30, 2018 USD ($) Number	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			$ 6,916	$ 9,633
Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			5,582	7,588
Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,334	2,045
One-to-four family residential
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,617	2,515
One-to-four family residential | Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,617	2,154
One-to-four family residential | Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans				361
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			3,484	5,152
Number of Loans Modifications | Number		1
Modification Outstanding Recorded Investment		$ 206
Commercial Real Estate Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			2,332	3,690
Commercial Real Estate Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,152	1,462
Home Equity Line of Credit [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			283	313
Home Equity Line of Credit [Member] | Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			283	283
Home Equity Line of Credit [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans				30
Other Portfolio Segment [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,269	1,377
Other Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			1,087	1,185
Other Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			182	192
Commercial Portfolio Segment [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			263	276
Commercial Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans			263	276
Commercial Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Troubled Debt Restructuring [Line Items]
TDR loans

XML

BORROWINGS (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances [Abstract]
2019	$ 85,500	$ 168,500
2020	115,000	45,000
2024	5,000
Total	$ 205,500	$ 213,500
Federal Home Loan Bank, Advances, Weighted Average Rate [Abstract]
2019	2.53%	2.52%
2020	2.34%	2.80%
2024	2.81%
Total	2.40%	2.58%

XML

FAIR VALUE DISCLOSURES (Details 5) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Assets:
Cash and equivalents	$ 144,196	$ 69,119	$ 117,265	$ 109,467
Trading securities	6,947	6,178
Securities available for sale	349,327	359,738
Loans held for sale	11,142	7,570
Other investments, at cost	11,652	12,039
Accrued interest receivable	6,163	6,443
Bank owned life insurance	32,461	32,886
Loan servicing rights	2,520	2,837
Liabilities:
Federal Home Loan Bank advances	205,500	213,500
Junior subordinated debentures	14,433	14,433
Other borrowings	4,463	9,299
Accrued interest payable	1,730	1,647
Fair Value, Inputs, Level 1 [Member]
Assets:
Cash and equivalents	144,196	69,119
Trading securities	6,947	6,178
Securities available for sale	5,079	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	343,754	354,297
Loans held for sale	6,596	5,683
Loans receivable, net
Other investments, at cost	11,652	12,039
Accrued interest receivable	6,163	6,443
Bank owned life insurance	32,461	32,886
Loan servicing rights
SBIC investments
Liabilities:
Demand deposits	905,965	800,291
Time deposits
Federal Home Loan Bank advances	204,846	213,513
Junior subordinated debentures	13,292	12,440
Other borrowings	4,697	9,253
Accrued interest payable	1,730	1,647
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	97	354
Liabilities:
Derivative Liabilities	1,760	462
Fair Value, Inputs, Level 3 [Member]
Assets:
Cash and equivalents
Trading securities
Securities available for sale	494	493
Loans held for sale	5,221	2,431
Loans receivable, net	1,048,805	1,046,136
Other investments, at cost
Accrued interest receivable
Bank owned life insurance
Loan servicing rights	2,520	2,837
SBIC investments	4,993	3,839
Liabilities:
Demand deposits
Time deposits	379,529	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	79	34
Liabilities:
Derivative Liabilities	16	22
Reported Value Measurement [Member]
Assets:
Cash and equivalents	144,196	69,119
Trading securities	6,947	6,178
Securities available for sale	349,327	359,739
Loans held for sale	11,142	7,570
Loans receivable, net	1,076,581	1,076,069
Other investments, at cost	11,652	12,039
Accrued interest receivable	6,163	6,443
Bank owned life insurance	32,461	32,886
Loan servicing rights	2,520	2,837
SBIC investments	4,993	3,839
Liabilities:
Demand deposits	905,965	800,291
Time deposits	373,980	420,949
Federal Home Loan Bank advances	205,500	213,500
Junior subordinated debentures	14,433	14,433
Other borrowings	4,463	9,299
Accrued interest payable	1,730	1,647
Reported Value Measurement [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	97	354
Liabilities:
Derivative Liabilities	1,760	462
Reported Value Measurement [Member] | Mortgage Derivatives [Member]
Assets:
Derivative asset	79	34
Liabilities:
Derivative Liabilities	16	22
Fair Value Measurement [Member]
Assets:
Cash and equivalents	144,196	69,119
Trading securities	6,947	6,178
Securities available for sale	349,327	359,739
Loans held for sale	11,817	8,114
Loans receivable, net	1,048,805	1,046,136
Other investments, at cost	11,652	12,039
Accrued interest receivable	6,163	6,443
Bank owned life insurance	32,461	32,886
Loan servicing rights	2,520	2,837
SBIC investments	4,993	3,839
Liabilities:
Demand deposits	905,965	800,291
Time deposits	379,529	424,054
Federal Home Loan Bank advances	204,846	213,513
Junior subordinated debentures	13,292	12,440
Other borrowings	4,697	9,253
Accrued interest payable	1,730	1,647
Fair Value Measurement [Member] | Interest Rate Swap [Member]
Assets:
Derivative asset	97	354
Liabilities:
Derivative Liabilities	1,760	462
Fair Value Measurement [Member] | Mortgage Derivatives [Member]
Assets:
Derivative asset	79	34
Liabilities:
Derivative Liabilities	$ 16	$ 22

XML

FAIR VALUE DISCLOSURES (Details) - USD ($) $ in Thousands	Sep. 30, 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	$ 364,191	$ 371,572
Liabilities measured at fair value on recurring basis	1,776	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	2,520	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	79	34
Liabilities measured at fair value on recurring basis	16	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	97	354
Liabilities measured at fair value on recurring basis	1,760	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	5,221	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	12,026	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	343,851	354,650
Liabilities measured at fair value on recurring basis	1,760	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	97	354
Liabilities measured at fair value on recurring basis	1,760	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	8,314	5,795
Liabilities measured at fair value on recurring basis	16	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	2,520	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	79	34
Liabilities measured at fair value on recurring basis	16	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	5,221	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	6,947	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	6,947	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	349,327	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	33,258	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	120,156	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	73,834	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	21,774	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	65,264	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	15,221	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	19,820	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	5,079	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	5,079	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	343,754	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	28,179	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	120,156	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	73,834	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	21,774	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	65,264	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	15,221	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	19,326	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	494	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	$ 494	$ 493

XML

ALLOWANCE FOR LOAN LOSSES (Details 3) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Loans Receivable	$ 1,076,581	$ 1,076,069
One-to-four family residential
Loans Receivable	336,691	325,155
Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	481,502	496,549
Home Equity Line of Credit [Member]
Loans Receivable	45,991	48,825
Residential construction
Loans Receivable	57,629	39,488
Other Portfolio Segment [Member]
Loans Receivable	101,771	104,464
Commercial Portfolio Segment [Member]
Loans Receivable	45,908	54,643
Consumer Portfolio Segment [Member]
Loans Receivable	7,089	6,945
Graded Loan [Member]
Loans Receivable	866,373	852,337
Graded Loan [Member] | One-to-four family residential
Loans Receivable	195,115	179,044
Graded Loan [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	480,838	486,105
Graded Loan [Member] | Home Equity Line of Credit [Member]
Loans Receivable	9,006	9,841
Graded Loan [Member] | Residential construction
Loans Receivable	42,638	31,128
Graded Loan [Member] | Other Portfolio Segment [Member]
Loans Receivable	92,369	93,066
Graded Loan [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	45,860	52,632
Graded Loan [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	547	521
Graded Loan [Member] | Loan Grade One [Member]
Loans Receivable	13,963	8,840
Graded Loan [Member] | Loan Grade One [Member] | One-to-four family residential
Loans Receivable	2,778
Graded Loan [Member] | Loan Grade One [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	9,441	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
Loans Receivable	200
Graded Loan [Member] | Loan Grade One [Member] | Other Portfolio Segment [Member]
Loans Receivable	715
Graded Loan [Member] | Loan Grade One [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	713	1,264
Graded Loan [Member] | Loan Grade One [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	116	7
Graded Loan [Member] | Loan Grade Two [Member]
Loans Receivable	11,178	7,880
Graded Loan [Member] | Loan Grade Two [Member] | One-to-four family residential
Loans Receivable
Graded Loan [Member] | Loan Grade Two [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	10,253	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
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	925	20
Graded Loan [Member] | Loan Grade Two [Member] | Consumer Portfolio Segment [Member]
Loans Receivable
Graded Loan [Member] | Loan Grade Three [Member]
Loans Receivable	165,648	162,016
Graded Loan [Member] | Loan Grade Three [Member] | One-to-four family residential
Loans Receivable	30,315	31,623
Graded Loan [Member] | Loan Grade Three [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	85,865	87,756
Graded Loan [Member] | Loan Grade Three [Member] | Home Equity Line of Credit [Member]
Loans Receivable	4,773	5,212
Graded Loan [Member] | Loan Grade Three [Member] | Residential construction
Loans Receivable	10,758	9,365
Graded Loan [Member] | Loan Grade Three [Member] | Other Portfolio Segment [Member]
Loans Receivable	20,902	12,111
Graded Loan [Member] | Loan Grade Three [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	13,019	15,685
Graded Loan [Member] | Loan Grade Three [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	16	264
Graded Loan [Member] | Loan Grade Four [Member]
Loans Receivable	519,235	508,955
Graded Loan [Member] | Loan Grade Four [Member] | One-to-four family residential
Loans Receivable	136,075	121,688
Graded Loan [Member] | Loan Grade Four [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	278,495	280,630
Graded Loan [Member] | Loan Grade Four [Member] | Home Equity Line of Credit [Member]
Loans Receivable	3,546	4,014
Graded Loan [Member] | Loan Grade Four [Member] | Residential construction
Loans Receivable	28,060	18,358
Graded Loan [Member] | Loan Grade Four [Member] | Other Portfolio Segment [Member]
Loans Receivable	54,123	61,646
Graded Loan [Member] | Loan Grade Four [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	18,525	22,374
Graded Loan [Member] | Loan Grade Four [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	411	245
Graded Loan [Member] | Loan Grade Five [Member]
Loans Receivable	138,949	147,397
Graded Loan [Member] | Loan Grade Five [Member] | One-to-four family residential
Loans Receivable	24,948	24,738
Graded Loan [Member] | Loan Grade Five [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	83,575	88,698
Graded Loan [Member] | Loan Grade Five [Member] | Home Equity Line of Credit [Member]
Loans Receivable	687	615
Graded Loan [Member] | Loan Grade Five [Member] | Residential construction
Loans Receivable	3,619	3,404
Graded Loan [Member] | Loan Grade Five [Member] | Other Portfolio Segment [Member]
Loans Receivable	15,208	17,630
Graded Loan [Member] | Loan Grade Five [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	10,908	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	10,634	9,987
Graded Loan [Member] | Loan Grade Six [Member] | One-to-four family residential
Loans Receivable	375	321
Graded Loan [Member] | Loan Grade Six [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	8,541	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
Loans Receivable	1	1
Graded Loan [Member] | Loan Grade Six [Member] | Other Portfolio Segment [Member]
Loans Receivable	1,239	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	6,766	7,262
Graded Loan [Member] | Loan Grade Seven [Member] | One-to-four family residential
Loans Receivable	624	674
Graded Loan [Member] | Loan Grade Seven [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	4,668	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
Loans Receivable
Graded Loan [Member] | Loan Grade Seven [Member] | Other Portfolio Segment [Member]
Loans Receivable	182	376
Graded Loan [Member] | Loan Grade Seven [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	1,292	487
Graded Loan [Member] | Loan Grade Seven [Member] | Consumer Portfolio Segment [Member]
Loans Receivable
UnGraded Loan [Member]
Loans Receivable	210,208	223,732
UnGraded Loan [Member] | One-to-four family residential
Loans Receivable	141,576	146,111
UnGraded Loan [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	664	10,444
UnGraded Loan [Member] | Home Equity Line of Credit [Member]
Loans Receivable	36,985	38,984
UnGraded Loan [Member] | Residential construction
Loans Receivable	14,991	8,360
UnGraded Loan [Member] | Other Portfolio Segment [Member]
Loans Receivable	9,402	11,398
UnGraded Loan [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	48	2,011
UnGraded Loan [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	6,542	6,424
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member]
Loans Receivable	897	907
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | One-to-four family residential
Loans Receivable	776	641
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable		24
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Home Equity Line of Credit [Member]
Loans Receivable	69	178
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Residential construction
Loans Receivable
UnGraded Loan [Member] | Nonperforming Financing Receivable [Member] | Other Portfolio Segment [Member]
Loans Receivable	51	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	209,311	222,825
UnGraded Loan [Member] | Performing Financing Receivable [Member] | One-to-four family residential
Loans Receivable	140,800	145,470
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Commercial Real Estate Portfolio Segment [Member]
Loans Receivable	664	10,420
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Home Equity Line of Credit [Member]
Loans Receivable	36,916	38,806
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Residential construction
Loans Receivable	14,991	8,360
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Other Portfolio Segment [Member]
Loans Receivable	9,351	11,334
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Commercial Portfolio Segment [Member]
Loans Receivable	48	2,011
UnGraded Loan [Member] | Performing Financing Receivable [Member] | Consumer Portfolio Segment [Member]
Loans Receivable	$ 6,541	$ 6,424

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LOANS RECEIVABLE (Details 3) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Loans and Leases Receivable Commitments, Variable Interest Rates
Fair value discount, beginning of year	$ 789	$ 1,395	$ 1,048	$ 2,012
Accretion	(92)	(193)	(351)	(810)
Discount on purchased loans, end of period	$ 697	$ 1,202	$ 697	$ 1,202

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COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Other Commitments [Line Items]
Commitments to fund lines of credit	$ 160,879
Lines of credit [Member]
Other Commitments [Line Items]
Commitments to fund lines of credit	159,801
Standby Letters of Credit [Member]
Other Commitments [Line Items]
Commitments to fund lines of credit	$ 1,078

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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Details 4) - Junior Subordinated Debt [Member] $ in Thousands	9 Months Ended
	Sep. 30, 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

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INCOME TAXES (Details 2) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
North Carolina [Member]
Unused Net Operating Losses	$ 6,311
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	$ 310
Expiration Dates	2038

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 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 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 under the Securities Act of 1933, as amended. 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 (as amended, the “2018 Form 10-K”). In the opinion of management, these interim consolidated 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.

Merger with First Citizens BancShares, Inc.

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.

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. 

Approval of the proposed merger by Entegra’s shareholders has been received. Completion of the proposed merger remains subject to the receipt of required regulatory approvals and the satisfaction or waiver of other customary conditions, and is expected to occur during the fourth quarter of 2019.

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 September 2016, the Financial Accounting Standards Board (“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 that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 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 Nine Months Ending			As of and for the Year Ending
	September 30,			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		(1,781	)		(1,263	)
Core deposit intangible, net	$	3,059		$	3,577