10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2017

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                      to

Commission file number 001-10897 

Carolina Financial Corporation

(Exact name of registrant as specified in its charter) 

Delaware	57-1039673
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
288 Meeting Street, Charleston, South Carolina	29401
(Address of principal executive offices)	(Zip Code)

843-723-7700
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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  (Do not check if a smaller reporting company)	Smaller Reporting Company	o
		Emerging growth company	o

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: 16,149,802 shares of common stock, par value $0.01 per share, were issued and outstanding as of May 5, 2017.

TABLE OF CONTENTS

		Page
PART 1 –	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosure about Market Risks	73
Item 4.	Controls and Procedures	73
PART II -	OTHER INFORMATION	73
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sale 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	74

2

CAROLINA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
	March 31, 2017		December 31, 2016
	(Unaudited)		(Audited)
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	21,456		9,761
Interest-bearing cash		36,582		14,591
Federal funds sold		10,560		—
Cash and cash equivalents		68,598		24,352
Securities available-for-sale (cost of $493,678 at March 31, 2017 and $338,214 at December 31, 2016)		494,130		335,352
Federal Home Loan Bank stock, at cost		12,478		11,072
Other investments		2,116		1,768
Derivative assets		3,226		2,219
Loans held for sale		21,399		31,569
Loans receivable, net of allowance for loan losses of $10,715 at March 31, 2017 and $10,688 at December 31, 2016		1,406,295		1,167,578
Premises and equipment, net		46,544		37,054
Accrued interest receivable		6,726		5,373
Real estate acquired through foreclosure, net		1,479		1,179
Deferred tax assets, net		10,210		8,341
Mortgage servicing rights		15,792		15,032
Cash value life insurance		37,938		28,984
Core deposit intangible		8,005		3,658
Goodwill		37,287		4,266
Other assets		9,886		5,939
Total assets	$	2,182,109		1,683,736
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Noninterest-bearing deposits	$	298,365		229,905
Interest-bearing deposits		1,309,355		1,028,355
Total deposits		1,607,720		1,258,260
Short-term borrowed funds		214,500		203,000
Long-term debt		55,304		38,465
Derivative liabilities		682		342
Drafts outstanding		7,129		6,223
Advances from borrowers for insurance and taxes		2,037		1,058
Accrued interest payable		690		327
Reserve for mortgage repurchase losses		2,583		2,880
Dividends payable to stockholders		576		502
Accrued expenses and other liabilities		19,434		9,489
Total liabilities		1,910,655		1,520,546
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $.01; 1,000,000 shares authorized at March 31, 2017 and December 31, 2016; no shares issued or outstanding		—		—
Common stock, par value $.01; 25,000,000 shares authorized at March 31, 2017 and December 31, 2016; 16,185,408 and 12,548,328 issued and outstanding at March 31, 2017 and December 31, 2016, respectively		162		125
Additional paid-in capital		168,113		66,156
Retained earnings		102,528		98,451
Accumulated other comprehensive income (loss), net of tax		651		(1,542	)
Total stockholders’ equity		271,454		163,190
Total liabilities and stockholders’ equity	$	2,182,109		1,683,736
See accompanying notes to consolidated financial statements.

3

CAROLINA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months
	Ended March 31,
	2017			2016
(In thousands, except share data)
Interest income
Loans	$	14,968			11,085
Investment securities		2,553			2,152
Dividends from Federal Home Loan Bank stock		101			97
Federal funds sold		3			—
Other interest income		45			26
Total interest income		17,670			13,360
Interest expense
Deposits		1,692			1,367
Short-term borrowed funds		355			105
Long-term debt		353			615
Total interest expense		2,400			2,087
Net interest income		15,270			11,273
Provision for loan losses		—			—
Net interest income after provision for loan losses		15,270			11,273
Noninterest income
Mortgage banking income		3,608			3,175
Deposit service charges		858			862
Net loss on extinguishment of debt		—			(9	)
Net gain on sale of securities		185			417
Fair value adjustments on interest rate swaps		(58	)		(281	)
Net increase in cash value life insurance		211			229
Mortgage loan servicing income		1,566			1,388
Other		861			495
Total noninterest income		7,231			6,276
Noninterest expense
Salaries and employee benefits		8,609			7,150
Occupancy and equipment		2,182			1,842
Marketing and public relations		381			385
FDIC insurance		100			168
Recovery of mortgage loan repurchase losses		(225	)		(250	)
Legal expense		65			49
Other real estate expense, net		20			20
Mortgage subservicing expense		486			423
Amortization of mortgage servicing rights		669			532
Merger related expenses		1,319			186
Other		1,980			1,763
Total noninterest expense		15,586			12,268
Income before income taxes		6,915			5,281
Income tax expense		2,011			1,638
Net income	$	4,904			3,643
Earnings per common share:
Basic	$	0.35			0.31
Diluted	$	0.35			0.30
Weighted average common shares outstanding:
Basic		13,919,711			11,746,574
Diluted		14,139,241			11,978,801

See accompanying notes to consolidated financial statements.

4

CAROLINA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
	For the Three Months
	March 31,
	2017			2016
	(In thousands)
Net income	$	4,904			3,643
Other comprehensive income (loss), net of tax:
Unrealized gain on securities		3,474			179
Tax effect		(1,251	)		(64	)
Reclassification adjustment for gains included in earnings		(185	)		(417	)
Tax effect		67			150
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges		138			(1,490	)
Tax effect		(50	)		536
Other comprehensive income (loss), net of tax		2,193			(1,106	)
Comprehensive income	$	7,097			2,537

See accompanying notes to consolidated financial statements.

5

CAROLINA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(Unaudited)
												Accumulated
						Additional						Other
	Common Stock					Paid-in			Retained			Comprehensive
	Shares			Amount		Capital			Earnings			Income (Loss)			Total
				(In thousands, except share data)
Balance, December 31, 2015		12,023,557		$	120		56,418			82,859			462			139,859
Stock awards		29,994			1		—			—			—			1
Vested stock awards surrendered in cashless exercise		(1,936	)		—		—			(30	)		—			(30	)
Excess tax benefit in connection with equity awards		—			—		15			—			—			15
Stock-based compensation expense, net		—			—		370			—			—			370
Net income		—			—		—			3,643			—			3,643
Dividends declared to stockholders		—			—		—			(362	)		—			(362	)
Other comprehensive loss, net of tax		—			—		—			—			(1,106	)		(1,106	)
Balance, March 31, 2016		12,051,615		$	121		56,803			86,110			(644	)		142,390
Balance, December 31, 2016		12,548,328		$	125		66,156			98,451			(1,542	)		163,190
Issuance of common stock, net of offering expenses		1,807,143			18		47,653			—			—			47,671
Stock issued - Greer Bancshares Incorporated acquisition		1,784,831			18		54,063			—			—			54,081
Stock awards		60,031			1		108			—			—			109
Vested stock awards surrendered in cashless exercise		(14,925	)		—		(186	)		(251	)		—			(437	)
Stock-based compensation expense, net		—			—		319			—			—			319
Net income		—			—		—			4,904			—			4,904
Dividends declared to stockholders		—			—		—			(576	)		—			(576	)
Other comprehensive income, net of tax		—			—		—			—			2,193			2,193
Balance, March 31, 2017		16,185,408		$	162		168,113			102,528			651			271,454

See accompanying notes to consolidated financial statements.

6

CAROLINA FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Cash flows from operating activities:
Net income	$	4,904			3,643
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of unearned discount/premiums on investments, net		834			903
Accretion of deferred loan fees		(251	)		(122	)
Accretion of acquired loans		(372	)		—
Amortization of core deposit intangibles		133			86
Gain on sale of available-for-sale securities, net		(185	)		(417	)
Mortgage banking income		(3,608	)		(3,175	)
Originations of loans held for sale		(195,583	)		(204,477	)
Proceeds from sale of loans held for sale		209,466			217,622
Loss on extinguishment of debt		—			9
Provision for mortgage loan repurchase losses		(225	)		(250	)
Mortgage loan losses paid, net of recoveries		(72	)		(21	)
Fair value adjustments on interest rate swaps		58			281
Stock-based compensation		319			370
Increase in cash surrender value of bank owned life insurance		(211	)		(229	)
Depreciation		568			472
Loss (gain) on disposals of premises and equipment		3			(1	)
Loss on sale of real estate acquired through foreclosure		(6	)		(5	)
Originations of mortgage servicing rights		(1,429	)		(1,045	)
Amortization of mortgage servicing rights		669			532
(Increase) decrease in:
Accrued interest receivable		(170	)		(171	)
Other assets		(5,156	)		(2,423	)
Increase (decrease) in:
Accrued interest payable		105			17
Dividends payable to stockholders		74			1
Accrued expenses and other liabilities		(1,031	)		(1,823	)
Cash flows provided by operating activities		8,834			9,777
	Continued

7

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Cash flows from investing activities:
Activity in available-for-sale securities:
Purchases	$	(85,787	)		(55,688	)
Maturities, payments and calls		11,877			12,665
Proceeds from sales		37,697			34,478
Increase in other investments		(7	)		(228	)
Decrease in Federal Home Loan Bank stock		189			2,150
Increase in loans receivable, net		(43,725	)		(41,084	)
Purchase of premises and equipment		(1,931	)		(417	)
Proceeds from disposals of premises and equipment		—			1
Proceeds from sale of real estate acquired through foreclosure		29			1,288
Purchase of bank owned life insurance		—			(25	)
Net cash received for acquisitions		37,622			—
Cash flows used in investing activities		(44,036	)		(46,860	)
Cash flows from financing activities:
Net increase in deposit accounts		38,394			96,244
Net decrease in Federal Home Loan Bank advances		(8,000	)		(55,009	)
Net increase (decrease) in drafts outstanding		906			(459	)
Net increase in advances from borrowers for insurance and taxes		979			333
Cash dividends paid on common stock		(502	)		(361	)
Proceeds from issuance of common stock		47,671
Net increase in excess tax benefit in connection with equity awards		—			15
Cash flows provided by financing activities		79,448			40,763
Net increase in cash and cash equivalents		44,246			3,680
Cash and cash equivalents, beginning of period		24,352			26,627
Cash and cash equivalents, end of period	$	68,598			30,307
Supplemental disclosure:
Cash paid for:
Interest on deposits and borrowed funds	$	2,037			2,070
Income taxes paid, net of refunds		19			1,931
Noncash investing and financing activities:
Transfer of loans receivable to real estate acquired through foreclosure	$	281			—

See accompanying notes to consolidated financial statements.

8

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Carolina Financial Corporation (“Carolina Financial” or the “Company”), incorporated under the laws of the State of Delaware, is a bank holding company with one wholly-owned subsidiary, CresCom Bank (the “Bank”). CresCom Bank operates two wholly-owned subsidiaries, Crescent Mortgage Company and Carolina Services Corporation of Charleston (“Carolina Services”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all material intercompany accounts and transactions have been eliminated. The results of operations of the businesses acquired in transactions accounted for as purchases are included only from the dates of acquisition. All majority-owned subsidiaries are consolidated unless control is temporary or does not rest with the Company.

At March 31, 2017, statutory business trusts (“Trusts”) created or acquried by the Company had outstanding trust preferred securities with a balance of $23.3 million. The principal assets of the Trusts are the Company’s subordinated debentures with identical rates of interest and maturities as the trust preferred securities. The Trusts have issued $806,000 of common securities to the Company and are included in other investments in the accompanying consolidated balance sheets. The Trusts are not consolidated subsidiaries of the Company.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on March 10, 2017. There have been no significant changes to the accounting policies as disclosed in the Company’s Form 10-K.

Management’s Estimates

The financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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, including valuation for impaired loans, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the valuation of securities, the valuation of derivative instruments, the valuation of assets acquired and liabilities assumed in business combinations, the valuation of mortgage servicing rights, the determination of the reserve for mortgage loan repurchase losses, asserted and unasserted legal claims and deferred tax assets or liabilities. In connection with the determination of the allowance for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties. Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment.

Management uses available information to recognize losses on loans and foreclosed real estate. However, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses and valuation of foreclosed real estate may change materially in the near term.

9

Earnings Per Share

Basic earnings per share (“EPS”) represents income available to common stockholders divided by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflects additional shares that would have been outstanding if dilutive potential shares had been issued. Potential shares that may be issued by the Company relate solely to outstanding stock options, restricted stock (non-vested shares), restricted stock units (“RSUs”) and warrants, and are determined using the treasury stock method. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of stock for the outstanding stock options, unvested restricted stock and RSUs, and warrants, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Company’s stock.

Subsequent Events

Subsequent events are material events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the statement of financial condition but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure except as follows:

The Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share payable on its common stock. The cash dividend will be payable on July 6, 2017 to stockholders of record as of June 15, 2017.

Reclassification

Certain reclassifications of accounts reported for previous periods have been made in these consolidated financial statements. Such reclassifications had no effect on stockholders’ equity or the net income as previously reported.

Recently Issued Accounting Pronouncements

In May 2014 and August 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification (“ASC”) to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The amendments did not have a material effect on the financial statements

In January 2016, the FASB amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

10

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows become effective as of January 1, 2017. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the new guidance in the second quarter of 2016. These amendments did not have a material impact to the Company’s financial position, results of operations, and cash flows.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is evaluating the effect that implementation of the new standard will have on its financial position, results of operation and cash flows.

In August 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the ASC to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

11

In October 2016, the FASB amended the Consolidation topic of the ASC to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued amendments to clarify the ASC, correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that did not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic of the ASC. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for [reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs Topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

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

12

NOTE 2 – BUSINESS COMBINATIONS

Acquisition of Greer Bancshares Incorporated

On March 18, 2017, the Company completed its acquisition of Greer Bancshares Incorporated (“Greer”), the holding company for Greer State Bank, pursuant to the Agreement and Plan of Merger, dated as of November 7, 2016. Under the terms of the merger agreement, each share of Greer common stock was converted into the right to receive $18.00 in cash or 0.782 shares of the Company’s common stock, or a combination thereof, subject to certain limitations.

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousand).

Common stock issued (1,784,831 shares at $30.30 per share)	$	54,080
Cash payments to common stockholders		4,565
Total consideration paid	$	58,645

The assets acquired and liabilities assumed from Greer were recorded at their fair value as of the closing date of the merger. Fair values were preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values became available. Goodwill of $33.0 million was initially recorded at the time of the acquisition. The following table summarizes the consideration paid by the Company in the merger with Greer and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

13

	As Reported			Fair Value			As Recorded by
March 18, 2017	by Greer			Adjustments			the Company
	(In thousands)
Assets
Cash and cash equivalents	$	42,187			—			42,187
Investments		121,374			—			121,374
Loans receivable		205,209			(10,559	) (a)		194,650
Loans held for sale		105			—			105
Allowance for loan losses		(3,198	)		3,198	(b)		—
Premises and equipment		3,928			4,202	(c)		8,130
Foreclosed assets		42			—			42
Core deposit intangible		—			4,480	(d)		4,480
Deferred tax asset, net		3,831			(1,434	) (e)		2,397
Other assets		11,367			(241	) (f)		11,126
Total assets acquired	$	384,845			(354	)		384,491
Liabilities
Deposits	$	310,866			200	(g)		311,066
Long-term debt		43,712			(3,510	) (h)		40,202
Accrued expenses and other liabilities		7,086			512	(i)		7,598
Total liabilities assumed	$	361,664			(2,798	)		358,866
Net assets acquired								25,625
Total consideration paid								58,645
Goodwill							$	33,020

Explanation of fair value adjustments:

(a) Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.

(b) Adjustment reflects the elimination of Greer’s historical allowance for loan losses.

(c) Adjustment reflects fair value adjustments on acquired branch and administrative offices based on third party appraisals.

(d) Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.

(e) Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

(f) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.

(g) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(h) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(i) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other liabilities.

The following table presents additional information related to the purchased credit impaired (“PCI”) acquired loan portfolio at March 18, 2017 (in thousands):

Contractual principal and interest at acquisition	$	37,683
Nonaccretable difference		7,248
Expected cash flows at acquisition		30,434
Accretable yield		4,995
Basis in PCI loans at acquisition - estimated fair value	$	25,439

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Supplemental Pro Forma Information - Unaudited

The table below presents supplemental pro forma information as if the Greer acquisition had occurred at the beginning of the earliest period presented, which was January 1, 2016. Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger. Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date. Pre-tax merger-related costs of $1.3 million for the three months ended March 31, 2017, are included in the Company’s consolidated statements of operations and are not included in the pro forma statements below. Net interest income and net income recorded from the merger date to March 31, 2017 was approximately $520,000 and $403,000, respectively.

	For the Three Months Ended
	March 31,
	2017		2016
	(In thousands, except share data)
Net interest income	$	17,899	$	14,287
Net income (a)	$	6,048	$	4,673
Weighted average shares outstanding:
Basic (b)		15,704,542		13,531,405
Diluted (b)		15,924,072		13,763,632
Earnings per common share:
Basic	$	0.39	$	0.35
Diluted	$	0.38	$	0.34

(a) Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost saves or impact of merger related expenses.

(b) Weighted average shares outstanding include the full effect of the common stock issued in connection with the Greer acquisition as of the earliest reporting date.

Acquisition of Congaree Bancshares, Inc.

On June 11, 2016, the Company completed its acquisition of Congaree Bancshares, Inc. (“Congaree”), the holding company for Congaree State Bank, pursuant to the Agreement and Plan of Merger, dated as of January 5, 2016. Under the terms of the merger agreement, each share of Congaree common stock was converted into the right to receive $8.10 in cash or 0.4806 shares of the Company’s common stock, or a combination thereof, subject to certain limitations.

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousands).

Common stock issued (508,910 shares at $16.80 per share)	$	8,557
Cash payments to common stockholders		5,724
Preferred shares assumed and redeemed at par		1,564
Fair value of Congaree stock options assumed - paid out in cash		439
Total consideration paid	$	16,284

15

The following table presents the Congaree assets acquired and liabilities assumed as of June 11, 2016 as well as the related fair value adjustments and determination of goodwill. There have been no adjustments to initial fair values recorded by the Company for the Congaree acquisition to date.

	As Reported by Congaree			Fair Value Adjustments			As Recorded by the Company
	(In thousands)
Assets
Cash and cash equivalents	$	11,394			—			11,394
Securities		9,453			(59	) (a)		9,394
Loans		78,712			(4,111	) (b)		74,601
Allowance for loan losses		(1,112	)		1,112	(c)		—
Premises and equipment		2,712			38	(d)		2,750
Foreclosed assets		1,710			(250	) (e)		1,460
Core deposit intangible		—			1,104	(f)		1,104
Deferred tax asset		1,813			915	(g)		2,728
Other assets		942			(152	) (h)		790
Total assets acquired	$	105,624			(1,403	)		104,221
Liabilities
Deposits	$	89,227			98	(i)		89,325
Borrowings		2,500			—			2,500
Other liabilities		378			—			378
Total liabilities assumed	$	92,105			98			92,203
Net assets acquired								12,018
Total consideration paid								16,284
Goodwill							$	4,266

Explanation of fair value adjustments:
(a)	Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.
(b)	Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.
(c)	Adjustment reflects the elimination of Congaree’s historical allowance for loan losses.
(d)	Adjustment reflects fair value adjustments on acquired branch and administrative offices.
(e)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the foreclosed assets.
(f)	Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.
(g)	Adjustment reflects the tax impact of acquisition accounting fair value adjustments.
(h)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.
(i)	Adjustment reflects the fair value adjustment based on the Company’s third party evaluation report on deposits assumed.

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NOTE 3 – SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities available-for-sale at March 31, 2017 and December 31, 2016 follows:

	March 31, 2017									December 31, 2016
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
								(In thousands)
Securities available-for-sale:
Municipal securities	$	148,946		2,570		(660	)		150,856		92,792		1,475		(1,055	)		93,212
US government agencies		35,406		332		(38	)		35,700		3,438		—		(52	)		3,386
Collateralized loan obligations		84,212		188		(63	)		84,337		76,202		138		(91	)		76,249
Corporate securities		474		15		—			489		474		17		—			491
Mortgage-backed securities:
Agency		144,592		1,304		(587	)		145,309		90,477		995		(486	)		90,986
Non-agency		68,844		431		(257	)		69,018		63,628		424		(188	)		63,864
Total mortgage-backed securities		213,436		1,735		(844	)		214,327		154,105		1,419		(674	)		154,850
Trust preferred securities		11,204		872		(3,655	)		8,421		11,203		545		(4,584	)		7,164
Total	$	493,678		5,712		(5,260	)		494,130		338,214		3,594		(6,456	)		335,352

The Company had no held-to-maturity securities as of March 31, 2017 or December 31, 2016. During the second quarter of 2016, the Company tainted its securities held-to-maturity portfolio as a result of a change in the intent to hold these securities until maturity to provide opportunities to maximize its asset utilization. As a result, the securities were moved to available-for-sale resulting in an increase to accumulated other comprehensive income of $655,000.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2017 follows:

	At March 31, 2017
	Amortized		Fair
	Cost		Value
	(In thousands)
Securities available-for-sale:
Less than one year	$	302		302
One to five years		3,667		3,684
Six to ten years		88,515		88,805
After ten years		401,194		401,339
Total	$	493,678		494,130

The contractual maturity dates of the securities were used for mortgage-backed securities and asset-backed securities. No estimates were made to anticipate principal repayments.

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The following table summarizes the gross realized gains and losses from sales of investment securities available-for-sale for the periods indicated.

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Proceeds	$	37,697			34,478
Realized gains	$	373			534
Realized losses		(188	)		(117	)
Total investment securities gains, net	$	185			417

At March 31, 2017, the Company had pledged securities with a market value of $14.9 million for Federal Home Loan Bank (“FHLB”) advances.

At March 31, 2017, the Company has pledged $77.6 million of securities to secure public agency funds.

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	At March 31, 2017
	Less than 12 Months							12 Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	37,685		37,025		(660	)		—		—		—			37,685		37,025		(660	)
US government agencies		7,129		7,091		(38	)		—		—		—			7,129		7,091		(38	)
Collateralized loan obligations		19,500		19,468		(32	)		8,500		8,469		(31	)		28,000		27,937		(63	)
Mortgage-backed securities:
Agency		62,055		61,586		(469	)		9,672		9,554		(118	)		71,727		71,140		(587	)
Non-agency		10,660		10,475		(185	)		8,214		8,142		(72	)		18,874		18,617		(257	)
Total mortgage-backed securities		72,715		72,061		(654	)		17,886		17,696		(190	)		90,601		89,757		(844	)
Trust preferred securities		—		—		—			10,001		6,346		(3,655	)		10,001		6,346		(3,655	)
Total	$	137,029		135,645		(1,384	)		36,387		32,511		(3,876	)		173,416		168,156		(5,260	)

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	At December 31, 2016
	Less than 12 Months							12  Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	40,479		39,424		(1,055	)		—		—		—			40,479		39,424		(1,055	)
US government agencies		3,438		3,386		(52	)		—		—		—			3,438		3,386		(52	)
Collateralized loan obligations		16,792		16,748		(44	)		8,500		8,453		(47	)		25,292		25,201		(91	)
Mortgage-backed securities:
Agency		33,323		32,960		(363	)		10,125		10,002		(123	)		43,448		42,962		(486	)
Non-agency		9,357		9,240		(117	)		8,801		8,730		(71	)		18,158		17,970		(188	)
Total mortgage-backed securities		42,680		42,200		(480	)		18,926		18,732		(194	)		61,606		60,932		(674	)
Trust preferred securities		1,362		1,112		(250	)		8,667		4,333		(4,334	)		10,029		5,445		(4,584	)
Total	$	104,751		102,870		(1,881	)		36,093		31,518		(4,575	)		140,844		134,388		(6,456	)

The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”). Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospect of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or a portion may be recognized in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.

As of March 31, 2017, trust preferred securities had an amortized cost of $11.2 million and a fair value of $8.4 million. For each trust preferred security, impairment testing is performed on a quarterly basis using a detailed cash flow analysis. The major assumptions used during the quarterly impairment testing are described in the subsequent paragraph.

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In 2009, the Company adopted a four year “burst” scenario for its modeled default rates (2010 - 2013) that replicated the default rates for the banking industry from the four peak years of the savings and loan crisis, which then reduced to 0.25% annually. The elevated default rate ended in 2013, and the constant default rate used by the Company is now 0.25% annually. All issuers that are currently in deferral were presumed to be in default. Additionally, all defaults are assumed to have a 15% recovery after two years and 1% of the pool is presumed to prepay annually. If this analysis results in a present value of expected cash flows that is less than the book value of a security (that is, a credit loss exists), OTTI is considered to have occurred. If there is no credit loss, any impairment is considered temporary. The cash flow analysis we performed used discount rates equal to the credit spread at the time of purchase for each security and then added the current three-month LIBOR forward interest rate curve.

Based on the cash flow analysis performed at period end, management believes that there are no additional securities other-than-temporarily impaired at March 31, 2017.

The underlying issuers in the pools were primarily financial institutions and to a lesser extent, insurance companies and real estate investment trusts. The Company owns both senior and mezzanine tranches in pooled trust preferred securities; however, the Company does not own any income notes. The senior and mezzanine tranches of trust preferred collateralized debt obligations generally have some protection from defaults in the form of over-collateralization and excess spread revenues, along with waterfall structures that redirect cash flows in the event certain coverage test requirements are failed. Generally, senior tranches have the greatest protection, with mezzanine tranches subordinated to the senior tranches, and income notes subordinated to the mezzanine tranches.

At March 31, 2017 and December 31, 2016, the Company had 96 and 81, respectively, individual investments available-for-sale that were in an unrealized loss position. The unrealized losses on the Company’s investments in US government-sponsored agencies, municipal securities, mortgage-backed securities (agency and non-agency), and trust preferred securities summarized above were attributable primarily to changes in interest rates. Management has performed various analyses, including cash flows as needed, and determined that no OTTI expense was necessary during 2017 or 2016.

Management believes that there are no additional securities other-than-temporarily impaired at March 31, 2017. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost. Management continues to monitor these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of the securities may be sold or are other-than-temporarily impaired, which would require a charge to earnings in such periods.

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NOTE 4 – DERIVATIVES

In the ordinary course of business, the Company enters into various types of derivative transactions. The Company’s primary uses of derivative instruments are related to the mortgage banking activities. As such, the Company holds derivative instruments, which consist of rate lock agreements related to expected funding of fixed-rate mortgage loans to customers (interest rate lock commitments) and forward commitments to sell mortgage-backed securities and individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the interest rate lock commitments and the mortgage loans that are held for sale. Derivative instruments not related to mortgage banking activities primarily relate to interest rate swap agreements.

The derivative positions of the Company at March 31, 2017 and December 31, 2016 are as follows:

	At March 31,				At December 31,
	2017				2016
	Fair		Notional		Fair		Notional
	Value		Value		Value		Value
	(In thousands)
Derivative assets:
Cash flow hedges:
Interest rate swaps	$	559		45,000		421		30,000
Non-hedging derivatives:
Interest rate swaps		552		20,000		532		20,000
Mortgage loan interest rate lock commitments		1,827		136,592		1,113		117,439
Mortgage loan forward sales commitments		288		15,670		153		94,001
Total derivative assets	$	3,226		217,262		2,219		261,440
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps	$	234		10,000		195		10,000
Mortgage-backed securities forward sales commitments		448		96,000		147		22,784
Total derivative liabilities	$	682		106,000		342		32,784

Non-Designated Hedges

Derivative Loan Commitments and Forward Sales Commitments

The Company enters into mortgage loan commitments that are also referred to as derivative loan commitments, if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments typically decreases. Conversely, if interest rates decrease, the value of these loan commitments typically increases.

21

To protect against the price risk inherent in derivative loan commitments, the Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

Derivatives related to these commitments are recorded as either a derivative asset or a derivative liability on the balance sheet and are measured at fair value. Both the interest rate lock commitments and the forward commitments are reported at fair value, with adjustments recorded in current period earnings in “mortgage banking income” within noninterest income in the consolidated statements of operations.

Interest Rate Swaps

The Company enters into interest rate swaps that do not meet the hedge accounting requirements and are recorded at fair value as a derivative asset or liability. Interest rate swaps that are not designated as hedges are primarily used to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches. Fair value changes are recognized in noninterest income as “fair value adjustments on interest rate swaps.”

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using certain interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted LIBOR-based FHLB borrowings. These derivative instruments are designated as cash flow hedges. The hedged item is the LIBOR portion of the series of future adjustable rate borrowings over the term of the interest rate swap. Accordingly, changes to the amount of interest payment cash flows for the hedged transactions attributable to a change in credit risk are excluded from our assessment of hedge effectiveness. The Company tests for hedging effectiveness on a quarterly basis. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company has not recorded any hedge ineffectiveness since inception.

22

Risk Management Objective of Using Derivatives

When using derivatives to hedge fair value and cash flow risks, the Company exposes itself to potential credit risk from the counterparty to the hedging instrument. This credit risk is normally a small percentage of the notional amount and fluctuates as interest rates change. The Company analyzes and approves credit risk for all potential derivative counterparties prior to execution of any derivative transaction. The Company seeks to minimize credit risk by dealing with highly rated counterparties and by obtaining collateralization for exposures above certain predetermined limits. If significant counterparty risk is determined, the Company would adjust the fair value of the derivative recorded asset balance to consider such risk. 

NOTE 5 - LOANS RECEIVABLE, NET

We emphasize a range of lending services, including commercial and residential real estate mortgage loans, real estate construction loans, commercial and industrial loans and consumer loans. Our customers are generally individuals and small to medium-sized businesses and professional firms that are located in or conduct a substantial portion of their business in our market areas. We have focused our lending activities primarily on the professional market, including doctors, dentists, small business to medium-sized owners and commercial real estate developers.

Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment risks by adhering to internal credit policies and procedures. These policies and procedures include officer and customer lending limits, with approval processes for larger loans, documentation examination, and follow-up procedures for any exceptions to credit policies. Our loan approval policies provide for various levels of officer lending authority. When the amount of aggregate loans to a single borrower exceeds the maximum senior officer’s lending authority, the loan request will be considered by the management loan committee, or MLC, which is comprised of five members, all of whom are part of the senior management team of the Bank. The MLC meets weekly to approve loans with total loan commitments exceeding $1.5 million. The loan authority of the MLC is equal to two-thirds of the legal lending limit of the Bank which is equivalent to the in-house loan limit. Total credit exposure above the in-house limit requires approval by the majority of the board of directors. We do not make any loans to any director, executive officer of the Bank, or the related interests of each, unless the loan is approved by the full Board of Directors of the Bank and is on terms not more favorable than would be available to a person not affiliated with the Bank.

The following is a description of the risk characteristics of the material loan portfolio segments:

Residential Mortgage Loans and Home Equity Loans. We generally originate and hold short-term and long-term first mortgages and traditional second mortgage residential real estate loans. Generally, we limit the loan-to-value ratio on our residential real estate loans to 80%. We offer fixed and adjustable rate residential real estate loans with terms of up to 30 years. We also offer a variety of lot loan options to consumers to purchase the lot on which they intend to build their home. The options available depend on whether the borrower intends to begin building within 12 months of the lot purchase or at an undetermined future date. We also offer traditional home equity loans and lines of credit. Our underwriting criteria for, and the risks associated with, home equity loans and lines of credit are generally the same as those for first mortgage loans. Home equity loans typically have terms of 10 years or less. We generally limit the extension of credit to 90% of the available equity of each property, although we may extend up to 100% of the available equity.

Commercial Real Estate. Commercial real estate loans generally have terms of five years or less, although payments may be structured on a longer amortization basis. We evaluate each borrower on an individual basis and attempt to determine their business risks and credit profile. We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied office and retail buildings where the loan-to-value ratio, established by independent appraisals, generally does not exceed 80%. We also generally require that a borrower’s cash flow exceed 120% of monthly debt service obligations. In order to ensure secondary sources of payment and liquidity to support a loan request, we typically review all of the personal financial statements of the principal owners and require their personal guarantees.

23

Real Estate Construction and Development Loans. We offer fixed and adjustable rate residential and commercial construction loan financing to builders and developers and to consumers who wish to build their own home. The term of construction and development loans generally is limited to 18 months, although payments may be structured on a longer amortization basis. Most loans will mature and require payment in full upon the sale of the property. We believe that construction and development loans generally carry a higher degree of risk than long-term financing of existing properties because repayment depends on the ultimate completion of the project and usually on the subsequent sale of the property. We attempt to reduce risk associated with construction and development loans by obtaining personal guarantees and by keeping the maximum loan-to-value ratio at or below 65%-80% of the lesser of cost or appraised value, depending on the project type. Generally, we do not have interest reserves built into loan commitments but require periodic cash payments for interest from the borrower’s cash flow.

Commercial Loans. We make loans for commercial purposes in various lines of businesses, including the manufacturing industry, service industry, and professional service areas. Commercial loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or if they are secured, the value of the collateral may be difficult to assess and more likely to decrease than real estate. Equipment loans typically will be made for a term of 10 years or less at fixed or variable rates, with the loan fully amortized over the term and secured by the financed equipment. Generally, we limit the loan-to-value ratio on these loans to 75% of cost. Working capital loans typically have terms not exceeding one year and usually are secured by accounts receivable, inventory, or personal guarantees of the principals of the business. For loans secured by accounts receivable or inventory, principal will typically be repaid as the assets securing the loan are converted into cash, and in other cases principal will typically be due at maturity. Trade letters of credit, standby letters of credit, and foreign exchange will generally be handled through a correspondent bank as agent for the Bank.

The Company’s primary markets are generally concentrated in real estate lending. However, in order to diversify our lending portfolio, the Company purchases nationally syndicated commercial and industrial loans. These loans typically have terms of seven years and are generally tied to a floating rate index such as LIBOR or prime. To effectively manage this line of business, the Company has an experienced senior lending executive with relevant experience to manage this area of this segement of the loan portfolio. In addition, the Company engaged a consulting firm that specializes in syndicated loans to assist in monitoring performance analytics. As of March 31, 2017 and December 31, 2016, there were approximately $80.2 million and $91.5 million in syndicated loans outstanding. Syndicated loans are grouped within commercial business loans below.

Consumer Loans. We make a variety of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. Our installment loans typically amortize over periods up to 72 months. Although we typically require monthly payments of interest and a portion of the principal on our loan products, we will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

Loans receivable, net at March 31, 2017 and December 31, 2016 are summarized by category as follows:

	At March 31,					At December 31,
	2017					2016
			% of Total					% of Total
	Amount		Loans			Amount		Loans
	(Dollars in thousands)
Loans secured by real estate:
One-to-four family	$	472,764		33.36	%	$	411,399		34.91	%
Home equity		52,298		3.69	%		36,026		3.06	%
Commercial real estate		540,415		38.14	%		445,344		37.80	%
Construction and development		150,738		10.64	%		115,682		9.82	%
Consumer loans		10,411		0.73	%		5,714		0.48	%
Commercial business loans		190,384		13.44	%		164,101		13.93	%
Total gross loans receivable		1,417,010		100.00	%		1,178,266		100.00	%
Less:
Allowance for loan losses		10,715					10,688
Total loans receivable, net	$	1,406,295				$	1,167,578

24

Included in the loan totals were $303.2 million and $119.4 million in loans acquired through acquisitions at March 31, 2017 and December 31, 2016, respectively. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.

There are two methods to account for acquired loans as part of a business combination. Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with ASC 310-30 and are considered purchased credit impaired (“PCI”) loans. All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC 310-20.

PCI loans are aggregated into pools of loans based on common risk characteristics such as the type of loan, payment status, or collateral type. The Company estimates the amount and timing of expected cash flows for each purchased loan pool and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the pool (accretable yield). The excess of the pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

At March 31, 2017, the outstanding balance and recorded investment of PCI loans was $31.9 million and $25.3 million, respectively. The Company had no PCI loans prior to 2017. The following table presents changes in the value of the accretable yield for PCI loans for three months ended March 31, 2017 (in thousands):

	For the Three Months
	Ended March 31, 2017
	(In thousands)
Accretable yield, beginning of period	$	—
Additions		4,995
Accretion		(102	)
Reclassification from nonaccretable balance, net		—
Other changes, net		—
Accretable yield, end of period	$	4,893

The composition of gross loans outstanding, net of undisbursed amounts, by rate type is as follows:

	At March 31,				At December 31,
	2017				2016
	(Dollars in thousands)
Variable rate loans	$	535,935	37.82	%	$	455,589	38.67	%
Fixed rate loans		881,075	62.18	%		722,677	61.33	%
Total loans outstanding	$	1,417,010	100.00	%	$	1,178,266	100.00	%

25

The following table presents activity in the allowance for loan losses for the period indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Allowance for loan losses:	For the Three Months Ended March 31, 2017
	Loans Secured by Real Estate
	One-to-					Commercial		Construction
	four			Home		real		and						Commercial
	family			equity		estate		development			Consumer			business			Unallocated		Total
								(In thousands)
Balance, beginning of period	$	2,636			197		3,344		1,132			80			2,805			494		10,688
Provision for loan losses		(114	)		39		244		(190	)		35			(329	)		315		—
Charge-offs		(17	)		—		—		—			(9	)		—			—		(26	)
Recoveries		1			—		25		1			4			22			—		53
Balance, end of period	$	2,506			236		3,613		943			110			2,498			809		10,715

	For the Three Months Ended March 31, 2016
	Loans Secured by Real Estate
	One-to-					Commercial			Construction
	four			Home		real			and					Commercial
	family			equity		estate			development		Consumer			business		Unallocated			Total
	(In thousands)
Balance, beginning of period	$	2,903			151		3,402			1,138		27			2,100		420			10,141
Provision for loan losses		(98	)		1		(37	)		90		(2	)		66		(20	)		—
Charge-offs		—			—		—			—		(2	)		—		—			(2	)
Recoveries		58			—		—			3		6			27		—			94
Balance, end of period	$	2,863			152		3,365			1,231		29			2,193		400			10,233

26

The following table disaggregates our allowance for loan losses and recorded investment in loans by impairment methodology.

	Loans Secured by Real Estate
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Unallocated		Total
	(In thousands)
At March 31, 2017:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	43		54		48		—		—		23		—		168
Collectively evaluated for impairment		2,463		182		3,565		943		110		2,475		809		10,547
	$	2,506		236		3,613		943		110		2,498		809		10,715
Loans receivable ending balances:
Individually evaluated for impairment	$	4,460		1,114		5,055		491		19		247		—		11,386
Collectively evaluated for impairment		461,515		50,884		523,626		145,506		10,336		188,450		—		1,380,317
Purchased Credit-Impaired Loans		6,789		300		11,734		4,741		56		1,687		—		25,307
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		—		1,417,010
At December 31, 2016:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	27		29		92		—		—		9		—		157
Collectively evaluated for impairment		2,609		168		3,252		1,132		80		2,796		494		10,531
	$	2,636		197		3,344		1,132		80		2,805		494		10,688
Loans receivable ending balances:
Individually evaluated for impairment	$	4,668		108		5,247		507		24		267		—		10,821
Collectively evaluated for impairment		406,731		35,918		440,097		115,175		5,690		163,834		—		1,167,445
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		—		1,178,266

27

The following table presents impaired loans individually evaluated for impairment in the segmented portfolio categories and the corresponding allowance for loan losses as of March 31, 2017 and December 31, 2016. The recorded investment is defined as the original amount of the loan, net of any deferred costs and fees, less any principal reductions and direct charge-offs. Unpaid principal balance includes amounts previously included in charge-offs.

	At March 31, 2017						At December 31, 2016
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,833		4,073		—		4,125		4,366		—
Home equity		839		839		—		—		—		—
Commercial real estate		4,041		4,041		—		4,011		4,011		—
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		36		37		—		258		258		—
		9,259		9,500		—		8,925		9,166		—
With an allowance recorded:
Loans secured by real estate:
One-to-four family		627		627		43		543		543		27
Home equity		275		275		54		108		108		29
Commercial real estate		1,014		1,014		48		1,236		1,236		92
Construction and development		—		—		—		—		—		—
Consumer loans		—		—		—		—		—		—
Commercial business loans		211		211		23		9		9		9
		2,127		2,127		168		1,896		1,896		157
Total:
Loans secured by real estate:
One-to-four family		4,460		4,700		43		4,668		4,909		27
Home equity		1,114		1,114		54		108		108		29
Commercial real estate		5,055		5,055		48		5,247		5,247		92
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		247		248		23		267		267		9
	$	11,386		11,627		168		10,821		11,062		157

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The following table presents the average recorded investment and interest income recognized on impaired loans individually evaluated for impairment in the segmented portfolio categories for the three months ended March 31, 2017 and 2016.

	For the Three Months Ended March 31,
	2017				2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
			(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,827		36		3,076		11
Home equity		541		3		—		—
Commercial real estate		4,070		136		10,753		136
Construction and development		491		—		25		—
Consumer loans		20		1		65		(4	)
Commercial business loans		38		17		318		4
		8,987		193		14,237		147
With an allowance recorded:
Loans secured by real estate:
One-to-four family		597		3		518		5
Home equity		192		1		—		—
Commercial real estate		1,019		66		1,671		—
Construction and development		—		—		475		—
Consumer loans		—		—		—		—
Commercial business loans		217		6		198		(1	)
		2,025		76		2,862		4
Total:
Loans secured by real estate:
One-to-four family		4,424		39		3,594		16
Home equity		733		4		—		—
Commercial real estate		5,089		202		12,424		136
Construction and development		491		—		500		—
Consumer loans		20		1		65		(4	)
Commercial business loans		255		23		516		3
	$	11,012		269		17,099		151

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A loan is considered past due if the required principal and interest payment has not been received as of the due date. The following schedule is an aging of past due loans receivable by portfolio segment as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	1,526		15		1,536		90		181		11		3,359
60-89 days past due		27		13		—		—		—		—		40
90 days or more past due		3,123		772		135		491		6		623		5,150
Total past due		4,676		800		1,671		581		187		634		8,549
Current		468,088		51,498		538,744		150,157		10,224		189,750		1,408,461
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31, 2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	3,864		379		206		62		55		136		4,702
60-89 days past due		635		497		—		—		3		—		1,135
90 days or more past due		3,170		108		334		507		26		16		4,161
Total past due		7,669		984		540		569		84		152		9,998
Current		403,730		35,042		444,804		115,113		5,630		163,949		1,168,268
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest payments received while the loan is on nonaccrual are applied to the principal balance. No interest income was recognized on impaired loans subsequent to the nonaccrual status designation. A loan is returned to accrual status when the borrower makes consistent payments according to contractual terms and future payments are reasonably assured.

30

The following is a schedule of loans receivable, by portfolio segment, on nonaccrual at March 31, 2017 and December 31, 2016.

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Loans secured by real estate:
One-to-four family	$	3,098		3,256
Home equity		772		108
Commercial real estate		1,546		1,703
Construction and development		491		507
Consumer loans		7		27
Commercial business loans		17		24
	$	5,931		5,625

The Company uses several metrics as credit quality indicators of current or potential risks as part of the ongoing monitoring of credit quality of its loan portfolio. The credit quality indicators are periodically reviewed and updated on a case-by-case basis. The Company uses the following definitions for the internal risk rating grades, listed from the least risk to the highest risk.

Pass: These loans range from minimal credit risk to average, however, still acceptable credit risk.

Special mention: A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard: A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The Company uses the following definitions in the tables below:

Nonperforming: Loans on nonaccrual status plus loans greater than 90 days past due still accruing interest.

Performing: All current loans plus loans less than 90 days past due.

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The following is a schedule of the credit quality of loans receivable, by portfolio segment, as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	466,380		50,881		535,087		147,728		10,384		186,113		1,396,573
Special Mention		1,934		231		2,749		427		20		2,236		7,597
Substandard		4,450		1,186		2,579		2,583		7		2,035		12,840
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010
Performing	$	469,666		51,526		538,869		150,247		10,404		190,367		1,411,079
Nonperforming:
Nonaccrual		3,098		772		1,546		491		7		17		5,931
Total nonperforming		3,098		772		1,546		491		7		17		5,931
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31,2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	407,612		35,903		442,323		114,751		5,683		162,235		1,168,507
Special Mention		438		15		1,318		424		19		1,849		4,063
Substandard		3,349		108		1,703		507		12		17		5,696
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266
Performing	$	408,143		35,918		443,641		115,175		5,687		164,077		1,172,641
Nonperforming:
Nonaccrual		3,256		108		1,703		507		27		24		5,625
Total nonperforming		3,256		108		1,703		507		27		24		5,625
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

As of March 31, 2017, the Company had $911,000 in PCI loans that were 90 days or more and still accuring. There were no loans 90 days or more and still accruing at December 31, 2016.

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

32

Troubled Debt Restructurings

At March 31, 2017, there were $6.6 million in loans designated as troubled debt restructurings of which $5.5 million were accruing. At December 31, 2016, there were $6.4 million in loans designated as troubled debt restructurings of which $5.2 million were accruing.

There was one loan with a premodification and post modification balance of $342,000 identified as a troubled debt restructuring during the three months ended March 31, 2017 due to a payment structure change. There were no loans designated as troubled debt restructuring during the three months ended March 31 2016.

No loans previously restructured in the twelve months prior to March 31, 2017 and 2016 went into default during the three months March 31, 2017 and 2016. 

NOTE 6 – REAL ESTATE ACQUIRED THROUGH FORECLOSURE

The following presents summarized activity in real estate acquired through foreclosure for the periods ended March 31, 2017 and December 31, 2016:

	March 31,			December 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	1,179			2,374
Additions		323			2,630
Sales		(23	)		(3,810	)
Write downs		—			(15	)
Balance at end of period	$	1,479			1,179

A summary of the composition of real estate acquired through foreclosure follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Real estate loans:
One-to-four family	$	239		—
Construction and development		1,240		1,179
	$	1,479		1,179

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NOTE 7 - DEPOSITS

Deposits outstanding by type of account at March 31, 2017 and December 31, 2016 are summarized as follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Noninterest-bearing demand accounts	$	298,365		229,905
Interest-bearing demand accounts		309,961		191,851
Savings accounts		66,506		48,648
Money market accounts		363,600		292,639
Certificates of deposit:
Less than $250,000		524,836		467,937
$250,000 or more		44,452		27,280
Total certificates of deposit		569,288		495,217
Total deposits	$	1,607,720		1,258,260

The aggregate amount of brokered certificates of deposit was $86.2 million and $98.3 million at March 31, 2017 and December 31, 2016, respectively. Brokered certificates of deposit are included in the table above under certificates of deposit less than $250,000. The aggregate amount of institutional certificates of deposit was $49.9 million and $44.3 million at March 31, 2017 and December 31, 2016, respectively.

NOTE 8 – ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Current accounting literature requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized through immediate settlement of the instrument. Certain items are specifically excluded from disclosure requirements, including the Company’s stock, premises and equipment, accrued interest receivable and payable and other assets and liabilities.

The fair value of a financial instrument is an amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced sale. Fair values are estimated at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

The Company has used management’s best estimate of fair value based on the above assumptions. Thus the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair values presented.

34

The Company determines the fair value of its financial instruments based on the fair value hierarchy established under ASC 820-10, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the financial instrument’s fair value measurement in its entirety. There are three levels of inputs that may be used to measure fair value. The three levels of inputs of the valuation hierarchy are defined below:

Level 1 Quoted prices (unadjusted) in active markets for identical assets and liabilities for the instrument or security to be valued. Level 1 assets include marketable equity securities as well as U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or model-based valuation techniques for which all significant assumptions are derived principally from or corroborated by observable market data. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined by using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. U.S. Government sponsored agency securities, mortgage-backed securities issued by U.S. Government sponsored enterprises and agencies, obligations of states and municipalities, collateralized mortgage obligations issued by U.S. Government sponsored enterprises, and mortgage loans held-for-sale are generally included in this category. Certain private equity investments that invest in publicly traded companies are also considered Level 2 assets.

Level 3 Unobservable inputs that are supported by little, if any, market activity for the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow models and similar techniques, and may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. These methods of valuation may result in a significant portion of the fair value being derived from unobservable assumptions that reflect The Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. This category primarily includes collateral-dependent impaired loans, other real estate, certain equity investments, and certain private equity investments.

Cash and due from banks - The carrying amounts of these financial instruments approximate fair value. All mature within 90 days and present no anticipated credit concerns.

Interest-bearing cash - The carrying amount of these financial instruments approximates fair value.

Securities available-for-sale and securities held to maturity – Fair values for investment securities available-for-sale and securities held to maturity are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

FHLB stock and other non-marketable equity securities - The carrying amount of these financial instruments approximates fair value.

Mortgage loans held for sale – Mortgage loans held for sale are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for loans held for sale recorded at lower of cost or market are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for loans held for sale that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.

35

Loans receivable - The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Further adjustments are made to reflect current market conditions. There is no discount for liquidity included in the expected cash flow assumptions. Loans receivable are classified within Level 3 of the valuation hierarchy.

Accrued interest receivable - The carrying value approximates the fair value.

Mortgage servicing rights - The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market.

Deposits - The estimated fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The estimated fair value of fixed maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-term borrowed funds - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within 90 days approximate their fair values. Estimated fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Long-term debt - The estimated fair values of the Company’s long-term debt are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Other Investments – The carrying value approximates the fair value.

36

Derivative assets and liabilities – The primary use of derivative instruments are related to the mortgage banking activities of the Company. The Company’s wholesale mortgage banking subsidiary enters into interest rate lock commitments related to expected funding of residential mortgage loans at specified times in the future. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative instruments under applicable accounting guidance. As such, The Company records its interest rate lock commitments and forward loan sales commitments at fair value, determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, the mortgage subsidiary enters into contractual interest rate lock commitments to extend credit, if approved, at a fixed interest rate and with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the time frames established by the mortgage banking subsidiary. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to borrowers, the mortgage banking subsidiary enters into best efforts forward sales contracts with third party investors. The forward sales contracts lock in a price for the sale of loans similar to the specific interest rate lock commitments. Both the interest rate lock commitments to the borrowers and the forward sales contracts to the investors that extend through to the date the loan may close are derivatives, and accordingly, are marked to fair value through earnings. In estimating the fair value of an interest rate lock commitment, the Company assigns a probability to the interest rate lock commitment based on an expectation that it will be exercised and the loan will be funded. The fair value of the interest rate lock commitment is derived from the fair value of related mortgage loans, which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. The fair value of the interest rate lock commitment is also derived from inputs that include guarantee fees negotiated with the agencies and private investors, buy-up and buy-down values provided by the agencies and private investors, and interest rate spreads for the difference between retail and wholesale mortgage rates. Management also applies fall-out ratio assumptions for those interest rate lock commitments for which we do not close a mortgage loan. The fall-out ratio assumptions are based on the mortgage subsidiary’s historical experience, conversion ratios for similar loan commitments, and market conditions. While fall-out tendencies are not exact predictions of which loans will or will not close, historical performance review of loan-level data provides the basis for determining the appropriate hedge ratios. In addition, on a periodic basis, the mortgage banking subsidiary performs analysis of actual rate lock fall-out experience to determine the sensitivity of the mortgage pipeline to interest rate changes from the date of the commitment through loan origination, and then period end, using applicable published mortgage-backed investment security prices. The expected fall-out ratios (or conversely the “pull-through” percentages) are applied to the determined fair value of the unclosed mortgage pipeline in accordance with GAAP. Changes to the fair value of interest rate lock commitments are recognized based on interest rate changes, changes in the probability that the commitment will be exercised, and the passage of time. The fair value of the forward sales contracts to investors considers the market price movement of the same type of security between the trade date and the balance sheet date. These instruments are defined as Level 2 within the valuation hierarchy.

Derivative instruments not related to mortgage banking activities interest rate swap agreements. Fair values for these instruments are based on quoted market prices, when available. As such, the fair value adjustments for derivatives with fair values based on quoted market prices are recurring Level 1.

Commitments to extend credit – The carrying amounts of these commitments are considered to be a reasonable estimate of fair value because the commitments underlying interest rates are based upon current market rates.

Accrued interest payable - The fair value approximates the carrying value.

Off-balance sheet financial instruments – Contract values and fair values for off-balance sheet, credit-related financial instruments are based on estimated fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and counterparties’ credit standing.

37

The carrying amount and estimated fair value of the Company’s financial instruments at March 31, 2017 and December 31, 2016 are as follows:

	At March 31, 2017
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	21,456		21,456		21,456		—		—
Interest-bearing cash		36,582		36,582		36,582		—		—
Federal funds sold		10,560		—		10,560		—		—
Securities available-for-sale		494,130		494,130		—		494,130		—
Federal Home Loan Bank stock		12,478		12,478		—		—		12,478
Other investments		2,116		2,116		—		—		2,116
Derivative assets		3,226		3,226		1,111		2,115		—
Loans held for sale		21,399		21,399		—		21,399		—
Loans receivable, net		1,406,295		1,407,232		—		—		1,407,232
Accrued interest receivable		6,726		6,726		—		6,726		—
Mortgage servicing rights		15,792		21,933		—		—		21,933
Financial liabilities:
Deposits		1,607,720		1,605,218		—		1,605,218		—
Short-term borrowed funds		214,500		213,865		—		213,865		—
Long-term debt		55,304		55,272		—		55,272		—
Derivative liabilities		682		682		234		448		—
Accrued interest payable		690		690		—		690		—

38

	At December 31, 2016
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	9,761		9,761		9,761		—		—
Interest-bearing cash		14,591		14,591		14,591		—		—
Securities available-for-sale		335,352		335,352		—		335,352		—
Federal Home Loan Bank stock		11,072		11,072		—		—		11,072
Other investments		1,768		1,768		—		—		1,768
Derivative assets		2,219		2,219		953		1,266		—
Loans held for sale		31,569		31,569		—		31,569		—
Loans receivable, net		1,167,578		1,173,118		—		—		1,173,118
Accrued interest receivable		5,373		5,373		—		5,373		—
Mortgage servicing rights		15,032		20,961		—		—		20,961
Financial liabilities:
Deposits		1,258,260		1,256,119		—		1,256,119		—
Short-term borrowed funds		203,000		202,455		—		202,455		—
Long-term debt		38,465		38,442		—		38,442		—
Derivative liabilities		342		342		195		147		—
Accrued interest payable		327		327		—		327		—

39

	At March 31, 2017				At December 31, 2016
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Off-Balance Sheet Financial Instruments:
Commitments to extend credit	$	141,082		—		111,446		—
Standby letters of credit		3,521		—		2,248		—

In determining appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value disclosures. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

Following is a description of valuation methodologies used for assets recorded at fair value on a recurring and non-recurring basis.

Securities Available-for-Sale 

Measurement is on a recurring basis upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. At March 31, 2017 and December 31, 2016, the Company’s investment securities available-for-sale are recurring Level 2 except for trust preferred securities which are determined to be Level 3.

Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for loans held for sale recorded at lower of cost or market are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for loans held for sale that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.

Derivative Assets and Liabilities 

The primary use of derivative instruments is related to the mortgage banking activities of the Company. The Company’s wholesale mortgage banking subsidiary enters into interest rate lock commitments related to expected funding of residential mortgage loans at specified times in the future. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative instruments under applicable accounting guidance. As such, The Company records its interest rate lock commitments and forward loan sales commitments at fair value, determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, the mortgage subsidiary enters into contractual interest rate lock commitments to extend credit, if approved, at a fixed interest rate and with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the time frames established by the mortgage banking subsidiary. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to borrowers, the mortgage banking subsidiary enters into best efforts forward sales contracts with third party investors. The forward sales contracts lock in a price for the sale of loans similar to the specific interest rate lock commitments. Both the interest rate lock commitments to the borrowers and the forward sales contracts to the investors that extend through to the date the loan may close are derivatives, and accordingly, are marked to fair value through earnings. In estimating the fair value of an interest rate lock commitment, the Company assigns a probability to the interest rate lock commitment based on an expectation that it will be exercised and the loan will be funded. The fair value of the interest rate lock commitment is derived from the fair value of related mortgage loans, which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. The fair value of the interest rate lock commitment is also derived from inputs that include guarantee fees negotiated with the agencies and private investors, buy-up and buy-down values provided by the agencies and private investors, and interest rate spreads for the difference between retail and wholesale mortgage rates. Management also applies fall-out ratio assumptions for those interest rate lock commitments for which we do not close a mortgage loan. The fall-out ratio assumptions are based on the mortgage subsidiary’s historical experience, conversion ratios for similar loan commitments, and market conditions. While fall-out tendencies are not exact predictions of which loans will or will not close, historical performance review of loan-level data provides the basis for determining the appropriate hedge ratios. In addition, on a periodic basis, the mortgage banking subsidiary performs analysis of actual rate lock fall-out experience to determine the sensitivity of the mortgage pipeline to interest rate changes from the date of the commitment through loan origination, and then period end, using applicable published mortgage-backed investment security prices. The expected fall-out ratios (or conversely the “pull-through” percentages) are applied to the determined fair value of the unclosed mortgage pipeline in accordance with GAAP. Changes to the fair value of interest rate lock commitments are recognized based on interest rate changes, changes in the probability that the commitment will be exercised, and the passage of time. The fair value of the forward sales contracts to investors considers the market price movement of the same type of security between the trade date and the balance sheet date. These instruments are defined as Level 2 within the valuation hierarchy.

40

Derivative instruments not related to mortgage banking activities include interest rate swap agreements. Fair values for these instruments are based on quoted market prices, when available. As such, the fair value adjustments for derivatives with fair values based on quoted market prices in an active market are recurring Level 1. 

Impaired Loans

Loans that are considered impaired are recorded at fair value on a nonrecurring basis. Once a loan is considered impaired, the fair value is measured using one of several methods, including collateral liquidation value, market value of similar debt and discounted cash flows. Those impaired loans not requiring a specific charge against the allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investment in the loan. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs.

Other Real Estate Owned (“OREO”)

OREO is carried at the lower of carrying value or fair value on a nonrecurring basis.  Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.  When the OREO value is based upon a current appraisal or when a current appraisal is not available or there is estimated further impairment, the measurement is considered a Level 3 measurement.

Mortgage Servicing Rights

A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market on a quarterly basis. The quarterly determination of fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

41

Assets and liabilities measured at fair value on a recurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Available-for-sale investment securities:
Municipal securities	$	—		150,856		—
US government agencies		—		35,700		—
Collateralized loan obligations		—		84,337		—
Corporate securities		—		489		—
Mortgage-backed securities:
Agency		—		145,309		—
Non-agency		—		69,018		—
Trust Preferred Securities		—		8,421		—
Loans held for sale		—		21,399		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		559		—		—
Non-hedging derivatives:
Interest rate swaps		552		—		—
Mortgage loan interest rate lock commitments		—		1,827		—
Mortgage loan forward sales commitments		—		288		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		234		—		—
Mortgage-backed securities forward sales commitments		—		448		—
Total	$	1,345		515,092		0
December 31, 2016
Available-for-sale investment securities:
Municipal securities	$	—		93,212		—
US government agencies		—		3,386		—
Collateralized loan obligations		—		76,249		—
Corporate securities		—		491		—
Mortgage-backed securities:
Agency		—		90,986		—
Non-agency		—		63,864		—
Trust preferred securities		—		7,164		—
Loans held for sale		—		31,569		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		421		—		—
Non-hedging derivatives:
Interest rate swaps		532		—		—
Mortgage loan interest rate lock commitments		—		1,113		—
Mortgage loan forward sales commitments		—		153		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		195		—		—
Mortgage-backed securities forward sales commitments		—		147		—
Total	$	1,148		368,334		0

42

Assets measured at fair value on a nonrecurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,417
Home equity		—		—		1,060
Commercial real estate		—		—		5,007
Construction and development		—		—		491
Consumer loans		—		—		19
Commercial business loans		—		—		224
Real estate owned:
One-to-four family		—		—		239
Construction and development		—		—		1,240
Mortgage servicing rights		—		—		21,933
Total	$	—		—		34,630
December 31, 2016
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,641
Home equity		—		—		79
Commercial real estate		—		—		5,155
Construction and development		—		—		507
Consumer loans		—		—		24
Commercial business loans		—		—		258
Real estate owned:
One-to-four family		—		—		—
Commercial real estate		—		—		—
Construction and development		—		—		1,179
Mortgage servicing rights		—		—		20,961
Total	$	—		—		32,804

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For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

	March 31, 2017 and December 31, 2016
		Significant	Significant Unobservable
	Valuation Technique	Observable Inputs	Inputs
Impaired Loans	Appraisal Value	Appraisals and or sales of	Appraisals discounted 10% to 20% for
		comparable properties	sales commissions and other holding costs
Real estate owned	Appraisal Value/	Appraisals and or sales of	Appraisals discounted 10% to 20% for
	Comparison Sales/	comparable properties	sales commissions and other holding costs
	Other estimates
Mortgage Servicing Rights	Discounted cash flows	Comparable sales	Discount rates 12% - 13% - 2017 and 2016
			Prepayment rate 7% - 8% - 2017 and 2016

NOTE 9 - EARNINGS PER SHARE

Basic earnings per share (“EPS”) represents income available to common stockholders divided by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflects additional shares that would have been outstanding if dilutive potential shares had been issued. Potential shares that may be issued by the Company relate solely to outstanding stock options, restricted stock (non-vested shares), restricted stock units (“RSUs”) and warrants, and are determined using the treasury stock method. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of stock for the outstanding stock options, unvested restricted stock and RSUs, and warrants, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Company’s stock.

The following is a summary of the reconciliation of weighted average shares outstanding for the three months ended March 31, 2017 and 2016:

	For the Three Months Ended March 31,
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average shares outstanding		13,919,711		13,919,711		11,746,574		11,746,574
Effect of dilutive securities		—		219,530		—		232,227
Weighted average shares outstanding		13,919,711		14,139,241		11,746,574		11,978,801

The following is a summary of the reconciliation of shares issued and outstanding and unvested restricted stock awards as of March 31, 2017 and 2016 used to calculate book value per share:

	As of March 31,
	2017			2016
Issued and outstanding shares		16,185,408			12,051,615
Less nonvested restricted stock awards		(227,439	)		(302,028	)
Period end dilutive shares		15,957,969			11,749,587

44

NOTE 10 – SUPPLEMENTAL SEGMENT INFORMATION

The Company has three reportable segments: community banking, wholesale mortgage banking (“mortgage banking”) and other. The community banking segment includes traditional banking services offered through CresCom Bank as well as the managerial and operational support provided by Carolina Services. The mortgage banking segment provides wholesale mortgage loan origination and servicing offered through Crescent Mortgage Company. The other segment includes parent company financial information and represents an overhead function rather than an operating segment. The parent company’s most significant assets are its net investments in its subsidiaries.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on net income.

The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were generated to third parties, that is, at current market prices.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment has different types and levels of credit and interest rate risk.

The following tables present selected financial information for the Company’s reportable business segments for the three months ended March 31, 2017 and 2016:

	Community		Mortgage
For the Three Months Ended March 31, 2017	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	17,257		395		6			12			17,670
Interest expense		2,218		12		182			(12	)		2,400
Net interest income (expense)		15,039		383		(176	)		24			15,270
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,419		4,812		—			—			7,231
Intersegment noninterest income		242		34		—			(276	)		—
Noninterest expense		11,324		4,053		209			—			15,586
Intersegment noninterest expense		—		240		2			(242	)		—
Income (loss) before income taxes		6,376		936		(387	)		(10	)		6,915
Income tax expense (benefit)		1,867		291		(143	)		(4	)		2,011
Net income (loss)	$	4,509		645		(244	)		(6	)		4,904

	Community		Mortgage
For the Three Months Ended March 31, 2016	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	12,944		369		5			42			13,360
Interest expense		1,939		5		148			(5	)		2,087
Net interest income (expense)		11,005		364		(143	)		47			11,273
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,133		4,143		—			—			6,276
Intersegment noninterest income		243		19		—			(262	)		—
Noninterest expense		8,429		3,680		159			—			12,268
Intersegment noninterest expense		—		241		2			(243	)		—
Income (loss) before income taxes		4,952		605		(304	)		28			5,281
Income tax expense (benefit)		1,539		204		(116	)		11			1,638
Net income (loss)	$	3,413		401		(188	)		17			3,643

45

The following tables present selected financial information for the Company’s reportable business segments for March 31, 2017 and December 31, 2016:

	Community		Mortgage
At March 31, 2017	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	2,178,608		70,688		298,319		(365,506	)		2,182,109
Loans receivable, net		1,383,117		27,757		—		(4,579	)		1,406,295
Loans held for sale		1,302		20,097		—		—			21,399
Deposits		1,620,575		—		—		(12,855	)		1,607,720
Borrowed funds		246,500		4,000		23,304		(4,000	)		269,804

	Community		Mortgage
At December 31, 2016	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	1,678,541		78,315		179,681		(252,801	)		1,683,736
Loans receivable, net		1,151,704		27,433		—		(11,559	)		1,167,578
Loans held for sale		2,159		29,410		—		—			31,569
Deposits		1,263,030		—		—		(4,770	)		1,258,260
Borrowed funds		226,000		10,990		15,465		(10,990	)		241,465

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

The following discussion reviews our results of operations for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 and assesses our financial condition as of March 31, 2017 as compared to December 31, 2016. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, 2016 included in our Form 10-K for that period. Results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period.

Cautionary Warning Regarding Forward-Looking Statements

This report, including information included or incorporated by reference in this report, contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to our financial condition, results of operation, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to, the following:

· our ability to maintain appropriate levels of capital and to comply with our capital ratio requirements;

· examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for loan losses or write-down assets or otherwise impose restrictions or conditions on our operations, including, but not limited to, our ability to acquire or be acquired;

· changes in economic conditions, either nationally or regionally and especially in our primary market areas, resulting in, among other things, a deterioration in credit quality;

· changes in interest rates, or changes in regulatory environment resulting in a decline in our mortgage production and a decrease in the profitability of our mortgage banking operations;

· greater than expected losses due to higher credit losses generally and specifically because losses in the sectors of our loan portfolio secured by real estate are greater than expected due to economic factors, including, but not limited to, declining real estate values, increasing interest rates, increasing unemployment, or changes in payment behavior or other factors;

· greater than expected losses due to higher credit losses because our loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral;

· changes in the amount of our loan portfolio collateralized by real estate and weaknesses in the South Carolina, southeastern North Carolina and national real estate markets;

· the rate of delinquencies and amount of loans charged-off;

· the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods;

· the rate of loan growth in recent or future years;

· our ability to attract and retain key personnel;

· our ability to retain our existing customers, including our deposit relationships;

· significant increases in competitive pressure in the banking and financial services industries;

· adverse changes in asset quality and resulting credit risk-related losses and expenses;

· changes in the interest rate environment which could reduce anticipated or actual margins;

· changes in political conditions or the legislative or regulatory environment, including, but not limited to, the Dodd-Frank Act and regulations adopted thereunder, changes in federal or state tax laws or interpretations thereof by taxing authorities and other governmental initiatives affecting the banking, mortgage banking, and financial service industries;

· changes occurring in business conditions and inflation;

47

· increased funding costs due to market illiquidity, increased competition for funding, or increased regulatory requirements with regard to funding;

· our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, business and a negative impact on results of operations;

· changes in deposit flows;

· changes in technology;

· changes in monetary and tax policies;

· changes in accounting policies, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board and the FASB;

· loss of consumer confidence and economic disruptions resulting from terrorist activities or other military actions;

· our expectations regarding our operating revenues, expenses, effective tax rates and other results of operations;

· our anticipated capital expenditures and our estimates regarding our capital requirements;

· our liquidity and working capital requirements;

· competitive pressures among depository and other financial institutions;

· the growth rates of the markets in which we compete;

· our anticipated strategies for growth and sources of new operating revenues;

· our current and future products, services, applications and functionality and plans to promote them;

· anticipated trends and challenges in our business and in the markets in which we operate;

· the evolution of technology affecting our products, services and markets;

· our ability to retain and hire necessary employees and to staff our operations appropriately;

· management compensation and the methodology for its determination;

· our ability to compete in our industry and innovation by our competitors;

· increased cybersecurity risk, including potential business disruptions or financial losses;

· acquisition integration risks, including potential deposit attrition, higher than expected costs, customer loss and business disruption, including, without limitation, potential difficulties in maintaining relationships with key personnel and other integration related matters, and the inability to identify and successfully negotiate and complete additional combinations with potential merger or acquisition partners or to successfully integrate such businesses into the Company, including the ability to realize the benefits and cost savings from, and limit any unexpected liabilities associated with, any such business combinations;

· our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business; and

· estimates and estimate methodologies used in preparing our consolidated financial statements and determining option exercise prices and stock-based compensation.

If any of these risks or uncertainties materialize, or if any of the assumptions underlying such forward-looking statements prove to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. For 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, 2016. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q and our other reports filed pursuant to the Securities Exchange Act of 1934. We make these forward-looking statements as of the date of this document and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those expressed, implied or projected by us in the forward-looking statements.

Company Overview

 Carolina Financial Corporation is a Delaware corporation holding company registered under the Bank Holding Company Act of 1956, as amended. Its primary business is to serve as the holding company to CresCom Bank, a South Carolina state-chartered bank. CresCom Bank operates Crescent Mortgage Company and Carolina Service Corporation of Charleston as wholly-owned subsidiaries of CresCom Bank. Except where the context otherwise requires, the “Company”, “we”, “us” and “our” refer to Carolina Financial Corporation and its consolidated subsidiaries and the “Bank” refers to CresCom Bank.

CresCom Bank provides a full range of commercial and retail banking financial services designed to meet the financial needs of our customers through its branch network in South Carolina and North Carolina. Crescent Mortgage Company, headquartered in Atlanta, Georgia, is a wholesale mortgage company that provides mortgage banking services in 48 states and partners with community banks, credit unions and mortgage brokers.

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Like most community banks, we derive a significant portion of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, both interest-bearing and noninterest-bearing. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowed funds. In order to maximize our net interest income, we must not only manage the volume of these balance sheet items, but also the yields that we earn on our interest-earning assets and the rates that we pay on interest-bearing liabilities. 

There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings.

In addition to earning interest on our loans and investments, we derive a portion of our income from Crescent Mortgage Company through mortgage banking income as well as servicing income. We also earn income through fees that we charge to our customers. Likewise, we incur other operating expenses as well.

Economic conditions, competition, and the monetary and fiscal policies of the federal government significantly affect most financial institutions, including the Bank. Lending and deposit activities and fee income generation are influenced by levels of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions as well as client preferences, interest rate conditions and prevailing market rates on competing products in our market areas.

Recent Events

On January 25, 2017, the Company closed a public offering of 1.8 million shares of its common stock with net proceeds of approximately $47.7 million.

On March 18, 2017, the Company closed its acquisition of Greer Bancshares Incorporated, the holding company for Greer State Bank (“Greer”) ,with the operational conversion completed in April 2017.

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Executive Summary of Operating Results

The following is a summary of the Company’s financial highlights and significant events in first quarter of 2017:

· Net income for the first quarter 2017 increased 34.6% to $4.9 million, or $0.35 per diluted share, from $3.6 million, or $0.30 per diluted share for the first quarter of 2016. Included in net income for first quarter 2017 and 2016 were $1.3 million and $186,000 in merger related expenses, respectively.

· Operating earnings for the first quarter of 2017, which excludes certain non-operating income and expenses, increased 56.1% to $5.7 million, or $0.41 per diluted share, from $3.7 million, or $0.31 per diluted share, from the first quarter of 2016.

· Performance ratios first quarter of 2017 compared to first quarter of 2016:

o Return on average assets improved to 1.11% compared to 1.03%.

o Operating return on average assets improved to 1.30% compared to 1.04%.

o Return on tangible equity was 9.98% compared to 10.53%.

o Operating return on tangible equity improved to 11.70% compared to 10.65%.

· Loans receivable, excluding Greer loans acquired, grew at an annualized rate of 15.7%, or $46.4 million, since December 31, 2016.

· Allowance for loan losses to non-acquired loans was 0.96% at March 31, 2017 compared to 1.01% at December 31, 2016. Nonperforming assets to total assets were 0.34% at March 31, 2017 compared to 0.40% at December 31, 2016.

· Total deposits, excluding Greer deposits acquired, increased $35.6 million since December 31, 2016. Core deposits, excluding Greer core deposits acquired, increased $26.6 million since December 31, 2016.

Non-GAAP Financial Measures

Statements included in this management’s discussion and analysis include non-GAAP financial measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures, including: (i) operating earnings; (ii) operating earnings per common share (iii) operating return on average assets, (iv) operating return on average tangible equity, (v) core deposits, (vi) tangible book value and (vii) allowance for loan losses to non-acquired loans.

Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company without regard to transactional activities. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and 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 financial 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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The following table presents a reconciliation of Non-GAAP performance measures for operating earnings and corresponding ratios:

(Unaudited)
(In thousands, except share data)
	For the Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
Operating Earnings and Performance Ratios:	2017			2016			2016			2016			2016
Income before income taxes	$	6,915			7,498			8,939			3,700			5,281
Gain on sale of securities		(185	)		(65	)		(111	)		(113	)		(417	)
Net loss on extinguishment of debt		—			1,694			118			47			9
Fair value adjustments on interest rate swaps		58			(998	)		(99	)		226			281
Merger related expenses		1,319			260			—			2,799			186
Operating earnings before income taxes		8,107			8,389			8,847			6,659			5,340
Tax expense (1)		2,358			2,627			2,967			1,555			1,656
Operating earnings (Non-GAAP)	$	5,749			5,762			5,880			5,104			3,684
Average equity		210,071			160,991			157,311			145,656			141,311
Average assets		1,768,323			1,651,653			1,626,717			1,482,963			1,412,778
Average Equity		210,071			160,991			157,311			145,656			141,311
Less average intangible assets		(13,510	)		(7,979	)		(8,092	)		(3,076	)		(2,917	)
Average tangible common equity (Non-GAAP)		196,561			153,012			149,219			142,580			138,394
Operating return on average assets (Non-GAAP)		1.30	%		1.40	%		1.45	%		1.38	%		1.04	%
Operating return on average equity (Non-GAAP)		10.95	%		14.32	%		14.95	%		14.02	%		10.43	%
Operating return on average tangible equity (Non-GAAP)		11.70	%		15.06	%		15.76	%		14.32	%		10.65	%
Weighted average common shares outstanding:
Basic		13,919,711			12,336,420			12,327,921			11,908,282			11,746,574
Diluted		14,139,241			12,585,518			12,535,551			12,076,878			11,978,801
Operating earnings per common share:
Basic (Non-GAAP)	$	0.41			0.47			0.48			0.43			0.31
Diluted (Non-GAAP)	$	0.41			0.46			0.47			0.42			0.31
As Reported:
Income before income taxes	$	6,915			7,498			8,939			3,700			5,281
Tax expense		2,011			2,348			2,998			864			1,638
Net Income	$	4,904			5,150			5,941			2,836			3,643
Average equity		210,071			160,991			157,311			145,656			141,311
Average tangible equity (Non-GAAP)		196,561			153,012			149,219			142,580			138,394
Average assets		1,768,323			1,651,653			1,626,717			1,482,963			1,412,778
Return on average assets		1.11	%		1.25	%		1.46	%		0.76	%		1.03	%
Return on average equity		9.34	%		12.80	%		15.11	%		7.79	%		10.31	%
Return on average tangible equity (Non-GAAP)		9.98	%		13.46	%		15.93	%		7.96	%		10.53	%
Weighted average common shares outstanding:
Basic		13,919,711			12,336,420			12,327,921			11,908,282			11,746,574
Diluted		14,139,241			12,585,518			12,535,551			12,076,878			11,978,801
Earnings per common share:
Basic	$	0.35			0.42			0.48			0.24			0.31
Diluted	$	0.35			0.41			0.47			0.23			0.30

(1) Tax expense is determined using the effective tax rate reflected in the accompanying income statement for the applicable reporting period.

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The following table presents a reconciliation of Non-GAAP performance measures of core deposits, tangible book book value per share and acquired and non-acquired loans.

(Unaudited)
(In thousands, except share data)
	At the Month Ended
	March 31,		December 31,		September 30,		June 30,		March 31,
	2017		2016		2016		2016		2016
Core deposits:
Noninterest-bearing demand accounts	$	298,365		229,905		267,892		246,811		200,743
Interest-bearing demand accounts		309,961		191,851		195,792		166,843		147,393
Savings accounts		66,506		48,648		47,035		46,032		41,596
Money market accounts		363,600		292,639		299,960		296,968		257,808
Total core deposits (Non-GAAP)		1,038,432		763,043		810,679		756,654		647,540
Certificates of deposit:
Less than $250,000		524,836		467,937		476,744		480,002		459,789
$250,000 or more		44,452		27,280		24,853		26,532		20,443
Total certificates of deposit		569,288		495,217		501,597		506,534		480,232
Total deposits	$	1,607,720		1,258,260		1,312,276		1,263,188		1,127,772

	At the Month Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2017			2016			2016			2016			2016
Tangible book value per share:
Total stockholders’ equity	$	271,454			163,190			160,331			155,017			142,390
Less intangible assets		(45,292	)		(7,924	)		(8,037	)		(8,150	)		(2,875	)
Tangible common equity (Non-GAAP)	$	226,162			155,266			152,294			146,867			139,515
Issued and outstanding shares		16,185,408			12,548,328			12,546,220			12,545,282			12,051,615
Less nonvested restricted stock awards		(227,439	)		(211,908	)		(216,828	)		(219,228	)		(302,028	)
Period end dilutive shares		15,957,969			12,336,420			12,329,392			12,326,054			11,749,587
Total stockholders equity	$	271,454			163,190			160,331			155,017			142,390
Divided by period end dilutive shares		15,957,969			12,336,420			12,329,392			12,326,054			11,749,587
Common book value per share	$	17.01			13.23			13.00			12.58			12.12
Tangible common equity (Non-GAAP)	$	226,162			155,266			152,294			146,867			139,515
Divided by period end dilutive shares		15,957,969			12,336,420			12,329,392			12,326,054			11,749,587
Tangible common book value per share (Non-GAAP)	$	14.17			12.59			12.35			11.92			11.87

	At the Month Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2017			2016			2016			2016			2016
Acquired and non-acquired loans:
Acquired loans receivable	$	303,244			119,422			129,505			130,228			61,610
Non-acquired loans receivable		1,113,766			1,058,844			1,003,724			937,028			902,411
Total loans receivable	$	1,417,010			1,178,266			1,133,229			1,067,256			964,021
% Acquired		21.40	%		10.14	%		11.43	%		12.20	%		6.39	%
Non-acquired loans	$	1,113,766			1,058,844			1,003,724			937,028			902,411
Allowance for loan losses		10,715			10,688			10,340			10,297			10,233
Allowance for loan losses to non-acquired loans (Non-GAAP)		0.96	%		1.01	%		1.03	%		1.10	%		1.13	%
Total loans receivable	$	1,417,010			1,178,266			1,133,229			1,067,256			964,021
Allowance for loan losses		10,715			10,688			10,340			10,297			10,233
Allowance for loan losses to total loans receivable		0.76	%		0.91	%		0.91	%		0.96	%		1.06	%

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Critical Accounting Policies

There have been no significant changes to our critical accounting policies from those disclosed in our 2016 Annual Report on Form 10-K. Refer to the notes to our consolidated financial statements in our 2016 Annual Report on Form 10-K for a full disclosure of all critical accounting policies.

Results of Operations

Summary

The Company reported net income for the three months ended March 31, 2017 of $4.9 million, or $0.35 per diluted share, as compared to $3.6 million, or $0.30 per diluted share, for the three months ended March 31, 2016. Included in net income for the three months ended March 31, 2017 and 2016 were pretax merger related expenses of $1.3 million and $186,000, respectively.

The increase in earnings per share for the three months ended March 31, 2017 from the three months ended March 31, 2016 was primarily a result of the increase in earnings assets from organic and acquired growth.

Net Interest Income and Margin

Net interest income is a significant component of our net income. Net interest income is the difference between income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is determined by the yields earned on interest-earning assets, rates paid on interest-bearing liabilities, the relative balances of interest-earning assets and interest-bearing liabilities, the degree of mismatch, and the maturity and repricing characteristics of interest-earning assets and interest-bearing liabilities.

Net interest income increased to $15.3 million for the three months ended March 31, 2017 from $11.3 million for the three months ended March 31, 2016. The increase in net interest income is a result of the increase in average interest-earning assets balances. The increase in average earnings assets for the three months ended March 31, 2017 is primarily the result of increased balances of loans receivable.

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The growth in loan balances was primarily the result of the following:

· On June 11, 2016, the Company acquired approximately $74.6 million of loans, net of purchase accounting adjustments, as part of the acquisition of Congaree. The recorded investment in loans acquired from the Congaree acquisition were $63.9 million as of March 31, 2017.

· On March 18, 2017, the Company acquired approximately $194.7 million of loans, net of purchase accounting adjustments, as part of the acquisition of Greer. The recorded investment in loans acquired from the Greer acquisition were $192.4 million as of March 31, 2017. The recorded investment as of March 31, 2017 for loans acquired in the acquisition of Greer are presented in the following table:

	At March 31,
	2017
			% of Total
	Amount		Loans
	(Dollars in thousands)
Loans secured by real estate:
One-to-four family	$	52,536		27.31	%
Home equity		17,515		9.10	%
Commercial real estate		68,401		35.55	%
Construction and development		24,288		12.62	%
Consumer loans		4,244		2.21	%
Commercial business loans		25,398		13.21	%
Total loans receivable, net	$	192,382		100.00	%

· Residential mortgage – In addition to selling a portion of its production, the Company has retained a portion of its mortgage production. Due to management’s emphasis on growing the Company’s residential mortgage portfolio, loans receivable within the one-to-four family portfolio has increased $111.4 million since March 31, 2016. This growth includes loans acquired in the acquisition of Congaree and Greer.

· Commercial lending – The Company continues to expand its commercial lending team in throughout its markets. As a result, gross loans receivable within commercial real estate and construction and development increased $238.9 million since March 31, 2016. This growth includes loans acquired in the acquisition of Congaree and Greer.

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The following table sets forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods indicated (dollars in thousands). We derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments were owned at an original maturity of over one year. Nonaccrual loans are included in earning assets in the following tables. Loan yields reflect the negative impact on our earnings of loans on nonaccrual status. The net capitalized loan costs and fees, which are considered immaterial, are amortized into interest income on loans.

	For The Three Months Ended March 31,
	2017								2016
				Interest		Average						Interest		Average
	Average			Earned/		Yield/			Average			Earned/		Yield/
	Balance			Paid		Rate			Balance			Paid		Rate
Interest-earning assets:
Loans held for sale	$	17,827			168		3.83	%		25,454			222		3.51	%
Loans receivable, net (1)		1,214,777			14,798		4.95	%		935,438			10,863		4.67	%
Interest-bearing cash		16,384			32		0.79	%		9,737			14		0.58	%
Securities available for sale		363,505			2,551		2.81	%		314,980			2,022		2.57	%
Securities held to maturity		—			—		—			17,026			130		3.05	%
Dividends from non-equitable securities		10,046			101		4.09	%		8,421			97		4.63	%
Other investments		4,124			20		1.94	%		3,923			12		1.23	%
Total interest-earning assets		1,626,663			17,670		4.42	%		1,314,979			13,360		4.09	%
Non-earning assets		141,660								97,799
Total assets	$	1,768,323								1,412,778
Interest-bearing liabilities:
Demand accounts		187,178			115		0.25	%		136,634			47		0.14	%
Money market accounts		305,275			288		0.38	%		237,001			137		0.23	%
Savings accounts		84,973			21		0.10	%		40,741			13		0.13	%
Certificates of deposit		478,310			1,268		1.08	%		466,336			1,170		1.01	%
Short-term borrowed funds		176,525			355		0.82	%		92,967			105		0.45	%
Long-term debt		30,538			353		4.70	%		95,068			615		2.60	%
Total interest-bearing liabilities		1,262,799			2,400		0.77	%		1,068,747			2,087		0.79	%
Noninterest-bearing deposits		275,069								188,739
Other liabilities		20,384								13,981
Stockholders’ equity		210,071								141,311
Total liabilities and
Stockholders’ equity	$	1,768,323								1,412,778
Net interest spread							3.65	%							3.30	%
Net interest margin		3.82	%							3.44	%
Net interest margin (tax-equivalent) (2)		3.93	%							3.53	%
Net interest income				$	15,270								11,273

(1)	Average balances of loans include nonaccrual loans.
(2)	The tax-equivalent net interest margin reflects tax-exempt income on a tax-equivalent basis.

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Our net interest margin was 3.82%, or 3.93% on a tax-equivalent basis, for the three months ended March 31, 2017 compared to 3.44%, or 3.53% on a tax equivalent basis, for the three months ended March 31, 2016. The increase in margin from period to period is the result of a shift to higher yielding earning assets as well as an increase in yield on loans receivable. Average loans receivable comprised 75.8% of earnings assets for the three months ended March 31, 2017 compared to 73.1% for the three months ended March 31, 2016. The yield on loans receivable during the period also reflect accretion income of $372,000 recognized.

Our net interest spread, which is not on a tax-equivalent basis, was 3.65% for the three months ended March 31, 2017 as compared to 3.30% for the same period in 2016. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The 35 basis point increase in net interest spread is a result of the 33 basis point increase in yield on interest-earning assets as well as a 2 basis point decrease in rate paid on interest-bearing liabilities.

Provision for Loan Loss

We have established an allowance for loan losses through a provision for loan losses charged as an expense on our consolidated statements of operations. We review our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and the adequacy of the allowance for loan losses. Please see the discussion below under “Allowance for Loan Losses” for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.

Following is a summary of the activity in the allowance for loan losses during the periods ended March 31, 2017 and 2016.

	For the Three Months
	Ended March 31,
	2017			2016
	(Dollars in thousands)
Balance, beginning of period	$	10,688			10,141
Provision for loan losses		—			—
Loan charge-offs		(26	)		(2	)
Loan recoveries		53			94
Balance, end of period	$	10,715			10,233

The Company experienced net recoveries of $27,000 and net charge offs of $92,000 for the three months ended March 31, 2017 and 2016, respectively. Asset quality has remained relatively consistent since year end, with nonperforming assets to total assets slightly decreasing to 0.34% as of March 31, 2017 as compared to 0.40% as of December 31, 2016. No provision expense for loan losses was recorded during the first quarter of 2017 or the year 2016 primarily due to the net recoveries experienced.

Provision expense is recorded based on our assessment of general loan loss risk as well as asset quality. The allowance for loan losses is management’s estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. Management determines the allowance based on an ongoing evaluation. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on non-impaired loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. For further discussion regarding the calculation of the allowance, see the “Allowance for Loan Losses” discussion below.

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Noninterest Income and Expense

Noninterest income provides us with additional revenues that are significant sources of income. The major components of noninterest income for the three months ended March 31, 2017 and 2016 are presented below:

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Noninterest income:
Mortgage banking income	$	3,608			3,175
Deposit service charges		858			862
Net loss on extinguishment of debt		—			(9	)
Net gain on sale of securities		185			417
Fair value adjustments on interest rate swaps		(58	)		(281	)
Net increase in cash value life insurance		211			229
Mortgage loan servicing income		1,566			1,388
Other		861			495
Total noninterest income	$	7,231			6,276

Noninterest income increased $955,000 to $7.2 million for the three months ended March 31, 2017 from $6.3 million for the three months ended March 31, 2016. The increase in noninterest income primarily relates to the increase in mortgage banking income as a result of margin expansion experienced during the quarter

The following table provides a break out of mortgage loan production and mortgage banking income from our retail mortgage team “Community banking” and Crescent Mortgage Company “Wholesale mortgage banking”.

	For the Three Months Ended March 31,
	Loan Originations				Mortgage Banking Income				Margin
	2017		2016		2017		2016		2017			2016
Additional segment information:
Community banking	$	14,753		17,679		358		420		2.43	%		2.38	%
Wholesale mortgage banking		180,830		186,798		3,250		2,755		1.80	%		1.47	%
Total mortgage banking income	$	195,583		204,477		3,608		3,175		1.84	%		1.55	%

During the three months ended March 31, 2017 and 2016, the Company recognized net gains on sale of available-for-sale securities of $185,000 and $417,000 respectively.

The fair value adjustment on interest rate swaps decreased noninterest income by $58,000 for the three months ended March 31, 2017 compared to a reduction in noninterest income of $281,000 for three months ended March 31, 2016. The change in fair value adjustment on interest rate swaps relates to the change in interest rates from period to period. The Company uses standalone interest rate swaps to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches.

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The following table sets forth for the periods indicated the primary components of noninterest expense:

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Noninterest expense:
Salaries and employee benefits	$	8,609			7,150
Occupancy and equipment		2,182			1,842
Marketing and public relations		381			385
FDIC insurance		100			168
Recovery of mortgage loan repurchase losses		(225	)		(250	)
Legal expense		65			49
Other real estate expense, net		20			20
Mortgage subservicing expense		486			423
Amortization of mortgage servicing rights		669			532
Merger related expenses		1,319			186
Other		1,980			1,763
Total noninterest expense	$	15,586			12,268

Noninterest expense represents the largest expense category for the Company. Noninterest expense increased to $15.6 million for the three months ended March 31, 2017 from $12.3 million for the three months ended March 31, 2016. The increase in noninterest expense for the three months ended March 31, 2017 is primarily the result of an increase in salaries and employee benefits and occupancy and equipment as well as merger related expense related to the acquisition of Greer during the first quarter of 2017. Merger related expenses totaled $1.3 million for the three months ended March 31, 2017 as compared to $186,000 for the three months ended March 31, 2016. In addition, the Company opened a second branch in the Wilmington market during the fourth quarter of 2016.

Income Tax Expense

Our effective tax rate was 29.1% for three month period ended March 31, 2017, compared to 31.0% for the three month period ended March 31, 2016. The decrease in the effective tax rate from period to period is primarily attributable to the increase in interest income on municipal securities during 2017. As of March 31, 2017, municipal securities comprised 30.5% of total securities as compared to 27.8% as of March 31, 2016.

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Balance Sheet Review

Securities

Our primary objective in managing the investment portfolio is to maintain a portfolio of high quality, highly liquid investments yielding competitive returns. We are required under federal regulations to maintain adequate liquidity to ensure safe and sound operations. We maintain investment balances based on a continuing assessment of cash flows, the level of current and expected loan production, current interest rate risk strategies and the assessment of the potential future direction of market interest rate changes. Investment securities differ in terms of default, interest rate, liquidity and expected rate of return risk.

At March 31, 2017, our securities portfolio, excluding FHLB stock and other investments, was $494.1 million or approximately 22.6% of our assets. Our available-for-sale securities portfolio included US agency securities, municipal securities, collateralized loan obligations, mortgage-backed securities (agency and non-agency), and trust preferred securities with a fair value of $494.1 million and an amortized cost of $493.7 million for a net unrealized gain of $452,000.

As securities are purchased, they are designated as held-to-maturity or available-for-sale based upon our intent, which incorporates liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements. We do not currently hold, nor have we ever held, any securities that are designated as trading securities.

The increase in securities from period to period is attributable to the securities acquired with the acquisition of Greer on March 18, 2017. Securities acquired in the acquisition of Greer were approximately $121.4 million on March 18, 2017. For additional information, see Footnote 2 “Business Combinations” in the accompanying financial statements.

Loans by Type

Since loans typically provide higher interest yields than other types of interest-earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Gross loans receivable at March 31, 2017 and December 2016 were $1.4 billion and $1.2 billion, respectively.

Our loan portfolio consists primarily of loans secured by real estate mortgages. As of March 31, 2017, our loan portfolio included $1.2 billion, or 85.8%, of gross loans secured by real estate. As of December 31, 2016, our loan portfolio included $1.0 billion, or 85.6%, of gross loans secured by real estate. Substantially all of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral. This collateral is taken to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types.

As shown in the table below, gross loans receivable increased $238.7 million since December 31, 2016. The increase in loans receivable primarily relates to the loans acquired in the acquisition of Greer well as the Bank’s focus on growing residential mortgage and commercial lending. The recorded investment in loans acquired in the acquisition of Greer was $192.4 million as of March 31, 2017. For additional information, see the net interest margin discussion above as well as Note 2 “Business Combinations” in the accompanying financial statements.

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The following table summarizes loans by type and percent of total at the end of the periods indicated:

	At March 31,					At December 31,
	2017					2016
			% of Total					% of Total
	Amount		Loans			Amount		Loans
			(Dollars in thousands)
Loans secured by real estate:
One-to-four family	$	472,764		33.36	%	$	411,399		34.91	%
Home equity		52,298		3.69	%		36,026		3.06	%
Commercial real estate		540,415		38.14	%		445,344		37.80	%
Construction and development		150,738		10.64	%		115,682		9.82	%
Consumer loans		10,411		0.73	%		5,714		0.48	%
Commercial business loans		190,384		13.44	%		164,101		13.93	%
Total gross loans receivable		1,417,010		100.00	%		1,178,266		100.00	%
Less:
Allowance for loan losses		10,715					10,688
Total loans receivable, net	$	1,406,295				$	1,167,578

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following table is based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties.

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The following table summarizes the loan maturity distribution by type and related interest rate characteristics.

	At March 31, 2017
			After one
	One Year		but within		After five
	or Less		five years		years		Total
			(In thousands)
Loans secured by real estate:
One-to-four family	$	21,906		62,671		388,187		472,764
Home equity		7,555		5,894		38,849		52,298
Commercial real estate		53,190		369,002		118,223		540,415
Construction and development		39,749		90,656		20,333		150,738
Consumer loans		2,077		6,668		1,666		10,411
Commercial business loans		19,053		98,283		73,048		190,384
Total gross loans receivable	$	143,530		633,174		640,306		1,417,010
Loans maturing - after one year
Variable rate loans							$	460,172
Fixed rate loans								813,308
							$	1,273,480

Nonperforming and Problem Assets

Nonperforming assets include loans on which interest is not being accrued, accruing loans that are 90 days or more delinquent and foreclosed property. Foreclosed property consists of real estate and other assets acquired as a result of a borrower’s loan default. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction of principal when received. In general, a nonaccrual loan may be placed back onto accruing status once the borrower has made a minimum of six consecutive payments in accordance with the loan terms. Further, the borrower must show capacity to continue performing into the future prior to restoration of accrual status. As of March 31, 2017 the Company had $911,000 of PCI loans that were 90 days past due and accruing. At December 31 2016, we had no loans 90 days past due and still accruing.

Troubled Debt Restructurings (“TDRs”)

The Company designates loan modifications as TDRs when, for economic or legal reasons related to the borrower’s financial difficulties, it grants a concession to the borrower that it would not otherwise consider. Loans on nonaccrual status at the date of modification are initially classified as nonaccrual TDRs. Loans on accruing status at the date of modification are initially classified as accruing TDRs at the date of modification, if the note is reasonably assured of repayment and performance is in accordance with its modified terms. Such loans may be designated as nonaccrual loans subsequent to the modification date if reasonable doubt exists as to the collection of interest or principal under the restructuring agreement. Nonaccrual TDRs are returned to accrual status when there is economic substance to the restructuring, there is well documented credit evaluation of the borrower’s financial condition, the remaining balance is reasonably assured of repayment in accordance with its modified terms, and the borrower has demonstrated repayment performance in accordance with the modified terms for a reasonable period of time, generally a minimum of six months.

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The following table summarizes nonperforming and problem assets at the end of the periods indicated.

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Loans receivable:
Nonaccrual loans-renegotiated loans	$	1,167		1,227
Nonaccrual loans-other		4,764		4,398
Real estate acquired through foreclosure, net		1,479		1,179
Total Non-Performing Assets	$	7,410		6,804
Problem Assets not included in Non-Performing Assets-Accruing renegotiated loans outstanding	$	5,460		5,216

At March 31, 2017, nonperforming assets were $7.4 million, or 0.34% of total assets. Comparatively, nonperforming assets were $6.8 million, or 0.40% of total assets, at December 31, 2016. Nonperforming loans were 0.42% and 0.48% of gross loans receivable at March 31, 2017 and December 31, 2016, respectively.

Potential problem loans, which are not included in nonperforming loans, amounted to approximately $5.5 million at March 31, 2017, compared to $5.2 million at December 31, 2016. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms.

Substantially all of the nonaccrual loans, accruing loans 90 days or more delinquent and accruing renegotiated loans at March 31, 2017 and December 31, 2016 are collateralized by real estate. The Bank utilizes third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require the Bank to obtain updated appraisals on an annual basis, either through a new external appraisal or an internal appraisal evaluation. Impaired loans are individually reviewed on a quarterly basis to determine the level of impairment. We typically charge-off a portion or create a specific reserve for impaired loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement. Management believes based on information known and available currently, the probable losses related to problem assets are adequately reserved in the allowance for loan losses.

Credit quality indicators continue to show improvement as the Company experienced reduced loan migrations to nonaccrual status, and lower loss severity on individual problem asset. The Company believes this general trend in reduced loans migrating into nonaccrual status is an indication of improving credit quality in the Company’s overall loan portfolio and a leading indicator of reduced credit losses going forward. Nevertheless, the Company can make no assurances that nonperforming assets will continue to improve in future periods. The Company continues to monitor the loan portfolio and foreclosed assets carefully and is continually working to reduce its problem assets.

Allowance for Loan Losses

The allowance for loan losses is management’s estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. Management determines the allowance based on an ongoing evaluation. Estimating the amount of the allowance for loan losses requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on non-impaired loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The allowance consists of specific and general components.

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The general component covers nonimpaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by major loan category and is based on the actual loss history trends for the previous 20 quarters. The actual loss experience is supplemented with internal and external qualitative factors as considered necessary at each period and given the facts at the time. These qualitative factors adjust the 20 quarter historical loss rate to recognize the most recent loss results and changes in the economic conditions to ensure the estimated losses in the portfolio are recognized in the period incurred and that the allowance at each balance sheet date is adequate and appropriate in accordance with GAAP. Qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries for the most recent twelve quarters; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. Impaired loans are evaluated for impairment using the discounted cash flow methodology or based on the net realizable value of the underlying collateral. Impaired loans are individually reviewed on a quarterly basis to determine the level of impairment. See additional discussion in section “Nonperforming and Problem Assets” above.

While management uses the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates. To the extent actual outcomes differ from management’s estimates, additional provisions for loan losses could be required that could adversely affect the Bank’s earnings or financial position in future periods.

The allowance for loan losses was $10.7 million, or 0.96% of non-acquired loans, at March 31, 2017, compared to $10.7 million, or 1.01% of total non-acquired loans, at December 31, 2016. Loans acquired in business combinations were $303.2 million and $119.4 at March 31, 2017 and December 31, 2016, respectively. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.

The table below shows a reconciliation of acquired and non-acquired loans and allowance for loan losses to non-acquired loans:

	At the Month Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2017			2016			2016			2016			2016
Acquired and non-acquired loans:
Acquired loans receivable	$	303,244			119,422			129,505			130,228			61,610
Non-acquired loans receivable		1,113,766			1,058,844			1,003,724			937,028			902,411
Total loans receivable	$	1,417,010			1,178,266			1,133,229			1,067,256			964,021
% Acquired		21.40	%		10.14	%		11.43	%		12.20	%		6.39	%
Non-acquired loans	$	1,113,766			1,058,844			1,003,724			937,028			902,411
Allowance for loan losses		10,715			10,688			10,340			10,297			10,233
Allowance for loan losses to non-acquired loans (Non-GAAP)		0.96	%		1.01	%		1.03	%		1.10	%		1.13	%
Total loans receivable	$	1,417,010			1,178,266			1,133,229			1,067,256			964,021
Allowance for loan losses		10,715			10,688			10,340			10,297			10,233
Allowance for loan losses to total loans receivable		0.76	%		0.91	%		0.91	%		0.96	%		1.06	%

The Company experienced net recoveries of $27,000 and $92,000 for the three months ended March 31, 2017 and 2016, respectively. Asset quality has remained relatively consistent since year end, with nonperforming assets to total assets slightly decreasing to 0.34% as of March 31, 2017 as compared to 0.40% as of December 31, 2016. No provision expense for loan losses was recorded during 2017 or 2016 primarily due to the net recoveries experienced.

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The following table summarizes the activity related to our allowance for loan losses for the three months ended March 31, 2017 and 2016.

	For the Three Months
	Ended March 31,
	2017			2016
	(Dollars in thousands)
Balance, beginning of period	$	10,688			10,141
Provision for loan losses		—			—
Loan charge-offs:
Loans secured by real estate:
One-to-four family		(17	)		—
Home equity		—			—
Commercial real estate		—			—
Construction and development		—			—
Consumer loans		(9	)		(2	)
Commercial business loans		—			—
Total loan charge-offs		(26	)		(2	)
Loan recoveries:
Loans secured by real estate:
One-to-four family		1			58
Home equity		—			—
Commercial real estate		25			—
Construction and development		1			3
Consumer loans		4			6
Commercial business loans		22			27
Total loan recoveries		53			94
Net loan (charge-offs) recoveries		27			92
Balance, end of period	$	10,715			10,233
Allowance for loan losses as a percentage of loans receivable (end of period)		0.76	%		1.06	%
Net charge-offs (recoveries) to average loans receivable (annualized)		(0.01	)%		(0.04	)%

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Mortgage Operations

Mortgage Activities and Servicing

Our wholesale mortgage banking operations are conducted through our mortgage origination subsidiary, Crescent Mortgage Company. Mortgage activities involve the purchase of mortgage loans and table funded originations for the purpose of generating gains on sales of loans and fee income on the origination of loans and is included in mortgage banking income in the accompanying consolidated statements of operations. While the Company originates residential one-to-four family loans that are held in its loan portfolio, the majority of new loans are generally sold pursuant to secondary market guidelines through Crescent Mortgage Company. Generally, residential mortgage loans are sold and, depending on the pricing in the marketplace, servicing rights are either sold or retained. The level of loan sale activity and its contribution to the Company’s profitability depends on maintaining a sufficient volume of loan originations and margin. Changes in the level of interest rates and the local economy affect the volume of loans originated by the Company and the amount of loan sales and loan fees earned. Discussion related to the impact and changes within the mortgage operations is provided in “Results of Operations” – Noninterest Income and Expense. Additional segment information is provided in Note 10 “Supplemntal Segment Information” in the accompanying financial statements.

Loan Servicing

We retain the rights to service a portion of the loans we sell on the secondary market, as part of our mortgage banking activities, for which we receive service fee income. These rights are known as mortgage servicing rights, or MSRs, where the owner of the MSR acts on behalf of the mortgage loan owner and has the contractual right to receive a stream of cash flows in exchange for performing specified mortgage servicing functions. These duties typically include, but are not limited to, performing loan administration, collection, and default activities, including the collection and remittance of loan payments, responding to customer inquiries, accounting for principal and interest, holding custodial (impound) funds for the payment of property taxes and insurance premiums, counseling delinquent mortgagors, modifying loans and supervising foreclosures and property dispositions. We subservice the duties and responsibilities obligated to the owner of the MSR to a third party provider for which we pay a fee.

We recognize the rights to service mortgage loans for others as an asset. We initially record the MSR at fair value and subsequently account for the asset at lower of cost or market using the amortization method. Servicing assets are amortized in proportion to, and over the period of, the estimated net servicing income and are carried at amortized cost. A valuation is performed by an independent third party on a quarterly basis to assess the servicing assets for impairment based on the fair value at each reporting date. The fair value of servicing assets is determined by calculating the present value of the estimated net future cash flows consistent with contractually specified servicing fees. This valuation is performed on a disaggregated basis, based on loan type and year of production. Generally, loan servicing becomes more valuable when interest rates rise (as prepayments typically decrease) and less valuable when interest rates decline (as prepayments typically increase). As discussed in detail in notes to the consolidated financial statements, we use an appropriate weighted average constant prepayment rate, discount rate, and other defined assumptions to model the respective cash flows and determine the fair value of the servicing asset at each reporting date.

The Company was servicing $2.3 billion loans for others at March 31, 2017 and $2.2 billion at December 31, 2016. Mortgage servicing rights asset had a balance of $15.8 million and $15.0 million at March 31, 2017 and December 31, 2016, respectively. The economic estimated fair value of the mortgage servicing rights was $21.9 million and $21.0 million at March 31, 2017 and December 31, 2016, respectively. The amortization expense related to the mortgage servicing rights was $669,000 and $532,000 during the three months ended March 31, 2017 and 2016, respectively.

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Below is a roll-forward of activity in the balance of the servicing assets for the three months ended March 31, 2017 and 2016.

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
MSR beginning balance	$	15,032			11,433
Amount capitalized		1,429			1,045
Amount amortized		(669	)		(532	)
MSR ending balance	$	15,792			11,946

Reserve For Mortgage Repurchase Losses

Loans held for sale have primarily been fixed-rate single-family residential mortgage loans under contracts to be sold in the secondary market. In most cases, loans in this category are sold within 30 days of closing. Buyers generally have recourse to return a purchased loan to the Company under limited circumstances. An estimation of mortgage repurchase losses is reviewed on a quarterly basis.  The representations and warranties in our loan sale agreements provide that we repurchase or indemnify the investors for losses or costs on loans we sell under certain limited conditions.  Some of these conditions include underwriting errors or omissions, fraud or material misstatements by the borrower in the loan application or invalid market value on the collateral property due to deficiencies in the appraisal.  In addition to these representations and warranties, our loan sale contracts define a condition in which the borrower defaults during a short period of time, typically 120 days to one year, as an early payment default, or EPD.  In the event of an EPD, we are required to return the premium paid by the investor for the loan as well as certain administrative fees, and in some cases repurchase the loan or indemnify the investor.  Because the level of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and other external conditions that may change over the life of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment.

The following table demonstrates the activity for the reserve for mortgage repurchase losses for the three months ended March 31, 2017 and 2016.

	For the Three Months
	March 31,
	2017			2016
	(In thousands)
Beginning Balance	$	2,880			3,876
Losses paid		(72	)		(21	)
Recoveries		—			—
Provision for mortgage repurchase losses		(225	)		(250	)
Ending balance	$	2,583			3,605

For the three ended March 31, 2017 and 2016, the Company recorded a negative provision for mortgage repurchase losses of $225,000 and $250,000, respectively. The decline in the provision for mortgage loan repurchase losses is related to several factors. The Company sells mortgage loans to various third parties, including government-sponsored entities (“GSEs”), under contractual provisions that include various representations and warranties as previously stated. The Company establishes the reserve for mortgage loan repurchase losses based on a combination of factors, including estimated levels of defects on internal quality assurance, default expectations, historical investor repurchase demand and appeals success rates, reimbursement by correspondent and other third party originators, and projected loss severity. Prior to 2012, there was no expiration date related to representations and warranties as long as the loan sold to the investor was outstanding. As a result, the Company received loan repurchase requests years after the loan was originated and sold to various third parties. In the latter part of 2012, the regulatory framework for certain GSEs changed where, under certain circumstances, the loan repurchase risk was limited for production beginning in January 2013. In addition, in May 2014, additional regulatory changes further limited loan repurchase risk.

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As a result, the Company performed an analysis of its reserve for mortgage loan repurchase losses and, based on management’s judgment and interpretation of such regulatory changes, reduced the reserve accordingly. Management will continue to monitor how the GSEs implement the regulatory changes and trends. If such trends continue to be favorable, there is a possibility that additional reductions in this reserve could occur in future periods.

Deposits

We provide a range of deposit services, including noninterest-bearing demand accounts, interest-bearing demand and savings accounts, money market accounts and time deposits. These accounts generally pay interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits. Deposits continue to be our primary funding source. At March 31, 2017 deposits totaled $1.6 billion, an increase of $349.5 million from deposits of $1.3 billion at December 31, 2016. The increase in deposits since December 31, 2016 primarily relates to the $311.1 million in deposits assumed with the completion of the acquisition of Greer on March 18, 2017 as well as continued efforts to increase our core deposits through business development.

The following table shows the average balance amounts and the average rates paid on deposits held by us.

	For the Three Months
	Ended March 31,
	2017					2016
	Average		Average			Average		Average
	Balance		Rate			Balance		Rate
	(Dollars in thousands)
Interest-bearing demand accounts	$	187,178		0.25	%		136,634		0.14	%
Money market accounts		305,275		0.38	%		237,001		0.23	%
Savings accounts		84,973		0.10	%		40,741		0.13	%
Certificates of deposit less than $100,000		254,778		0.95	%		262,938		0.96	%
Certificates of deposit of $100,000 or more		223,532		1.19	%		203,398		1.07	%
Total interest-bearing average deposits		1,055,736					880,712
Noninterest-bearing deposits		275,069					188,739
Total average deposits	$	1,330,805					1,069,451

The maturity distribution of our time deposits of $100,000 or more is as follows:

	At March 31, 2017
	(In thousands)
Three months or less	$	22,745
Over three through Nine Months		24,354
Over six through twelve months		79,252
Over twelve months		152,883
Total certificates of deposits	$	279,234

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Borrowings

The followings table outlines our various sources of short-term borrowed funds during the three months ended March 31, 2017 and 2016 and the amounts outstanding at the end of each period, the maximum amount for each component during the periods, the average amounts for each period, and the average interest rate that we paid for each borrowings source. The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any time during each of the periods shown.

					Maximum
			Period		Month		Average for the
	Ending		End		End		Period
	Balance		Rate		Balance		Balance		Rate
At or for the three months ended March 31, 2017	(Dollars in thousands)
Short-term borrowed funds
Short-term FHLB advances	$	214,500		0.66% - 2.28%		214,500		176,525		0.82	%
Long-term borrowed funds
Long-term FHLB advances, due 2018 through 2020		32,000		0.69% - 2.71%		32,000		13,894		4.94	%
Subordinated debentures, due 2032 through 2037		23,304		2.77% - 4.25%		26,806		16,644		4.36	%

					Maximum
			Period		Month		Average for the
	Ending		End		End		Period
	Balance		Rate		Balance		Balance		Rate
At or for the three months ended March 31, 2016		(Dollars in thousands)
Short-term borrowed funds
Short-term FHLB advances	$	70,000		0.35% - 0.76%		115,000		92,967		0.45	%
Long-term borrowed funds
Long-term FHLB advances, due 2017 through 2021		83,000		0.63%-4.00%		88,000		79,603		2.35	%
Subordinated debentures, due 2032 through 2034		15,465		3.30% - 3.75%		15,465		15,465		3.82	%

Liquidity

Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.

The Company utilizes borrowing facilities in order to maintain adequate liquidity including: the FHLB of Atlanta, the Federal Reserve Bank (“FRB”), and federal funds purchased. The Company also uses wholesale deposit products, including brokered deposits as well as national certificate of deposit services. Additionally, the Company has certain investment securities classified as available-for-sale that are carried at market value with changes in market value, net of tax, recorded through stockholders’ equity.

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Lines of credit with the FHLB of Atlanta are based upon FHLB-approved percentages of Bank assets, but must be supported by appropriate collateral to be available. The Company has pledged first lien residential mortgage, second lien residential mortgage, residential home equity line of credit, commercial mortgage and multifamily mortgage portfolios under blanket lien agreements. At March 31, 2017, the Company had FHLB advances of $246.5 million outstanding with excess collateral pledged to the FHLB during those periods that would support additional borrowings of approximately $194.5 million. Lines of credit with the FRB are based on collateral pledged.

Lines of credit with the FRB are based on collateral pledged. At March 31, 2017 the Company had lines available with the FRB for $152.1 million. At March 31, 2017 the Company had no FRB advances outstanding.

Capital Resources  

The Company and the Bank are subject to various federal and state regulatory requirements, including regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions that if undertaken could have a direct material effect on the Company’s and the Bank’s financial statements.

Effective January 2, 2015, the Company and Bank became subject to the regulatory risk-based capital rules adopted by the federal banking agencies implementing Basel III. Under the new capital guidelines, applicable regulatory capital components consist of (1) common equity Tier 1 capital (common stock, including related surplus, and retained earnings, plus limited amounts of minority interest in the form of common stock, net of goodwill and other intangibles (other than mortgage servicing assets), deferred tax assets arising from net operating loss and tax credit carry forwards above certain levels, mortgage servicing rights above certain levels, gain on sale of securitization exposures and certain investments in the capital of unconsolidated financial institutions, and adjusted by unrealized gains or losses on cash flow hedges and accumulated other comprehensive income items (subject to the ability of a non-advanced approaches institution to make a one-time irrevocable election to exclude from regulatory capital most components of AOCI), (2) additional Tier 1 capital (qualifying non-cumulative perpetual preferred stock, including related surplus, plus qualifying Tier 1 minority interest and, in the case of holding companies with less than $15 billion in consolidated assets at December 31, 2009, certain grandfathered trust preferred securities and cumulative perpetual preferred stock in limited amounts, net of mortgage servicing rights, deferred tax assets related to temporary timing differences, and certain investments in financial institutions) and (3) Tier 2 capital (the allowance for loan and lease losses in an amount not exceeding 1.25% of standardized risk-weighted assets, plus qualifying preferred stock, qualifying subordinated debt and qualifying total capital minority interest, net of Tier 2 investments in financial institutions). Total Tier 1 capital, plus Tier 2 capital, constitutes total risk-based capital.

The required minimum ratios are as follows:

· Common equity Tier 1 capital ratio (common equity Tier 1 capital to total risk-weighted assets) of 4.5%

· Tier 1 Capital Ratio (Tier 1 capital to total risk-weighted assets) of 6%

· Total capital ratio (total capital to total risk-weighted assets) of 8%; and

· Leverage ratio (Tier 1 capital to average total consolidated assets) of 4%

The new capital guidelines also provide that all covered banking organizations must maintain a new capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonus payments to executive officers. The phase-in of the capital conservation buffer requirement began on January 1, 2016.

The final regulatory capital rules also incorporate these changes in regulatory capital into the prompt corrective action framework, under which the thresholds for “adequately capitalized” banking organizations are equal to the new minimum capital requirements. Under this framework, in order to be considered “well capitalized”, insured depository institutions are required to maintain a Tier 1 leverage ratio of 5%, a common equity Tier 1 risk-based capital measure of 6.5%, a Tier 1 risked-based capital ratio of 8% and a total risk-based capital ratio of 10%.

The following table present select information  for the three months ended March 31, 2017 ad 2016.

	For the Three Months Ended March 31,
	2017			2016
Return on average assets		1.11	%		1.03	%
Return on average equity		9.34	%		10.31	%
Average equity to average assets ratio		11.88	%		10.00	%
Dividend Payout ratio		11.75	%		9.94	%

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The actual capital amounts and ratios as well as minimum amounts for each regulatory defined category for the Company and the Bank at March 31, 2017 and December 31, 2016 are as follows:

																To Be Well
						Minimum Capital					Minimum Capital					Capitalized Under
						Required - Basel III					Required - Basel III					Prompt Corrective
	Actual					Phase-In Schedule					Fully Phased-In					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
March 31, 2017
Carolina Financial Corporation
CET1 capital (to risk weighted assets)	$	227,039		14.73	%		78,992		5.125	%		107,892		7.000	%		N/A		N/A
Tier 1 capital (to risk weighted assets)		250,343		16.42	%		102,112		6.625	%		131,012		8.500	%		N/A		N/A
Total capital (to risk weighted assets)		261,058		16.94	%		132,939		8.625	%		161,838		10.500	%		N/A		N/A
Tier 1 capital (to total average assets)		250,343		14.52	%		68,982		4.000	%		68,982		4.000	%		N/A		N/A
CresCom Bank
CET1 capital (to risk weighted assets)		242,961		15.71	%		79,258		5.125	%		108,255		7.000	%		100,522		6.50	%
Tier 1 capital (to risk weighted assets)		242,961		15.71	%		102,455		6.625	%		131,452		8.500	%		123,720		8.00	%
Total capital (to risk weighted assets)		253,676		16.40	%		133,385		8.625	%		162,382		10.500	%		154,650		10.00	%
Tier 1 capital (to total average assets)		242,961		14.10	%		68,911		4.000	%		68,911		4.000	%		86,139		5.00	%
December 31, 2016
Carolina Financial Corporation
CET1 capital (to risk weighted assets)	$	157,876		12.87	%		62,859		5.125	%		85,857		7.000	%		N/A		N/A
Tier 1 capital (to risk weighted assets)		172,876		14.09	%		81,257		6.625	%		104,254		8.500	%		N/A		N/A
Total capital (to risk weighted assets)		183,564		14.97	%		105,788		8.625	%		128,785		10.500	%		N/A		N/A
Tier 1 capital (to total average assets)		172,876		10.49	%		65,911		4.000	%		65,911		4.000	%		N/A		N/A
CresCom Bank
CET1 capital (to risk weighted assets)		169,222		13.81	%		62,811		5.125	%		85,791		7.000	%		79,663		6.50	%
Tier 1 capital (to risk weighted assets)		169,222		13.81	%		81,195		6.625	%		104,174		8.500	%		98,046		8.00	%
Total capital (to risk weighted assets)		179,910		14.68	%		105,706		8.625	%		128,686		10.500	%		122,558		10.00	%
Tier 1 capital (to total average assets)		169,222		10.30	%		65,701		4.000	%		65,701		4.000	%		82,126		5.00	%

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Off Balance Sheet Arrangements

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.

At March 31, 2017, we had issued commitments to extend credit and standby letters of credit of approximately $144.6 million through various types of lending arrangements.  There were 47 standby letters of credit included in the commitments for $3.5 million. Total fixed rate commitments were $27.6 million and variable rate commitments were $117.0 million.

Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. A significant portion of the unfunded commitments relate to consumer equity lines of credit and commercial lines of credit. Based on historical experience, we anticipate that a portion of these lines of credit will not be funded.

Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

Market Risk Management and Interest Rate Risk

The effective management of market risk is essential to achieving the Company’s objectives. As a financial institution, the Company’s most significant market risk exposure is interest rate risk. The primary objective of managing interest rate risk is to minimize the effect that changes in interest rates have on net income. This is accomplished through active asset and liability management, which requires the strategic pricing of asset and liability accounts and management of appropriate maturity mixes of assets and liabilities. The expected result of these strategies is the development of appropriate maturity and re-pricing opportunities in those accounts to produce consistent net income during periods of changing interest rates. The Bank’s asset/liability management committee, or ALCO, monitors loan, investment and liability portfolios to ensure comprehensive management of interest rate risk. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios. The asset/liability management process is designed to achieve relatively stable net interest margins and assure liquidity by coordinating the volumes, maturities or re-pricing opportunities of interest-earning assets, deposits and borrowed funds. It is the responsibility of the ALCO to determine and achieve the most appropriate volume and mix of interest-earning assets and interest-bearing liabilities, as well as ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The ALCO meets regularly to review the Company’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards. The Board of Directors also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity.

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The Company uses interest rate sensitivity analysis to measure the sensitivity of projected net interest income to changes in interest rates. Management monitors the Company’s interest sensitivity by means of a computer model that incorporates current volumes, average rates earned and paid, and scheduled maturities, payments of asset and liability portfolios, together with multiple scenarios of prepayments, repricing opportunities and anticipated volume growth. Interest rate sensitivity analysis shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next 12 months under the current interest rate environment. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates.

As of March 31, 2017, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated Financial Statements. Therefore, management’s assumptions may or may not prove valid. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes in market condition

Interest Rate Scenario						Annualized Hypothetical Percentage Change in
Change			Prime Rate			Net Interest Income
	0.00	%		3.50	%		0.0	%
	1.00	%		4.50	%		0.0	%
	2.00	%		5.50	%		-0.1	%
	3.00	%		6.50	%		-0.3	%

 The primary uses of derivative instruments are related to the mortgage banking activities of the Company. As such, the Company holds derivative instruments, which consist of rate lock agreements related to expected funding of fixed-rate mortgage loans to customers (interest rate lock commitments) and forward commitments to sell mortgage-backed securities and individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the interest rate lock commitments and the mortgage loans that are held for sale. Derivatives related to these commitments are recorded as either a derivative asset or a derivative liability in the balance sheet and are measured at fair value. Both the interest rate lock commitments and the forward commitments are reported at fair value, with adjustments recorded in current period earnings within the noninterest income of the consolidated statements of operations.

Derivative instruments not related to mortgage banking activities, including financial futures commitments and interest rate swap agreements that do not satisfy the hedge accounting requirements, are recorded at fair value and are classified with resultant changes in fair value being recognized in noninterest income in the consolidated statement of operations.

When using derivatives to hedge fair value and cash flow risks, the Company exposes itself to potential credit risk from the counterparty to the hedging instrument. This credit risk is normally a small percentage of the notional amount and fluctuates as interest rates change. The Company analyzes and approves credit risk for all potential derivative counterparties prior to execution of any derivative transaction. The Company seeks to minimize credit risk by dealing with highly rated counterparties and by obtaining collateralization for exposures above certain predetermined limits. If significant counterparty risk is determined, the Company would adjust the fair value of the derivative recorded asset balance to consider such risk.

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Accounting, Reporting, and Regulatory Matters

Information regarding recent authoritative pronouncements that could impact the accounting, reporting, and/or disclosure of the financial information by the Company are included in Note 1 “Summary of Significant Accounting Polices” in the accompanying financial statements.

Effect of Inflation and Changing Prices

The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with GAAP.

Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Management and Interest Rate Risk, and Liquidity.

Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended March 31, 2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.

We are a party to claims and lawsuits arising in the ordinary course of business. Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, would have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Item 1A RISK FACTORS.

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for fiscal years ended December 31, 2016, as well as cautionary statements contained in this Form 10-Q, including those under the caption “Cautionary Note Regarding Any Forward-Looking Statements” set forth in Part I, Item 2 of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q and in our other filings with the SEC.

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended March 31, 2017, the Company issued 1,784,831 shares of common stock in completing the acquisition of Greer Bancshares Incorporated – see Note 2 “Business Combinations” to the accompanying financial statements for additional information. Pursuant to Section 35-1-202(9) of the South Carolina Uniform Securities Act of 2005, the Securities Division of the Office of the Attorney General of the State of South Carolina convened a hearing regarding the transaction on January 11, 2017 and, on January 25, 2017, issued an order concluding that the terms and conditions of the transaction were fair to the shareholders of Greer. Accordingly, the Company relied upon the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933 to issue the aforementioned shares of common stock in the transaction. There were no other unregistered sales of the Company’s securities during the three months ended March 31, 2017.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable

Item 4. MINE SAFETY DISCLOSURES.

Not applicable

Item 5. OTHER INFORMATION.

Not applicable

Item 6. EXHIBITS.

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Index to Exhibits attached hereto and are incorporated herein by reference.

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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.

	CAROLINA FINANCIAL CORPORATION
	Registrant
Date: May 5, 2017	/s/ Jerold L. Rexroad
	Jerold L. Rexroad
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 5, 2017	/s/ William A. Gehman, III
	William A. Gehman III
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit Number	Description
2.1	Agreement and Plan of Merger by and between Carolina Financial Corporation, CBAC, Inc., and Congaree Bancshares, Inc., dated January 5, 2016.(1)
2.2	Agreement and Plan of Merger by and between Carolina Financial Corporation and Greer Bancshares Incorporated, dated November 7, 2016.(2)
4.1	Restated Certificate of Incorporation.(3)
4.2	Amendment to the Restated Certificate of Incorporation.(4)
4.3	Amended and Restated Bylaws.(5)
4.4	Specimen Common Stock Certificate.(6)
4.5	See Exhibits 4.1, 4.2, and 4.3 for provisions of the Restated Certificate of Incorporation and Amended and Restated Bylaws which define the rights of the stockholders.
31.1	Rule 13a-14(a) Certification of the Principal Executive Officer.
31.2	Rule 13a-14(a) Certification of the Principal Financial Officer.
32	Section 1350 Certifications.
101	The following materials from the Quarterly Report on Form 10-Q of Carolina Financial Corporation for the quarter ended March 31, 2017, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.

(1)	Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on January 11, 2016.
(2)	Incorporated by reference to Exhibit 2.2 of the Company’s Registration Statement on Form S-3 filed on December 23, 2016.
(3)	Incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-3 filed on August 31, 2015.
(4)	Incorporated by reference to Exhibit A of the Company’s Definitive Proxy Statement on Schedule 14A filed on March 31, 2016.
(5)	Incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 5, 2016.
(6)	Incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form 10 filed on February 26, 2014.

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EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification of the Principal Executive Officer.

I, Jerold L. Rexroad, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Financial Corporation;

2. Based on my knowledge, this quarterly 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 officers 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 controls 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 registrants’ internal control over financial reporting.

Date: May 5, 2017	By:	/s/ Jerold L. Rexroad
		Jerold L. Rexroad
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification of the Principal Financial Officer.

I, William A. Gehman, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Financial Corporation;

2. Based on my knowledge, this quarterly 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 officers 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 controls 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 registrants’ internal control over financial reporting.

Date: May 5, 2017	By:	/s/ William A. Gehman III
		William A. Gehman III
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of Carolina Financial Corporation (the “Company”), each certify that, to his knowledge on the date of this certification:

1. The quarterly report of the Company for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on this date (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jerold L. Rexroad

Jerold L. Rexroad

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 5, 2017

/s/ William A. Gehman III

William A. Gehman III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 5, 2017

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 05, 2017
Document And Entity Information
Entity Registrant Name	CAROLINA FINANCIAL CORP
Entity Central Index Key	0000870385
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		16,149,802
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2017

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
ASSETS
Cash and due from banks	$ 21,456	$ 9,761
Interest-bearing cash	36,582	14,591
Federal funds sold	10,560
Cash and cash equivalents	68,598	24,352
Securities available-for-sale (cost of $493,678 at March 31, 2017 and $338,214 at December 31, 2016)	494,130	335,352
Federal Home Loan Bank stock, at cost	12,478	11,072
Other investments	2,116	1,768
Derivative assets	3,226	2,219
Loans held for sale	21,399	31,569
Loans receivable, net of allowance for loan losses of $10,715 at March 31, 2017 and $10,688 at December 31, 2016	1,406,295	1,167,578
Premises and equipment, net	46,544	37,054
Accrued interest receivable	6,726	5,373
Real estate acquired through foreclosure, net	1,479	1,179
Deferred tax assets, net	10,210	8,341
Mortgage servicing rights	15,792	15,032
Cash value life insurance	37,938	28,984
Core deposit intangible	8,005	3,658
Goodwill	37,287	4,266
Other assets	9,886	5,939
Total assets	2,182,109	1,683,736
Liabilities:
Noninterest-bearing deposits	298,365	229,905
Interest-bearing deposits	1,309,355	1,028,355
Total deposits	1,607,720	1,258,260
Short-term borrowed funds	214,500	203,000
Long-term debt	55,304	38,465
Derivative liabilities	682	342
Drafts outstanding	7,129	6,223
Advances from borrowers for insurance and taxes	2,037	1,058
Accrued interest payable	690	327
Reserve for mortgage repurchase losses	2,583	2,880
Dividends payable to shareholders	576	502
Accrued expenses and other liabilities	19,434	9,489
Total liabilities	1,910,655	1,520,546
Stockholders' equity:
Preferred stock, par value $.01; 1,000,000 shares authorized at March 31, 2017 and December 31, 2016; no shares issued or outstanding
Common stock, par value $.01; 25,000,000 shares authorized at March 31, 2017 and December 31, 2016; 16,185,408 and 12,548,328 issued and outstanding at March 31, 2017 and December 31, 2016, respectively	162	125
Additional paid-in capital	168,113	66,156
Retained earnings	102,528	98,451
Accumulated other comprehensive income (loss), net of tax benefit	651	(1,542)
Total stockholders' equity	271,454	163,190
Total liabilities and stockholders' equity	$ 2,182,109	$ 1,683,736

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CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Securities available for sale at cost	$ 493,678	$ 338,214
Loans, allowance for loan losses	$ 10,715	$ 10,688
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	16,185,408	12,548,328
Common stock, shares outstanding	16,185,408	12,548,328

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Interest income
Loans	$ 14,968	$ 11,085
Investment securities	2,553	2,152
Dividends from Federal Home Loan Bank stock	101	97
Federal Funds sold	3
Other interest income	45	26
Total interest income	17,670	13,360
Interest expense
Deposits	1,692	1,367
Short-term borrowed funds	355	105
Long-term debt	353	615
Total interest expense	2,400	2,087
Net interest income	15,270	11,273
Provision for loan losses
Net interest income after provision for loan losses	15,270	11,273
Noninterest income
Mortgage banking income	3,608	3,175
Deposit service charges	858	862
Net loss on extinguishment of debt		(9)
Net gain on sale of securities	185	417
Fair value adjustments on interest rate swaps	(58)	(281)
Net increase in cash value life insurance	211	229
Mortgage loan servicing income	1,566	1,388
Other	861	495
Total noninterest income	7,231	6,276
Noninterest expense
Salaries and employee benefits	8,609	7,150
Occupancy and equipment	2,182	1,842
Marketing and public relations	381	385
FDIC insurance	100	168
Recovery of mortgage loan repurchase losses	(225)	(250)
Legal expense	65	49
Other real estate expense, net	20	20
Mortgage subservicing expense	486	423
Amortization of mortgage servicing rights	669	532
Merger related expenses	1,319	186
Other	1,980	1,763
Total noninterest expense	15,586	12,268
Income before income taxes	6,915	5,281
Income tax expense	2,011	1,638
Net income	$ 4,904	$ 3,643
Earnings per common share:
Basic (per share)	$ 0.35	$ 0.31
Diluted (per share)	$ 0.35	$ 0.3
Weighted average common shares outstanding:
Basic (in shares)	13,919,711	11,746,574
Diluted (in shares)	14,139,241	11,978,801

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Consolidated Statements Of Comprehensive Income
Net income	$ 4,904	$ 3,643
Other comprehensive income (loss), net of tax:
Unrealized gain on securities	3,474	179
Tax effect	(1,251)	(64)
Reclassification adjustment for gains included in earnings	(185)	(417)
Tax effect	67	150
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges	138	(1,490)
Tax effect	(50)	536
Other comprehensive income (loss), net of tax	2,193	(1,106)
Comprehensive income	$ 7,097	$ 2,537

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning Balance at Dec. 31, 2015	$ 120	$ 56,418	$ 82,859	$ 462	$ 139,859
Beginning Balance (in shares) at Dec. 31, 2015	12,023,557
Stock awards	$ 1				1
Stock awards (in shares)	29,994
Vested stock awards surrendered in cashless exercise			(30)		(30)
Vested stock awards surrendered in cashless exercise	(1,936)
Excess tax benefit in connection with equity awards		15			15
Stock-based compensation expense, net		370			370
Net income			3,643		3,643
Dividends declared to stockholders			(362)		(362)
Other comprehensive income, net of tax				(1,106)	(1,106)
Ending Balance at Mar. 31, 2016	$ 121	56,803	86,110	(644)	142,390
Ending Balance (in shares) at Mar. 31, 2016	12,051,615
Beginning Balance at Dec. 31, 2016	$ 125	66,156	98,451	(1,542)	163,190
Beginning Balance (in shares) at Dec. 31, 2016	12,548,328
Issuance of common stock, net of offering expenses	$ 18	47,653			47,671
Issuance of common stock, net of offering expenses	1,807,143
Stock issued - Greer Bancshares Incorporated acquisition	$ 18	54,063			54,081
Stock issued - Greer Bancshares Incorporated acquisition (in shares)	1,784,831
Stock awards	$ 1	108			109
Stock awards (in shares)	60,031
Vested stock awards surrendered in cashless exercise		(186)	(251)		(437)
Vested stock awards surrendered in cashless exercise	(14,925)
Stock-based compensation expense, net		319			319
Net income			4,904		4,904
Dividends declared to stockholders			(576)		(576)
Other comprehensive income, net of tax				2,193	2,193
Ending Balance at Mar. 31, 2017	$ 162	$ 168,113	$ 102,528	$ 651	$ 271,454
Ending Balance (in shares) at Mar. 31, 2017	16,185,408

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net income	$ 4,904	$ 3,643
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of unearned discount/premiums on investments, net	834	903
Amortization of deferred loan fees	(251)	(122)
Accretion of acquired loans	(372)
Amortization of core deposit intangibles	133	86
Gain on sale of available-for-sale securities, net	(185)	(417)
Mortgage banking income	(3,608)	(3,175)
Originations of loans held for sale	(195,583)	(204,477)
Proceeds from sale of loans held for sale	209,466	217,622
Loss on extinquishment of debt		9
Provision for mortgage loan repurchase losses	(225)	(250)
Mortgage loan losses paid, net of recoveries	(72)	(21)
Fair value adjustments on interest rate swaps	58	281
Stock-based compensation	319	370
Increase in cash surrender value of bank owned life insurance	(211)	(229)
Depreciation	568	472
(Gain) loss on disposals of premises and equipment	3	(1)
Loss on sale of real estate acquired through foreclosure	(6)	(5)
Originations of mortgage servicing assets	(1,429)	(1,045)
Amortization of mortgage servicing assets	669	532
Accrued interest receivable	(170)	(171)
Other assets	(5,156)	(2,423)
Increase (decrease) in:
Accrued interest payable	105	17
Dividends payable to shareholders	74	1
Accrued expenses and other liabilities	(1,031)	(1,823)
Cash flows provided by operating activities	8,834	9,777
Activity in available-for-sale securities:
Purchases	(85,787)	(55,688)
Maturities, payments and calls	11,877	12,665
Proceeds from sales	37,697	34,478
Increase in other investments	(7)	(228)
Increase in Federal Home Loan Bank stock	189	2,150
Increase in loans receivable, net	(43,725)	(41,084)
Purchase of premises and equipment	(1,931)	(417)
Proceeds from disposals of premises and equipment		1
Proceeds from sale of real estate acquired through foreclosure	29	1,288
Purchase of bank owned life insurance		(25)
Net cash received for acquisitions	37,622
Cash flows used in investing activities	(44,036)	(46,860)
Cash flows from financing activities:
Net increase in deposit accounts	38,394	96,244
Net increase in Federal Home Loan Bank advances	(8,000)	(55,009)
Net increase (decrease) in drafts outstanding	906	(459)
Net increase in advances from borrowers for insurance and taxes	979	333
Cash dividends paid on common stock	(502)	(361)
Proceeds from issuance of common stock	47,671
Net increase in excess tax benefit in connection with equity awards		15
Cash flows provided by financing activities	79,448	40,763
Net increase (decrease) in cash and cash equivalents	44,246	3,680
Cash and cash equivalents, beginning of period	24,352	26,627
Cash and cash equivalents, end of period	68,598	30,307
Supplemental disclosure
Cash paid for Interest on deposits and borrowed funds	2,037	2,070
Cash paid for Income taxes paid, net of refunds	19	1,931
Noncash investing and financing activities:
Transfer of loans receivable to real estate acquired through foreclosure	$ 281

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Carolina Financial Corporation (“Carolina Financial” or the “Company”), incorporated under the laws of the State of Delaware, is a bank holding company with one wholly-owned subsidiary, CresCom Bank (the “Bank”). CresCom Bank operates two wholly-owned subsidiaries, Crescent Mortgage Company and Carolina Services Corporation of Charleston (“Carolina Services”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all material intercompany accounts and transactions have been eliminated. The results of operations of the businesses acquired in transactions accounted for as purchases are included only from the dates of acquisition. All majority-owned subsidiaries are consolidated unless control is temporary or does not rest with the Company.

At March 31, 2017, statutory business trusts (“Trusts”) created or acquried by the Company had outstanding trust preferred securities with a balance of $23.3 million. The principal assets of the Trusts are the Company’s subordinated debentures with identical rates of interest and maturities as the trust preferred securities. The Trusts have issued $806,000 of common securities to the Company and are included in other investments in the accompanying consolidated balance sheets. The Trusts are not consolidated subsidiaries of the Company.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on March 10, 2017. There have been no significant changes to the accounting policies as disclosed in the Company’s Form 10-K.

Management’s Estimates

The financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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, including valuation for impaired loans, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the valuation of securities, the valuation of derivative instruments, the valuation of assets acquired and liabilities assumed in business combinations, the valuation of mortgage servicing rights, the determination of the reserve for mortgage loan repurchase losses, asserted and unasserted legal claims and deferred tax assets or liabilities. In connection with the determination of the allowance for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties. Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment.

Management uses available information to recognize losses on loans and foreclosed real estate. However, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses and valuation of foreclosed real estate may change materially in the near term.

Earnings Per Share

Basic earnings per share (“EPS”) represents income available to common stockholders divided by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflects additional shares that would have been outstanding if dilutive potential shares had been issued. Potential shares that may be issued by the Company relate solely to outstanding stock options, restricted stock (non-vested shares), restricted stock units (“RSUs”) and warrants, and are determined using the treasury stock method. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of stock for the outstanding stock options, unvested restricted stock and RSUs, and warrants, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Company’s stock.

Subsequent Events

Subsequent events are material events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the statement of financial condition but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure except as follows:

The Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share payable on its common stock. The cash dividend will be payable on July 6, 2017 to stockholders of record as of June 15, 2017.

Reclassification

Certain reclassifications of accounts reported for previous periods have been made in these consolidated financial statements. Such reclassifications had no effect on stockholders’ equity or the net income as previously reported.

Recently Issued Accounting Pronouncements

In May 2014 and August 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements. 

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification (“ASC”) to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The amendments did not have a material effect on the financial statements

In January 2016, the FASB amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify the implementation

guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows become effective as of January 1, 2017. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the new guidance in the second quarter of 2016. These amendments did not have a material impact to the Company’s financial position, results of operations, and cash flows.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is evaluating the effect that implementation of the new standard will have on its financial position, results of operation and cash flows.

In August 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the ASC to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements. 

In October 2016, the FASB amended the Consolidation topic of the ASC to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued amendments to clarify the ASC, correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that did not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic of the ASC. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for [reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs Topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

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

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BUSINESS COMBINATION

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

BUSINESS COMBINATION

NOTE 2 – BUSINESS COMBINATIONS

Acquisition of Greer Bancshares Incorporated

On March 18, 2017, the Company completed its acquisition of Greer Bancshares Incorporated (“Greer”), the holding company for Greer State Bank, pursuant to the Agreement and Plan of Merger, dated as of November 7, 2016. Under the terms of the merger agreement, each share of Greer common stock was converted into the right to receive $18.00 in cash or 0.782 shares of the Company’s common stock, or a combination thereof, subject to certain limitations.

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousand).

Common stock issued (1,784,831 shares at $30.30 per share)	$	54,080
Cash payments to common stockholders		4,565
Total consideration paid	$	58,645

The assets acquired and liabilities assumed from Greer were recorded at their fair value as of the closing date of the merger. Fair values were preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values became available. Goodwill of $33.0 million was initially recorded at the time of the acquisition. The following table summarizes the consideration paid by the Company in the merger with Greer and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

	As Reported			Fair Value			As Recorded by
March 18, 2017	by Greer			Adjustments			the Company
	(In thousands)
Assets
Cash and cash equivalents	$	42,187			—			42,187
Investments		121,374			—			121,374
Loans receivable		205,209			(10,559	) (a)		194,650
Loans held for sale		105			—			105
Allowance for loan losses		(3,198	)		3,198	(b)		—
Premises and equipment		3,928			4,202	(c)		8,130
Foreclosed assets		42			—			42
Core deposit intangible		—			4,480	(d)		4,480
Deferred tax asset, net		3,831			(1,434	) (e)		2,397
Other assets		11,367			(241	) (f)		11,126
Total assets acquired	$	384,845			(354	)		384,491
Liabilities
Deposits	$	310,866			200	(g)		311,066
Long-term debt		43,712			(3,510	) (h)		40,202
Accrued expenses and other liabilities		7,086			512	(i)		7,598
Total liabilities assumed	$	361,664			(2,798	)		358,866
Net assets acquired								25,625
Total consideration paid								58,645
Goodwill							$	33,020

Explanation of fair value adjustments:

(a) Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.

(b) Adjustment reflects the elimination of Greer’s historical allowance for loan losses.

(c) Adjustment reflects fair value adjustments on acquired branch and administrative offices based on third party appraisals.

(d) Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.

(e) Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

(f) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.

(g) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(h) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(i) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other liabilities.

The following table presents additional information related to the purchased credit impaired (“PCI”) acquired loan portfolio at March 18, 2017 (in thousands):

Contractual principal and interest at acquisition	$	37,683
Nonaccretable difference		7,248
Expected cash flows at acquisition		30,434
Accretable yield		4,995
Basis in PCI loans at acquisition - estimated fair value	$	25,439

Supplemental Pro Forma Information - Unaudited

The table below presents supplemental pro forma information as if the Greer acquisition had occurred at the beginning of the earliest period presented, which was January 1, 2016. Pro forma results include adjustments for amortization and accretion of fair value adjustments and do not include any projected cost savings or other anticipated benefits of the merger. Therefore, the pro forma financial information is not indicative of the results of operations that would have occurred had the transactions been effected on the assumed date. Pre-tax merger-related costs of $1.3 million for the three months ended March 31, 2017, are included in the Company’s consolidated statements of operations and are not included in the pro forma statements below. Net interest income and net income recorded from the merger date to March 31, 2017 was approximately $520,000 and $403,000, respectively.

	For the Three Months Ended
	March 31,
	2017		2016
	(In thousands, except share data)
Net interest income	$	17,899	$	14,287
Net income (a)	$	6,048	$	4,673
Weighted average shares outstanding:
Basic (b)		15,704,542		13,531,405
Diluted (b)		15,924,072		13,763,632
Earnings per common share:
Basic	$	0.39	$	0.35
Diluted	$	0.38	$	0.34

(a) Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost saves or impact of merger related expenses.

(b) Weighted average shares outstanding include the full effect of the common stock issued in connection with the Greer acquisition as of the earliest reporting date.

Acquisition of Congaree Bancshares, Inc.

On June 11, 2016, the Company completed its acquisition of Congaree Bancshares, Inc. (“Congaree”), the holding company for Congaree State Bank, pursuant to the Agreement and Plan of Merger, dated as of January 5, 2016. Under the terms of the merger agreement, each share of Congaree common stock was converted into the right to receive $8.10 in cash or 0.4806 shares of the Company’s common stock, or a combination thereof, subject to certain limitations.

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousands).

Common stock issued (508,910 shares at $16.80 per share)	$	8,557
Cash payments to common stockholders		5,724
Preferred shares assumed and redeemed at par		1,564
Fair value of Congaree stock options assumed - paid out in cash		439
Total consideration paid	$	16,284

The following table presents the Congaree assets acquired and liabilities assumed as of June 11, 2016 as well as the related fair value adjustments and determination of goodwill. There have been no adjustments to initial fair values recorded by the Company for the Congaree acquisition to date.

	As Reported by Congaree			Fair Value Adjustments			As Recorded by the Company
	(In thousands)
Assets
Cash and cash equivalents	$	11,394			—			11,394
Securities		9,453			(59	) (a)		9,394
Loans		78,712			(4,111	) (b)		74,601
Allowance for loan losses		(1,112	)		1,112	(c)		—
Premises and equipment		2,712			38	(d)		2,750
Foreclosed assets		1,710			(250	) (e)		1,460
Core deposit intangible		—			1,104	(f)		1,104
Deferred tax asset		1,813			915	(g)		2,728
Other assets		942			(152	) (h)		790
Total assets acquired	$	105,624			(1,403	)		104,221
Liabilities
Deposits	$	89,227			98	(i)		89,325
Borrowings		2,500			—			2,500
Other liabilities		378			—			378
Total liabilities assumed	$	92,105			98			92,203
Net assets acquired								12,018
Total consideration paid								16,284
Goodwill							$	4,266

Explanation of fair value adjustments:
(a)	Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.
(b)	Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.
(c)	Adjustment reflects the elimination of Congaree’s historical allowance for loan losses.
(d)	Adjustment reflects fair value adjustments on acquired branch and administrative offices.
(e)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the foreclosed assets.
(f)	Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.
(g)	Adjustment reflects the tax impact of acquisition accounting fair value adjustments.
(h)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.
(i)	Adjustment reflects the fair value adjustment based on the Company’s third party evaluation report on deposits assumed.

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SECURITIES

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 3 – SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities available-for-sale at March 31, 2017 and December 31, 2016 follows:

	March 31, 2017									December 31, 2016
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
								(In thousands)
Securities available-for-sale:
Municipal securities	$	148,946		2,570		(660	)		150,856		92,792		1,475		(1,055	)		93,212
US government agencies		35,406		332		(38	)		35,700		3,438		—		(52	)		3,386
Collateralized loan obligations		84,212		188		(63	)		84,337		76,202		138		(91	)		76,249
Corporate securities		474		15		—			489		474		17		—			491
Mortgage-backed securities:
Agency		144,592		1,304		(587	)		145,309		90,477		995		(486	)		90,986
Non-agency		68,844		431		(257	)		69,018		63,628		424		(188	)		63,864
Total mortgage-backed securities		213,436		1,735		(844	)		214,327		154,105		1,419		(674	)		154,850
Trust preferred securities		11,204		872		(3,655	)		8,421		11,203		545		(4,584	)		7,164
Total	$	493,678		5,712		(5,260	)		494,130		338,214		3,594		(6,456	)		335,352

The Company had no held-to-maturity securities as of March 31, 2017 or December 31, 2016. During the second quarter of 2016, the Company tainted its securities held-to-maturity portfolio as a result of a change in the intent to hold these securities until maturity to provide opportunities to maximize its asset utilization. As a result, the securities were moved to available-for-sale resulting in an increase to accumulated other comprehensive income of $655,000.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2017 follows:

	At March 31, 2017
	Amortized		Fair
	Cost		Value
	(In thousands)
Securities available-for-sale:
Less than one year	$	302		302
One to five years		3,667		3,684
Six to ten years		88,515		88,805
After ten years		401,194		401,339
Total	$	493,678		494,130

The contractual maturity dates of the securities were used for mortgage-backed securities and asset-backed securities. No estimates were made to anticipate principal repayments.

The following table summarizes the gross realized gains and losses from sales of investment securities available-for-sale for the periods indicated.

	For the Three Months
	Ended March 31,
	2017			2016
	(In thousands)
Proceeds	$	37,697			34,478
Realized gains	$	373			534
Realized losses		(188	)		(117	)
Total investment securities gains, net	$	185			417

At March 31, 2017, the Company had pledged securities with a market value of $14.9 million for Federal Home Loan Bank (“FHLB”) advances.

At March 31, 2017, the Company has pledged $77.6 million of securities to secure public agency funds.

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	At March 31, 2017
	Less than 12 Months							12 Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	37,685		37,025		(660	)		—		—		—			37,685		37,025		(660	)
US government agencies		7,129		7,091		(38	)		—		—		—			7,129		7,091		(38	)
Collateralized loan obligations		19,500		19,468		(32	)		8,500		8,469		(31	)		28,000		27,937		(63	)
Mortgage-backed securities:
Agency		62,055		61,586		(469	)		9,672		9,554		(118	)		71,727		71,140		(587	)
Non-agency		10,660		10,475		(185	)		8,214		8,142		(72	)		18,874		18,617		(257	)
Total mortgage-backed securities		72,715		72,061		(654	)		17,886		17,696		(190	)		90,601		89,757		(844	)
Trust preferred securities		—		—		—			10,001		6,346		(3,655	)		10,001		6,346		(3,655	)
Total	$	137,029		135,645		(1,384	)		36,387		32,511		(3,876	)		173,416		168,156		(5,260	)

	At December 31, 2016
	Less than 12 Months							12  Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	40,479		39,424		(1,055	)		—		—		—			40,479		39,424		(1,055	)
US government agencies		3,438		3,386		(52	)		—		—		—			3,438		3,386		(52	)
Collateralized loan obligations		16,792		16,748		(44	)		8,500		8,453		(47	)		25,292		25,201		(91	)
Mortgage-backed securities:
Agency		33,323		32,960		(363	)		10,125		10,002		(123	)		43,448		42,962		(486	)
Non-agency		9,357		9,240		(117	)		8,801		8,730		(71	)		18,158		17,970		(188	)
Total mortgage-backed securities		42,680		42,200		(480	)		18,926		18,732		(194	)		61,606		60,932		(674	)
Trust preferred securities		1,362		1,112		(250	)		8,667		4,333		(4,334	)		10,029		5,445		(4,584	)
Total	$	104,751		102,870		(1,881	)		36,093		31,518		(4,575	)		140,844		134,388		(6,456	)

The Company reviews its investment securities portfolio at least quarterly and more frequently when economic conditions warrant, assessing whether there is any indication of other-than-temporary impairment (“OTTI”). Factors considered in the review include estimated future cash flows, length of time and extent to which market value has been less than cost, the financial condition and near term prospect of the issuer, and our intent and ability to retain the security to allow for an anticipated recovery in market value. If the review determines that there is OTTI, then an impairment loss is recognized in earnings equal to the difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made, or a portion may be recognized in other comprehensive income. The fair value of investments on which OTTI is recognized then becomes the new cost basis of the investment.

As of March 31, 2017, trust preferred securities had an amortized cost of $11.2 million and a fair value of $8.4 million. For each trust preferred security, impairment testing is performed on a quarterly basis using a detailed cash flow analysis. The major assumptions used during the quarterly impairment testing are described in the subsequent paragraph.

In 2009, the Company adopted a four year “burst” scenario for its modeled default rates (2010 - 2013) that replicated the default rates for the banking industry from the four peak years of the savings and loan crisis, which then reduced to 0.25% annually. The elevated default rate ended in 2013, and the constant default rate used by the Company is now 0.25% annually. All issuers that are currently in deferral were presumed to be in default. Additionally, all defaults are assumed to have a 15% recovery after two years and 1% of the pool is presumed to prepay annually. If this analysis results in a present value of expected cash flows that is less than the book value of a security (that is, a credit loss exists), OTTI is considered to have occurred. If there is no credit loss, any impairment is considered temporary. The cash flow analysis we performed used discount rates equal to the credit spread at the time of purchase for each security and then added the current three-month LIBOR forward interest rate curve.

Based on the cash flow analysis performed at period end, management believes that there are no additional securities other-than-temporarily impaired at March 31, 2017.

The underlying issuers in the pools were primarily financial institutions and to a lesser extent, insurance companies and real estate investment trusts. The Company owns both senior and mezzanine tranches in pooled trust preferred securities; however, the Company does not own any income notes. The senior and mezzanine tranches of trust preferred collateralized debt obligations generally have some protection from defaults in the form of over-collateralization and excess spread revenues, along with waterfall structures that redirect cash flows in the event certain coverage test requirements are failed. Generally, senior tranches have the greatest protection, with mezzanine tranches subordinated to the senior tranches, and income notes subordinated to the mezzanine tranches.

At March 31, 2017 and December 31, 2016, the Company had 96 and 81, respectively, individual investments available-for-sale that were in an unrealized loss position. The unrealized losses on the Company’s investments in US government-sponsored agencies, municipal securities, mortgage-backed securities (agency and non-agency), and trust preferred securities summarized above were attributable primarily to changes in interest rates. Management has performed various analyses, including cash flows as needed, and determined that no OTTI expense was necessary during 2017 or 2016.

Management believes that there are no additional securities other-than-temporarily impaired at March 31, 2017. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost. Management continues to monitor these securities with a high degree of scrutiny. There can be no assurance that the Company will not conclude in future periods that conditions existing at that time indicate some or all of the securities may be sold or are other-than-temporarily impaired, which would require a charge to earnings in such periods.

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DERIVATIVES

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

NOTE 4 – DERIVATIVES

In the ordinary course of business, the Company enters into various types of derivative transactions. The Company’s primary uses of derivative instruments are related to the mortgage banking activities. As such, the Company holds derivative instruments, which consist of rate lock agreements related to expected funding of fixed-rate mortgage loans to customers (interest rate lock commitments) and forward commitments to sell mortgage-backed securities and individual fixed-rate mortgage loans. The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the interest rate lock commitments and the mortgage loans that are held for sale. Derivative instruments not related to mortgage banking activities primarily relate to interest rate swap agreements.

The derivative positions of the Company at March 31, 2017 and December 31, 2016 are as follows:

	At March 31,				At December 31,
	2017				2016
	Fair		Notional		Fair		Notional
	Value		Value		Value		Value
	(In thousands)
Derivative assets:
Cash flow hedges:
Interest rate swaps	$	559		45,000		421		30,000
Non-hedging derivatives:
Interest rate swaps		552		20,000		532		20,000
Mortgage loan interest rate lock commitments		1,827		136,592		1,113		117,439
Mortgage loan forward sales commitments		288		15,670		153		94,001
Total derivative assets	$	3,226		217,262		2,219		261,440
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps	$	234		10,000		195		10,000
Mortgage-backed securities forward sales commitments		448		96,000		147		22,784
Total derivative liabilities	$	682		106,000		342		32,784

Non-Designated Hedges

Derivative Loan Commitments and Forward Sales Commitments

The Company enters into mortgage loan commitments that are also referred to as derivative loan commitments, if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments typically decreases. Conversely, if interest rates decrease, the value of these loan commitments typically increases.

To protect against the price risk inherent in derivative loan commitments, the Company utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor to compensate the investor for the shortfall.

With a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

Derivatives related to these commitments are recorded as either a derivative asset or a derivative liability on the balance sheet and are measured at fair value. Both the interest rate lock commitments and the forward commitments are reported at fair value, with adjustments recorded in current period earnings in “mortgage banking income” within noninterest income in the consolidated statements of operations.

Interest Rate Swaps

The Company enters into interest rate swaps that do not meet the hedge accounting requirements and are recorded at fair value as a derivative asset or liability. Interest rate swaps that are not designated as hedges are primarily used to more closely match the interest rate characteristics of assets and liabilities and to mitigate the risks arising from timing mismatches between assets and liabilities including duration mismatches. Fair value changes are recognized in noninterest income as “fair value adjustments on interest rate swaps.”

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using certain interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company has entered into interest rate swaps to reduce the exposure to variability in interest-related cash outflows attributable to changes in forecasted LIBOR-based FHLB borrowings. These derivative instruments are designated as cash flow hedges. The hedged item is the LIBOR portion of the series of future adjustable rate borrowings over the term of the interest rate swap. Accordingly, changes to the amount of interest payment cash flows for the hedged transactions attributable to a change in credit risk are excluded from our assessment of hedge effectiveness. The Company tests for hedging effectiveness on a quarterly basis. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company has not recorded any hedge ineffectiveness since inception.

Risk Management Objective of Using Derivatives

When using derivatives to hedge fair value and cash flow risks, the Company exposes itself to potential credit risk from the counterparty to the hedging instrument. This credit risk is normally a small percentage of the notional amount and fluctuates as interest rates change. The Company analyzes and approves credit risk for all potential derivative counterparties prior to execution of any derivative transaction. The Company seeks to minimize credit risk by dealing with highly rated counterparties and by obtaining collateralization for exposures above certain predetermined limits. If significant counterparty risk is determined, the Company would adjust the fair value of the derivative recorded asset balance to consider such risk. 

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LOANS RECEIVABLE, NET

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

LOANS RECEIVABLE, NET

NOTE 5 - LOANS RECEIVABLE, NET

We emphasize a range of lending services, including commercial and residential real estate mortgage loans, real estate construction loans, commercial and industrial loans and consumer loans. Our customers are generally individuals and small to medium-sized businesses and professional firms that are located in or conduct a substantial portion of their business in our market areas. We have focused our lending activities primarily on the professional market, including doctors, dentists, small business to medium-sized owners and commercial real estate developers.

Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers. We attempt to mitigate repayment risks by adhering to internal credit policies and procedures. These policies and procedures include officer and customer lending limits, with approval processes for larger loans, documentation examination, and follow-up procedures for any exceptions to credit policies. Our loan approval policies provide for various levels of officer lending authority. When the amount of aggregate loans to a single borrower exceeds the maximum senior officer’s lending authority, the loan request will be considered by the management loan committee, or MLC, which is comprised of five members, all of whom are part of the senior management team of the Bank. The MLC meets weekly to approve loans with total loan commitments exceeding $1.5 million. The loan authority of the MLC is equal to two-thirds of the legal lending limit of the Bank which is equivalent to the in-house loan limit. Total credit exposure above the in-house limit requires approval by the majority of the board of directors. We do not make any loans to any director, executive officer of the Bank, or the related interests of each, unless the loan is approved by the full Board of Directors of the Bank and is on terms not more favorable than would be available to a person not affiliated with the Bank.

The following is a description of the risk characteristics of the material loan portfolio segments:

Residential Mortgage Loans and Home Equity Loans. We generally originate and hold short-term and long-term first mortgages and traditional second mortgage residential real estate loans. Generally, we limit the loan-to-value ratio on our residential real estate loans to 80%. We offer fixed and adjustable rate residential real estate loans with terms of up to 30 years. We also offer a variety of lot loan options to consumers to purchase the lot on which they intend to build their home. The options available depend on whether the borrower intends to begin building within 12 months of the lot purchase or at an undetermined future date. We also offer traditional home equity loans and lines of credit. Our underwriting criteria for, and the risks associated with, home equity loans and lines of credit are generally the same as those for first mortgage loans. Home equity loans typically have terms of 10 years or less. We generally limit the extension of credit to 90% of the available equity of each property, although we may extend up to 100% of the available equity.

Commercial Real Estate. Commercial real estate loans generally have terms of five years or less, although payments may be structured on a longer amortization basis. We evaluate each borrower on an individual basis and attempt to determine their business risks and credit profile. We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied office and retail buildings where the loan-to-value ratio, established by independent appraisals, generally does not exceed 80%. We also generally require that a borrower’s cash flow exceed 120% of monthly debt service obligations. In order to ensure secondary sources of payment and liquidity to support a loan request, we typically review all of the personal financial statements of the principal owners and require their personal guarantees.

Real Estate Construction and Development Loans. We offer fixed and adjustable rate residential and commercial construction loan financing to builders and developers and to consumers who wish to build their own home. The term of construction and development loans generally is limited to 18 months, although payments may be structured on a longer amortization basis. Most loans will mature and require payment in full upon the sale of the property. We believe that construction and development loans generally carry a higher degree of risk than long-term financing of existing properties because repayment depends on the ultimate completion of the project and usually on the subsequent sale of the property. We attempt to reduce risk associated with construction and development loans by obtaining personal guarantees and by keeping the maximum loan-to-value ratio at or below 65%-80% of the lesser of cost or appraised value, depending on the project type. Generally, we do not have interest reserves built into loan commitments but require periodic cash payments for interest from the borrower’s cash flow.

Commercial Loans. We make loans for commercial purposes in various lines of businesses, including the manufacturing industry, service industry, and professional service areas. Commercial loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or if they are secured, the value of the collateral may be difficult to assess and more likely to decrease than real estate. Equipment loans typically will be made for a term of 10 years or less at fixed or variable rates, with the loan fully amortized over the term and secured by the financed equipment. Generally, we limit the loan-to-value ratio on these loans to 75% of cost. Working capital loans typically have terms not exceeding one year and usually are secured by accounts receivable, inventory, or personal guarantees of the principals of the business. For loans secured by accounts receivable or inventory, principal will typically be repaid as the assets securing the loan are converted into cash, and in other cases principal will typically be due at maturity. Trade letters of credit, standby letters of credit, and foreign exchange will generally be handled through a correspondent bank as agent for the Bank.

The Company’s primary markets are generally concentrated in real estate lending. However, in order to diversify our lending portfolio, the Company purchases nationally syndicated commercial and industrial loans. These loans typically have terms of seven years and are generally tied to a floating rate index such as LIBOR or prime. To effectively manage this line of business, the Company has an experienced senior lending executive with relevant experience to manage this area of this segement of the loan portfolio. In addition, the Company engaged a consulting firm that specializes in syndicated loans to assist in monitoring performance analytics. As of March 31, 2017 and December 31, 2016, there were approximately $80.2 million and $91.5 million in syndicated loans outstanding. Syndicated loans are grouped within commercial business loans below.

Consumer Loans. We make a variety of loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer rates are both fixed and variable, with negotiable terms. Our installment loans typically amortize over periods up to 72 months. Although we typically require monthly payments of interest and a portion of the principal on our loan products, we will offer consumer loans with a single maturity date when a specific source of repayment is available. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

Loans receivable, net at March 31, 2017 and December 31, 2016 are summarized by category as follows:

	At March 31,					At December 31,
	2017					2016
			% of Total					% of Total
	Amount		Loans			Amount		Loans
	(Dollars in thousands)
Loans secured by real estate:
One-to-four family	$	472,764		33.36	%	$	411,399		34.91	%
Home equity		52,298		3.69	%		36,026		3.06	%
Commercial real estate		540,415		38.14	%		445,344		37.80	%
Construction and development		150,738		10.64	%		115,682		9.82	%
Consumer loans		10,411		0.73	%		5,714		0.48	%
Commercial business loans		190,384		13.44	%		164,101		13.93	%
Total gross loans receivable		1,417,010		100.00	%		1,178,266		100.00	%
Less:
Allowance for loan losses		10,715					10,688
Total loans receivable, net	$	1,406,295				$	1,167,578

Included in the loan totals were $303.2 million and $119.4 million in loans acquired through acquisitions at March 31, 2017 and December 31, 2016, respectively. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.

There are two methods to account for acquired loans as part of a business combination. Acquired loans that contain evidence of credit deterioration on the date of purchase are carried at the net present value of expected future proceeds in accordance with ASC 310-30 and are considered purchased credit impaired (“PCI”) loans. All other acquired loans are recorded at their initial fair value, adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-offs and any other adjustment to carrying value in accordance with ASC 310-20.

PCI loans are aggregated into pools of loans based on common risk characteristics such as the type of loan, payment status, or collateral type. The Company estimates the amount and timing of expected cash flows for each purchased loan pool and the expected cash flows in excess of the amount paid are recorded as interest income over the remaining life of the pool (accretable yield). The excess of the pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

At March 31, 2017, the outstanding balance and recorded investment of PCI loans was $31.9 million and $25.3 million, respectively. The Company had no PCI loans prior to 2017. The following table presents changes in the value of the accretable yield for PCI loans for three months ended March 31, 2017 (in thousands):

	For the Three Months
	Ended March 31, 2017
	(In thousands)
Accretable yield, beginning of period	$	—
Additions		4,995
Accretion		(102	)
Reclassification from nonaccretable balance, net		—
Other changes, net		—
Accretable yield, end of period	$	4,893

The composition of gross loans outstanding, net of undisbursed amounts, by rate type is as follows:

	At March 31,				At December 31,
	2017				2016
	(Dollars in thousands)
Variable rate loans	$	535,935	37.82	%	$	455,589	38.67	%
Fixed rate loans		881,075	62.18	%		722,677	61.33	%
Total loans outstanding	$	1,417,010	100.00	%	$	1,178,266	100.00	%

The following table presents activity in the allowance for loan losses for the period indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Allowance for loan losses:	For the Three Months Ended March 31, 2017
	Loans Secured by Real Estate
	One-to-					Commercial		Construction
	four			Home		real		and						Commercial
	family			equity		estate		development			Consumer			business			Unallocated		Total
								(In thousands)
Balance, beginning of period	$	2,636			197		3,344		1,132			80			2,805			494		10,688
Provision for loan losses		(114	)		39		244		(190	)		35			(329	)		315		—
Charge-offs		(17	)		—		—		—			(9	)		—			—		(26	)
Recoveries		1			—		25		1			4			22			—		53
Balance, end of period	$	2,506			236		3,613		943			110			2,498			809		10,715

	For the Three Months Ended March 31, 2016
	Loans Secured by Real Estate
	One-to-					Commercial			Construction
	four			Home		real			and					Commercial
	family			equity		estate			development		Consumer			business		Unallocated			Total
	(In thousands)
Balance, beginning of period	$	2,903			151		3,402			1,138		27			2,100		420			10,141
Provision for loan losses		(98	)		1		(37	)		90		(2	)		66		(20	)		—
Charge-offs		—			—		—			—		(2	)		—		—			(2	)
Recoveries		58			—		—			3		6			27		—			94
Balance, end of period	$	2,863			152		3,365			1,231		29			2,193		400			10,233

The following table disaggregates our allowance for loan losses and recorded investment in loans by impairment methodology.

	Loans Secured by Real Estate
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Unallocated		Total
	(In thousands)
At March 31, 2017:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	43		54		48		—		—		23		—		168
Collectively evaluated for impairment		2,463		182		3,565		943		110		2,475		809		10,547
	$	2,506		236		3,613		943		110		2,498		809		10,715
Loans receivable ending balances:
Individually evaluated for impairment	$	4,460		1,114		5,055		491		19		247		—		11,386
Collectively evaluated for impairment		461,515		50,884		523,626		145,506		10,336		188,450		—		1,380,317
Purchased Credit-Impaired Loans		6,789		300		11,734		4,741		56		1,687		—		25,307
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		—		1,417,010
At December 31, 2016:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	27		29		92		—		—		9		—		157
Collectively evaluated for impairment		2,609		168		3,252		1,132		80		2,796		494		10,531
	$	2,636		197		3,344		1,132		80		2,805		494		10,688
Loans receivable ending balances:
Individually evaluated for impairment	$	4,668		108		5,247		507		24		267		—		10,821
Collectively evaluated for impairment		406,731		35,918		440,097		115,175		5,690		163,834		—		1,167,445
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		—		1,178,266

The following table presents impaired loans individually evaluated for impairment in the segmented portfolio categories and the corresponding allowance for loan losses as of March 31, 2017 and December 31, 2016. The recorded investment is defined as the original amount of the loan, net of any deferred costs and fees, less any principal reductions and direct charge-offs. Unpaid principal balance includes amounts previously included in charge-offs.

	At March 31, 2017						At December 31, 2016
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,833		4,073		—		4,125		4,366		—
Home equity		839		839		—		—		—		—
Commercial real estate		4,041		4,041		—		4,011		4,011		—
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		36		37		—		258		258		—
		9,259		9,500		—		8,925		9,166		—
With an allowance recorded:
Loans secured by real estate:
One-to-four family		627		627		43		543		543		27
Home equity		275		275		54		108		108		29
Commercial real estate		1,014		1,014		48		1,236		1,236		92
Construction and development		—		—		—		—		—		—
Consumer loans		—		—		—		—		—		—
Commercial business loans		211		211		23		9		9		9
		2,127		2,127		168		1,896		1,896		157
Total:
Loans secured by real estate:
One-to-four family		4,460		4,700		43		4,668		4,909		27
Home equity		1,114		1,114		54		108		108		29
Commercial real estate		5,055		5,055		48		5,247		5,247		92
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		247		248		23		267		267		9
	$	11,386		11,627		168		10,821		11,062		157

The following table presents the average recorded investment and interest income recognized on impaired loans individually evaluated for impairment in the segmented portfolio categories for the three months ended March 31, 2017 and 2016.

	For the Three Months Ended March 31,
	2017				2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
			(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,827		36		3,076		11
Home equity		541		3		—		—
Commercial real estate		4,070		136		10,753		136
Construction and development		491		—		25		—
Consumer loans		20		1		65		(4	)
Commercial business loans		38		17		318		4
		8,987		193		14,237		147
With an allowance recorded:
Loans secured by real estate:
One-to-four family		597		3		518		5
Home equity		192		1		—		—
Commercial real estate		1,019		66		1,671		—
Construction and development		—		—		475		—
Consumer loans		—		—		—		—
Commercial business loans		217		6		198		(1	)
		2,025		76		2,862		4
Total:
Loans secured by real estate:
One-to-four family		4,424		39		3,594		16
Home equity		733		4		—		—
Commercial real estate		5,089		202		12,424		136
Construction and development		491		—		500		—
Consumer loans		20		1		65		(4	)
Commercial business loans		255		23		516		3
	$	11,012		269		17,099		151

A loan is considered past due if the required principal and interest payment has not been received as of the due date. The following schedule is an aging of past due loans receivable by portfolio segment as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	1,526		15		1,536		90		181		11		3,359
60-89 days past due		27		13		—		—		—		—		40
90 days or more past due		3,123		772		135		491		6		623		5,150
Total past due		4,676		800		1,671		581		187		634		8,549
Current		468,088		51,498		538,744		150,157		10,224		189,750		1,408,461
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31, 2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	3,864		379		206		62		55		136		4,702
60-89 days past due		635		497		—		—		3		—		1,135
90 days or more past due		3,170		108		334		507		26		16		4,161
Total past due		7,669		984		540		569		84		152		9,998
Current		403,730		35,042		444,804		115,113		5,630		163,949		1,168,268
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

Loans are generally placed in nonaccrual status when the collection of principal and interest is 90 days or more past due, unless the obligation is both well-secured and in the process of collection. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest payments received while the loan is on nonaccrual are applied to the principal balance. No interest income was recognized on impaired loans subsequent to the nonaccrual status designation. A loan is returned to accrual status when the borrower makes consistent payments according to contractual terms and future payments are reasonably assured.

The following is a schedule of loans receivable, by portfolio segment, on nonaccrual at March 31, 2017 and December 31, 2016.

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Loans secured by real estate:
One-to-four family	$	3,098		3,256
Home equity		772		108
Commercial real estate		1,546		1,703
Construction and development		491		507
Consumer loans		7		27
Commercial business loans		17		24
	$	5,931		5,625

The Company uses several metrics as credit quality indicators of current or potential risks as part of the ongoing monitoring of credit quality of its loan portfolio. The credit quality indicators are periodically reviewed and updated on a case-by-case basis. The Company uses the following definitions for the internal risk rating grades, listed from the least risk to the highest risk.

Pass: These loans range from minimal credit risk to average, however, still acceptable credit risk.

Special mention: A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard: A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The Company uses the following definitions in the tables below:

Nonperforming: Loans on nonaccrual status plus loans greater than 90 days past due still accruing interest.

Performing: All current loans plus loans less than 90 days past due.

The following is a schedule of the credit quality of loans receivable, by portfolio segment, as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	466,380		50,881		535,087		147,728		10,384		186,113		1,396,573
Special Mention		1,934		231		2,749		427		20		2,236		7,597
Substandard		4,450		1,186		2,579		2,583		7		2,035		12,840
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010
Performing	$	469,666		51,526		538,869		150,247		10,404		190,367		1,411,079
Nonperforming:
Nonaccrual		3,098		772		1,546		491		7		17		5,931
Total nonperforming		3,098		772		1,546		491		7		17		5,931
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31,2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	407,612		35,903		442,323		114,751		5,683		162,235		1,168,507
Special Mention		438		15		1,318		424		19		1,849		4,063
Substandard		3,349		108		1,703		507		12		17		5,696
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266
Performing	$	408,143		35,918		443,641		115,175		5,687		164,077		1,172,641
Nonperforming:
Nonaccrual		3,256		108		1,703		507		27		24		5,625
Total nonperforming		3,256		108		1,703		507		27		24		5,625
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

As of March 31, 2017, the Company had $911,000 in PCI loans that were 90 days or more and still accuring. There were no loans 90 days or more and still accruing at December 31, 2016.

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Troubled Debt Restructurings

At March 31, 2017, there were $6.6 million in loans designated as troubled debt restructurings of which $5.5 million were accruing. At December 31, 2016, there were $6.4 million in loans designated as troubled debt restructurings of which $5.2 million were accruing.

There was one loan with a premodification and post modification balance of $342,000 identified as a troubled debt restructuring during the three months ended March 31, 2017 due to a payment structure change. There were no loans designated as troubled debt restructuring during the three months ended March 31 2016.

No loans previously restructured in the twelve months prior to March 31, 2017 and 2016 went into default during the three months March 31, 2017 and 2016. 

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REAL ESTATE ACQUIRED THROUGH FORECLOSURE

3 Months Ended

Mar. 31, 2017

Banking and Thrift [Abstract]

REAL ESTATE ACQUIRED THROUGH FORECLOSURE

NOTE 6 – REAL ESTATE ACQUIRED THROUGH FORECLOSURE

The following presents summarized activity in real estate acquired through foreclosure for the periods ended March 31, 2017 and December 31, 2016:

	March 31,			December 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	1,179			2,374
Additions		323			2,630
Sales		(23	)		(3,810	)
Write downs		—			(15	)
Balance at end of period	$	1,479			1,179

A summary of the composition of real estate acquired through foreclosure follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Real estate loans:
One-to-four family	$	239		—
Construction and development		1,240		1,179
	$	1,479		1,179

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DEPOSITS

3 Months Ended

Mar. 31, 2017

Banking and Thrift [Abstract]

DEPOSITS

NOTE 7 - DEPOSITS

Deposits outstanding by type of account at March 31, 2017 and December 31, 2016 are summarized as follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Noninterest-bearing demand accounts	$	298,365		229,905
Interest-bearing demand accounts		309,961		191,851
Savings accounts		66,506		48,648
Money market accounts		363,600		292,639
Certificates of deposit:
Less than $250,000		524,836		467,937
$250,000 or more		44,452		27,280
Total certificates of deposit		569,288		495,217
Total deposits	$	1,607,720		1,258,260

The aggregate amount of brokered certificates of deposit was $86.2 million and $98.3 million at March 31, 2017 and December 31, 2016, respectively. Brokered certificates of deposit are included in the table above under certificates of deposit less than $250,000. The aggregate amount of institutional certificates of deposit was $49.9 million and $44.3 million at March 31, 2017 and December 31, 2016, respectively.

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ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 8 – ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

Current accounting literature requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized through immediate settlement of the instrument. Certain items are specifically excluded from disclosure requirements, including the Company’s stock, premises and equipment, accrued interest receivable and payable and other assets and liabilities.

The fair value of a financial instrument is an amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced sale. Fair values are estimated at a specific point in time based on relevant market information and information about the financial instruments. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

The Company has used management’s best estimate of fair value based on the above assumptions. Thus the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses that would be incurred in an actual sale or settlement are not taken into consideration in the fair values presented.

The Company determines the fair value of its financial instruments based on the fair value hierarchy established under ASC 820-10, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the financial instrument’s fair value measurement in its entirety. There are three levels of inputs that may be used to measure fair value. The three levels of inputs of the valuation hierarchy are defined below:

Level 1 Quoted prices (unadjusted) in active markets for identical assets and liabilities for the instrument or security to be valued. Level 1 assets include marketable equity securities as well as U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or model-based valuation techniques for which all significant assumptions are derived principally from or corroborated by observable market data. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined by using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. U.S. Government sponsored agency securities, mortgage-backed securities issued by U.S. Government sponsored enterprises and agencies, obligations of states and municipalities, collateralized mortgage obligations issued by U.S. Government sponsored enterprises, and mortgage loans held-for-sale are generally included in this category. Certain private equity investments that invest in publicly traded companies are also considered Level 2 assets.

Level 3 Unobservable inputs that are supported by little, if any, market activity for the asset or liability. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow models and similar techniques, and may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability. These methods of valuation may result in a significant portion of the fair value being derived from unobservable assumptions that reflect The Company’s own estimates for assumptions that market participants would use in pricing the asset or liability. This category primarily includes collateral-dependent impaired loans, other real estate, certain equity investments, and certain private equity investments.

Cash and due from banks - The carrying amounts of these financial instruments approximate fair value. All mature within 90 days and present no anticipated credit concerns.

Interest-bearing cash - The carrying amount of these financial instruments approximates fair value.

Securities available-for-sale and securities held to maturity – Fair values for investment securities available-for-sale and securities held to maturity are based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

FHLB stock and other non-marketable equity securities - The carrying amount of these financial instruments approximates fair value.

Mortgage loans held for sale – Mortgage loans held for sale are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for loans held for sale recorded at lower of cost or market are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for loans held for sale that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.

Loans receivable - The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Further adjustments are made to reflect current market conditions. There is no discount for liquidity included in the expected cash flow assumptions. Loans receivable are classified within Level 3 of the valuation hierarchy.

Accrued interest receivable - The carrying value approximates the fair value.

Mortgage servicing rights - The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market.

Deposits - The estimated fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The estimated fair value of fixed maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities.

Short-term borrowed funds - The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings maturing within 90 days approximate their fair values. Estimated fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Long-term debt - The estimated fair values of the Company’s long-term debt are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Other Investments – The carrying value approximates the fair value.

Derivative assets and liabilities – The primary use of derivative instruments are related to the mortgage banking activities of the Company. The Company’s wholesale mortgage banking subsidiary enters into interest rate lock commitments related to expected funding of residential mortgage loans at specified times in the future. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative instruments under applicable accounting guidance. As such, The Company records its interest rate lock commitments and forward loan sales commitments at fair value, determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, the mortgage subsidiary enters into contractual interest rate lock commitments to extend credit, if approved, at a fixed interest rate and with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the time frames established by the mortgage banking subsidiary. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to borrowers, the mortgage banking subsidiary enters into best efforts forward sales contracts with third party investors. The forward sales contracts lock in a price for the sale of loans similar to the specific interest rate lock commitments. Both the interest rate lock commitments to the borrowers and the forward sales contracts to the investors that extend through to the date the loan may close are derivatives, and accordingly, are marked to fair value through earnings. In estimating the fair value of an interest rate lock commitment, the Company assigns a probability to the interest rate lock commitment based on an expectation that it will be exercised and the loan will be funded. The fair value of the interest rate lock commitment is derived from the fair value of related mortgage loans, which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. The fair value of the interest rate lock commitment is also derived from inputs that include guarantee fees negotiated with the agencies and private investors, buy-up and buy-down values provided by the agencies and private investors, and interest rate spreads for the difference between retail and wholesale mortgage rates. Management also applies fall-out ratio assumptions for those interest rate lock commitments for which we do not close a mortgage loan. The fall-out ratio assumptions are based on the mortgage subsidiary’s historical experience, conversion ratios for similar loan commitments, and market conditions. While fall-out tendencies are not exact predictions of which loans will or will not close, historical performance review of loan-level data provides the basis for determining the appropriate hedge ratios. In addition, on a periodic basis, the mortgage banking subsidiary performs analysis of actual rate lock fall-out experience to determine the sensitivity of the mortgage pipeline to interest rate changes from the date of the commitment through loan origination, and then period end, using applicable published mortgage-backed investment security prices. The expected fall-out ratios (or conversely the “pull-through” percentages) are applied to the determined fair value of the unclosed mortgage pipeline in accordance with GAAP. Changes to the fair value of interest rate lock commitments are recognized based on interest rate changes, changes in the probability that the commitment will be exercised, and the passage of time. The fair value of the forward sales contracts to investors considers the market price movement of the same type of security between the trade date and the balance sheet date. These instruments are defined as Level 2 within the valuation hierarchy.

Derivative instruments not related to mortgage banking activities interest rate swap agreements. Fair values for these instruments are based on quoted market prices, when available. As such, the fair value adjustments for derivatives with fair values based on quoted market prices are recurring Level 1.

Commitments to extend credit – The carrying amounts of these commitments are considered to be a reasonable estimate of fair value because the commitments underlying interest rates are based upon current market rates.

Accrued interest payable - The fair value approximates the carrying value.

Off-balance sheet financial instruments – Contract values and fair values for off-balance sheet, credit-related financial instruments are based on estimated fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and counterparties’ credit standing.

The carrying amount and estimated fair value of the Company’s financial instruments at March 31, 2017 and December 31, 2016 are as follows:

	At March 31, 2017
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	21,456		21,456		21,456		—		—
Interest-bearing cash		36,582		36,582		36,582		—		—
Federal funds sold		10,560		—		10,560		—		—
Securities available-for-sale		494,130		494,130		—		494,130		—
Federal Home Loan Bank stock		12,478		12,478		—		—		12,478
Other investments		2,116		2,116		—		—		2,116
Derivative assets		3,226		3,226		1,111		2,115		—
Loans held for sale		21,399		21,399		—		21,399		—
Loans receivable, net		1,406,295		1,407,232		—		—		1,407,232
Accrued interest receivable		6,726		6,726		—		6,726		—
Mortgage servicing rights		15,792		21,933		—		—		21,933
Financial liabilities:
Deposits		1,607,720		1,605,218		—		1,605,218		—
Short-term borrowed funds		214,500		213,865		—		213,865		—
Long-term debt		55,304		55,272		—		55,272		—
Derivative liabilities		682		682		234		448		—
Accrued interest payable		690		690		—		690		—

	At December 31, 2016
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	9,761		9,761		9,761		—		—
Interest-bearing cash		14,591		14,591		14,591		—		—
Securities available-for-sale		335,352		335,352		—		335,352		—
Federal Home Loan Bank stock		11,072		11,072		—		—		11,072
Other investments		1,768		1,768		—		—		1,768
Derivative assets		2,219		2,219		953		1,266		—
Loans held for sale		31,569		31,569		—		31,569		—
Loans receivable, net		1,167,578		1,173,118		—		—		1,173,118
Accrued interest receivable		5,373		5,373		—		5,373		—
Mortgage servicing rights		15,032		20,961		—		—		20,961
Financial liabilities:
Deposits		1,258,260		1,256,119		—		1,256,119		—
Short-term borrowed funds		203,000		202,455		—		202,455		—
Long-term debt		38,465		38,442		—		38,442		—
Derivative liabilities		342		342		195		147		—
Accrued interest payable		327		327		—		327		—

	At March 31, 2017				At December 31, 2016
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Off-Balance Sheet Financial Instruments:
Commitments to extend credit	$	141,082		—		111,446		—
Standby letters of credit		3,521		—		2,248		—

In determining appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value disclosures. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

Following is a description of valuation methodologies used for assets recorded at fair value on a recurring and non-recurring basis.

Securities Available-for-Sale 

Measurement is on a recurring basis upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. At March 31, 2017 and December 31, 2016, the Company’s investment securities available-for-sale are recurring Level 2 except for trust preferred securities which are determined to be Level 3.

Mortgage Loans Held for Sale

Mortgage loans held for sale are recorded at either fair value, if elected, or the lower of cost or fair value on an individual loan basis. Origination fees and costs for loans held for sale recorded at lower of cost or market are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for loans held for sale that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company uses judgment and estimates fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Mortgage loans held for sale are classified within Level 2 of the valuation hierarchy.

Derivative Assets and Liabilities 

The primary use of derivative instruments is related to the mortgage banking activities of the Company. The Company’s wholesale mortgage banking subsidiary enters into interest rate lock commitments related to expected funding of residential mortgage loans at specified times in the future. Interest rate lock commitments that relate to the origination of mortgage loans that will be held-for-sale are considered derivative instruments under applicable accounting guidance. As such, The Company records its interest rate lock commitments and forward loan sales commitments at fair value, determined as the amount that would be required to settle each of these derivative financial instruments at the balance sheet date. In the normal course of business, the mortgage subsidiary enters into contractual interest rate lock commitments to extend credit, if approved, at a fixed interest rate and with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within the time frames established by the mortgage banking subsidiary. Market risk arises if interest rates move adversely between the time of the interest rate lock by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to borrowers, the mortgage banking subsidiary enters into best efforts forward sales contracts with third party investors. The forward sales contracts lock in a price for the sale of loans similar to the specific interest rate lock commitments. Both the interest rate lock commitments to the borrowers and the forward sales contracts to the investors that extend through to the date the loan may close are derivatives, and accordingly, are marked to fair value through earnings. In estimating the fair value of an interest rate lock commitment, the Company assigns a probability to the interest rate lock commitment based on an expectation that it will be exercised and the loan will be funded. The fair value of the interest rate lock commitment is derived from the fair value of related mortgage loans, which is based on observable market data and includes the expected net future cash flows related to servicing of the loans. The fair value of the interest rate lock commitment is also derived from inputs that include guarantee fees negotiated with the agencies and private investors, buy-up and buy-down values provided by the agencies and private investors, and interest rate spreads for the difference between retail and wholesale mortgage rates. Management also applies fall-out ratio assumptions for those interest rate lock commitments for which we do not close a mortgage loan. The fall-out ratio assumptions are based on the mortgage subsidiary’s historical experience, conversion ratios for similar loan commitments, and market conditions. While fall-out tendencies are not exact predictions of which loans will or will not close, historical performance review of loan-level data provides the basis for determining the appropriate hedge ratios. In addition, on a periodic basis, the mortgage banking subsidiary performs analysis of actual rate lock fall-out experience to determine the sensitivity of the mortgage pipeline to interest rate changes from the date of the commitment through loan origination, and then period end, using applicable published mortgage-backed investment security prices. The expected fall-out ratios (or conversely the “pull-through” percentages) are applied to the determined fair value of the unclosed mortgage pipeline in accordance with GAAP. Changes to the fair value of interest rate lock commitments are recognized based on interest rate changes, changes in the probability that the commitment will be exercised, and the passage of time. The fair value of the forward sales contracts to investors considers the market price movement of the same type of security between the trade date and the balance sheet date. These instruments are defined as Level 2 within the valuation hierarchy.

Derivative instruments not related to mortgage banking activities include interest rate swap agreements. Fair values for these instruments are based on quoted market prices, when available. As such, the fair value adjustments for derivatives with fair values based on quoted market prices in an active market are recurring Level 1. 

Impaired Loans

Loans that are considered impaired are recorded at fair value on a nonrecurring basis. Once a loan is considered impaired, the fair value is measured using one of several methods, including collateral liquidation value, market value of similar debt and discounted cash flows. Those impaired loans not requiring a specific charge against the allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investment in the loan. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs.

Other Real Estate Owned (“OREO”)

OREO is carried at the lower of carrying value or fair value on a nonrecurring basis.  Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.  When the OREO value is based upon a current appraisal or when a current appraisal is not available or there is estimated further impairment, the measurement is considered a Level 3 measurement.

Mortgage Servicing Rights

A mortgage servicing right asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The Company initially measures servicing assets and liabilities retained related to the sale of residential loans held for sale (“mortgage servicing rights”) at fair value, if practicable. For subsequent measurement purposes, the Company measures servicing assets and liabilities based on the lower of cost or market on a quarterly basis. The quarterly determination of fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Although some assumptions in determining fair value are based on standards used by market participants, some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy.

Assets and liabilities measured at fair value on a recurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Available-for-sale investment securities:
Municipal securities	$	—		150,856		—
US government agencies		—		35,700		—
Collateralized loan obligations		—		84,337		—
Corporate securities		—		489		—
Mortgage-backed securities:
Agency		—		145,309		—
Non-agency		—		69,018		—
Trust Preferred Securities		—		8,421		—
Loans held for sale		—		21,399		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		559		—		—
Non-hedging derivatives:
Interest rate swaps		552		—		—
Mortgage loan interest rate lock commitments		—		1,827		—
Mortgage loan forward sales commitments		—		288		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		234		—		—
Mortgage-backed securities forward sales commitments		—		448		—
Total	$	1,345		515,092		—
December 31, 2016
Available-for-sale investment securities:
Municipal securities	$	—		93,212		—
US government agencies		—		3,386		—
Collateralized loan obligations		—		76,249		—
Corporate securities		—		491		—
Mortgage-backed securities:
Agency		—		90,986		—
Non-agency		—		63,864		—
Trust preferred securities		—		7,164		—
Loans held for sale		—		31,569		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		421		—		—
Non-hedging derivatives:
Interest rate swaps		532		—		—
Mortgage loan interest rate lock commitments		—		1,113		—
Mortgage loan forward sales commitments		—		153		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		195		—		—
Mortgage-backed securities forward sales commitments		—		147		—
Total	$	1,148		368,334		—

Assets measured at fair value on a nonrecurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,417
Home equity		—		—		1,060
Commercial real estate		—		—		5,007
Construction and development		—		—		491
Consumer loans		—		—		19
Commercial business loans		—		—		224
Real estate owned:
One-to-four family		—		—		239
Construction and development		—		—		1,240
Mortgage servicing rights		—		—		21,933
Total	$	—		—		34,630
December 31, 2016
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,641
Home equity		—		—		79
Commercial real estate		—		—		5,155
Construction and development		—		—		507
Consumer loans		—		—		24
Commercial business loans		—		—		258
Real estate owned:
One-to-four family		—		—		—
Commercial real estate		—		—		—
Construction and development		—		—		1,179
Mortgage servicing rights		—		—		20,961
Total	$	—		—		32,804

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

	March 31, 2017 and December 31, 2016
		Significant	Significant Unobservable
	Valuation Technique	Observable Inputs	Inputs
Impaired Loans	Appraisal Value	Appraisals and or sales of	Appraisals discounted 10% to 20% for
		comparable properties	sales commissions and other holding costs
Real estate owned	Appraisal Value/	Appraisals and or sales of	Appraisals discounted 10% to 20% for
	Comparison Sales/	comparable properties	sales commissions and other holding costs
	Other estimates
Mortgage Servicing Rights	Discounted cash flows	Comparable sales	Discount rates 12% - 13% - 2017 and 2016
			Prepayment rate 7% - 8% - 2017 and 2016

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2017

Earnings per common share:

EARNINGS PER SHARE

NOTE 9 - EARNINGS PER SHARE

Basic earnings per share (“EPS”) represents income available to common stockholders divided by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflects additional shares that would have been outstanding if dilutive potential shares had been issued. Potential shares that may be issued by the Company relate solely to outstanding stock options, restricted stock (non-vested shares), restricted stock units (“RSUs”) and warrants, and are determined using the treasury stock method. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of stock for the outstanding stock options, unvested restricted stock and RSUs, and warrants, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Company’s stock.

The following is a summary of the reconciliation of weighted average shares outstanding for the three months ended March 31, 2017 and 2016:

	For the Three Months Ended March 31,
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average shares outstanding		13,919,711		13,919,711		11,746,574		11,746,574
Effect of dilutive securities		—		219,530		—		232,227
Weighted average shares outstanding		13,919,711		14,139,241		11,746,574		11,978,801

The following is a summary of the reconciliation of shares issued and outstanding and unvested restricted stock awards as of March 31, 2017 and 2016 used to calculate book value per share:

	As of March 31,
	2017			2016
Issued and outstanding shares		16,185,408			12,051,615
Less nonvested restricted stock awards		(227,439	)		(302,028	)
Period end dilutive shares		15,957,969			11,749,587

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SUPPLEMENTAL SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

SUPPLEMENTAL SEGMENT INFORMATION

NOTE 10 – SUPPLEMENTAL SEGMENT INFORMATION

The Company has three reportable segments: community banking, wholesale mortgage banking (“mortgage banking”) and other. The community banking segment includes traditional banking services offered through CresCom Bank as well as the managerial and operational support provided by Carolina Services. The mortgage banking segment provides wholesale mortgage loan origination and servicing offered through Crescent Mortgage Company. The other segment includes parent company financial information and represents an overhead function rather than an operating segment. The parent company’s most significant assets are its net investments in its subsidiaries.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on net income.

The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were generated to third parties, that is, at current market prices.

The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each segment has different types and levels of credit and interest rate risk.

The following tables present selected financial information for the Company’s reportable business segments for the three months ended March 31, 2017 and 2016:

	Community		Mortgage
For the Three Months Ended March 31, 2017	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	17,257		395		6			12			17,670
Interest expense		2,218		12		182			(12	)		2,400
Net interest income (expense)		15,039		383		(176	)		24			15,270
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,419		4,812		—			—			7,231
Intersegment noninterest income		242		34		—			(276	)		—
Noninterest expense		11,324		4,053		209			—			15,586
Intersegment noninterest expense		—		240		2			(242	)		—
Income (loss) before income taxes		6,376		936		(387	)		(10	)		6,915
Income tax expense (benefit)		1,867		291		(143	)		(4	)		2,011
Net income (loss)	$	4,509		645		(244	)		(6	)		4,904

	Community		Mortgage
For the Three Months Ended March 31, 2016	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	12,944		369		5			42			13,360
Interest expense		1,939		5		148			(5	)		2,087
Net interest income (expense)		11,005		364		(143	)		47			11,273
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,133		4,143		—			—			6,276
Intersegment noninterest income		243		19		—			(262	)		—
Noninterest expense		8,429		3,680		159			—			12,268
Intersegment noninterest expense		—		241		2			(243	)		—
Income (loss) before income taxes		4,952		605		(304	)		28			5,281
Income tax expense (benefit)		1,539		204		(116	)		11			1,638
Net income (loss)	$	3,413		401		(188	)		17			3,643

The following tables present selected financial information for the Company’s reportable business segments for March 31, 2017 and December 31, 2016:

	Community		Mortgage
At March 31, 2017	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	2,178,608		70,688		298,319		(365,506	)		2,182,109
Loans receivable, net		1,383,117		27,757		—		(4,579	)		1,406,295
Loans held for sale		1,302		20,097		—		—			21,399
Deposits		1,620,575		—		—		(12,855	)		1,607,720
Borrowed funds		246,500		4,000		23,304		(4,000	)		269,804

	Community		Mortgage
At December 31, 2016	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	1,678,541		78,315		179,681		(252,801	)		1,683,736
Loans receivable, net		1,151,704		27,433		—		(11,559	)		1,167,578
Loans held for sale		2,159		29,410		—		—			31,569
Deposits		1,263,030		—		—		(4,770	)		1,258,260
Borrowed funds		226,000		10,990		15,465		(10,990	)		241,465

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Organization

Organization

Carolina Financial Corporation (“Carolina Financial” or the “Company”), incorporated under the laws of the State of Delaware, is a bank holding company with one wholly-owned subsidiary, CresCom Bank (the “Bank”). CresCom Bank operates two wholly-owned subsidiaries, Crescent Mortgage Company and Carolina Services Corporation of Charleston (“Carolina Services”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. In consolidation, all material intercompany accounts and transactions have been eliminated. The results of operations of the businesses acquired in transactions accounted for as purchases are included only from the dates of acquisition. All majority-owned subsidiaries are consolidated unless control is temporary or does not rest with the Company.

At March 31, 2017, statutory business trusts (“Trusts”) created or acquried by the Company had outstanding trust preferred securities with a balance of $23.3 million. The principal assets of the Trusts are the Company’s subordinated debentures with identical rates of interest and maturities as the trust preferred securities. The Trusts have issued $806,000 of common securities to the Company and are included in other investments in the accompanying consolidated balance sheets. The Trusts are not consolidated subsidiaries of the Company.

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on March 10, 2017. There have been no significant changes to the accounting policies as disclosed in the Company’s Form 10-K.

Management's Estimates

Management’s Estimates

The financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. 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, including valuation for impaired loans, the valuation of real estate acquired in connection with foreclosure or in satisfaction of loans, the valuation of securities, the valuation of derivative instruments, the valuation of assets acquired and liabilities assumed in business combinations, the valuation of mortgage servicing rights, the determination of the reserve for mortgage loan repurchase losses, asserted and unasserted legal claims and deferred tax assets or liabilities. In connection with the determination of the allowance for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties. Management must also make estimates in determining the estimated useful lives and methods for depreciating premises and equipment.

Management uses available information to recognize losses on loans and foreclosed real estate. However, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and foreclosed real estate. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information

Earnings Per Share

Earnings Per Share

Basic earnings per share (“EPS”) represents income available to common stockholders divided by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflects additional shares that would have been outstanding if dilutive potential shares had been issued. Potential shares that may be issued by the Company relate solely to outstanding stock options, restricted stock (non-vested shares), restricted stock units (“RSUs”) and warrants, and are determined using the treasury stock method. Under the treasury stock method, the number of incremental shares is determined by assuming the issuance of stock for the outstanding stock options, unvested restricted stock and RSUs, and warrants, reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average market price for the period of the Company’s stock.

Subsequent Events

Subsequent Events

Subsequent events are material events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the statement of financial condition but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred requiring accrual or disclosure except as follows:

The Company’s Board of Directors declared a quarterly cash dividend of $0.04 per share payable on its common stock. The cash dividend will be payable on July 6, 2017 to stockholders of record as of June 15, 2017.

Reclassification

Reclassification

Certain reclassifications of accounts reported for previous periods have been made in these consolidated financial statements. Such reclassifications had no effect on stockholders’ equity or the net income as previously reported.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In May 2014 and August 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements. 

In August 2015, the FASB issued amendments to the Interest topic of the Accounting Standards Codification (“ASC”) to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective upon issuance. The amendments did not have a material effect on the financial statements

In January 2016, the FASB amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify the implementation

guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows become effective as of January 1, 2017. In addition to other changes, the guidance changes the accounting for excess tax benefits and tax deficiencies from generally being recognized in additional paid-in capital to recognition as income tax expense or benefit in the period they occur. For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the new guidance in the second quarter of 2016. These amendments did not have a material impact to the Company’s financial position, results of operations, and cash flows.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the ASC to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is evaluating the effect that implementation of the new standard will have on its financial position, results of operation and cash flows.

In August 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.

In October 2016, the FASB amended the Income Taxes topic of the ASC to modify the accounting for intra-entity transfers of assets other than inventory. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements. 

In October 2016, the FASB amended the Consolidation topic of the ASC to revise the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The amendments will be effective for the Company for fiscal years beginning after December 15, 2016 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In November 2016, the FASB amended the Statement of Cash Flows topic of the ASC to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued amendments to clarify the ASC, correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (December 14, 2016) for amendments that did not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. These amendments did not have a material effect on the Company’s financial statements.

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic of the ASC. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2017. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance will be effective for the Company for [reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.

In January 2017, the FASB amended the Goodwill and Other Topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2017, the FASB amended the Other Income Topic of the Accounting Standards Codification to clarify the scope of the guidance on nonfinancial asset derecognition as well as the accounting for partial sales of nonfinancial assets. The amendments conform the derecognition guidance on nonfinancial assets with the model for transactions in the new revenue standard. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs Topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

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

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BUSINESS COMBINATION (Tables)

3 Months Ended

Mar. 31, 2017

Greer Bancshares [Member]

Schedule of Assets and Liabilities Acquired [Table Text Block]

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousand).

Common stock issued (1,784,831 shares at $30.30 per share)	$	54,080
Cash payments to common stockholders		4,565
Total consideration paid	$	58,645

Schedule of loans acquired at the Acquisition date

The following table summarizes the consideration paid by the Company in the merger with Greer and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date.

	As Reported			Fair Value			As Recorded by
March 18, 2017	by Greer			Adjustments			the Company
	(In thousands)
Assets
Cash and cash equivalents	$	42,187			—			42,187
Investments		121,374			—			121,374
Loans receivable		205,209			(10,559	) (a)		194,650
Loans held for sale		105			—			105
Allowance for loan losses		(3,198	)		3,198	(b)		—
Premises and equipment		3,928			4,202	(c)		8,130
Foreclosed assets		42			—			42
Core deposit intangible		—			4,480	(d)		4,480
Deferred tax asset, net		3,831			(1,434	) (e)		2,397
Other assets		11,367			(241	) (f)		11,126
Total assets acquired	$	384,845			(354	)		384,491
Liabilities
Deposits	$	310,866			200	(g)		311,066
Long-term debt		43,712			(3,510	) (h)		40,202
Accrued expenses and other liabilities		7,086			512	(i)		7,598
Total liabilities assumed	$	361,664			(2,798	)		358,866
Net assets acquired								25,625
Total consideration paid								58,645
Goodwill							$	33,020

Explanation of fair value adjustments:

(a) Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.

(b) Adjustment reflects the elimination of Greer’s historical allowance for loan losses.

(c) Adjustment reflects fair value adjustments on acquired branch and administrative offices based on third party appraisals.

(d) Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.

(e) Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

(f) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.

(g) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(h) Adjustments reflects the fair value adjustment based on Company’s third party valuation report.

(i) Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other liabilities.

The following table presents additional information related to the purchased credit impaired (“PCI”) acquired loan portfolio at March 18, 2017 (in thousands):

Contractual principal and interest at acquisition	$	37,683
Nonaccretable difference		7,248
Expected cash flows at acquisition		30,434
Accretable yield		4,995
Basis in PCI loans at acquisition - estimated fair value	$	25,439

Schedule of deposits acquired at the Acquisition date

	For the Three Months Ended
	March 31,
	2017		2016
	(In thousands, except share data)
Net interest income	$	17,899	$	14,287
Net income (a)	$	6,048	$	4,673
Weighted average shares outstanding:
Basic (b)		15,704,542		13,531,405
Diluted (b)		15,924,072		13,763,632
Earnings per common share:
Basic	$	0.39	$	0.35
Diluted	$	0.38	$	0.34

(a) Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost saves or impact of merger related expenses.

(b) Weighted average shares outstanding include the full effect of the common stock issued in connection with the Greer acquisition as of the earliest reporting date.

Congaree Bancshares, Inc. [Member]

Schedule of Assets and Liabilities Acquired [Table Text Block]

The following table presents a summary of total consideration paid by the Company at the acquisition date (dollars in thousands).

Common stock issued (508,910 shares at $16.80 per share)	$	8,557
Cash payments to common stockholders		5,724
Preferred shares assumed and redeemed at par		1,564
Fair value of Congaree stock options assumed - paid out in cash		439
Total consideration paid	$	16,284

Schedule of loans acquired at the Acquisition date

The following table presents the Congaree assets acquired and liabilities assumed as of June 11, 2016 as well as the related fair value adjustments and determination of goodwill. There have been no adjustments to initial fair values recorded by the Company for the Congaree acquisition to date.

	As Reported by Congaree			Fair Value Adjustments			As Recorded by the Company
	(In thousands)
Assets
Cash and cash equivalents	$	11,394			—			11,394
Securities		9,453			(59	) (a)		9,394
Loans		78,712			(4,111	) (b)		74,601
Allowance for loan losses		(1,112	)		1,112	(c)		—
Premises and equipment		2,712			38	(d)		2,750
Foreclosed assets		1,710			(250	) (e)		1,460
Core deposit intangible		—			1,104	(f)		1,104
Deferred tax asset		1,813			915	(g)		2,728
Other assets		942			(152	) (h)		790
Total assets acquired	$	105,624			(1,403	)		104,221
Liabilities
Deposits	$	89,227			98	(i)		89,325
Borrowings		2,500			—			2,500
Other liabilities		378			—			378
Total liabilities assumed	$	92,105			98			92,203
Net assets acquired								12,018
Total consideration paid								16,284
Goodwill							$	4,266

Explanation of fair value adjustments:
(a)	Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.
(b)	Adjustment reflects the fair value adjustment based on the Company’s third party valuation report.
(c)	Adjustment reflects the elimination of Congaree’s historical allowance for loan losses.
(d)	Adjustment reflects fair value adjustments on acquired branch and administrative offices.
(e)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of the foreclosed assets.
(f)	Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company’s third party valuation report.
(g)	Adjustment reflects the tax impact of acquisition accounting fair value adjustments.
(h)	Adjustment reflects the fair value adjustment based on the Company’s evaluation of acquired other assets.
(i)	Adjustment reflects the fair value adjustment based on the Company’s third party evaluation report on deposits assumed.

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SECURITIES (Tables)

3 Months Ended

Mar. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Schedule of investment securities available for sale

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of securities available-for-sale at March 31, 2017 and December 31, 2016 follows:

	March 31, 2017									December 31, 2016
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
								(In thousands)
Securities available-for-sale:
Municipal securities	$	148,946		2,570		(660	)		150,856		92,792		1,475		(1,055	)		93,212
US government agencies		35,406		332		(38	)		35,700		3,438		—		(52	)		3,386
Collateralized loan obligations		84,212		188		(63	)		84,337		76,202		138		(91	)		76,249
Corporate securities		474		15		—			489		474		17		—			491
Mortgage-backed securities:
Agency		144,592		1,304		(587	)		145,309		90,477		995		(486	)		90,986
Non-agency		68,844		431		(257	)		69,018		63,628		424		(188	)		63,864
Total mortgage-backed securities		213,436		1,735		(844	)		214,327		154,105		1,419		(674	)		154,850
Trust preferred securities		11,204		872		(3,655	)		8,421		11,203		545		(4,584	)		7,164
Total	$	493,678		5,712		(5,260	)		494,130		338,214		3,594		(6,456	)		335,352

Schedule of amortized costs and fair values of investment securities, by contractual maturity

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2017 follows:

	At March 31, 2017
	Amortized		Fair
	Cost		Value
	(In thousands)
Securities available-for-sale:
Less than one year	$	302		302
One to five years		3,667		3,684
Six to ten years		88,515		88,805
After ten years		401,194		401,339
Total	$	493,678		494,130

Schedule of gross realized gains and losses from sales of investment securities available-for-sale

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2017 follows:

	At March 31, 2017
	Amortized		Fair
	Cost		Value
	(In thousands)
Securities available-for-sale:
Less than one year	$	302		302
One to five years		3,667		3,684
Six to ten years		88,515		88,805
After ten years		401,194		401,339
Total	$	493,678		494,130

Schedule of securities in a continuous unrealized loss position aggregated by investment category and length of time

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at March 31, 2017 and December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	At March 31, 2017
	Less than 12 Months							12 Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	37,685		37,025		(660	)		—		—		—			37,685		37,025		(660	)
US government agencies		7,129		7,091		(38	)		—		—		—			7,129		7,091		(38	)
Collateralized loan obligations		19,500		19,468		(32	)		8,500		8,469		(31	)		28,000		27,937		(63	)
Mortgage-backed securities:
Agency		62,055		61,586		(469	)		9,672		9,554		(118	)		71,727		71,140		(587	)
Non-agency		10,660		10,475		(185	)		8,214		8,142		(72	)		18,874		18,617		(257	)
Total mortgage-backed securities		72,715		72,061		(654	)		17,886		17,696		(190	)		90,601		89,757		(844	)
Trust preferred securities		—		—		—			10,001		6,346		(3,655	)		10,001		6,346		(3,655	)
Total	$	137,029		135,645		(1,384	)		36,387		32,511		(3,876	)		173,416		168,156		(5,260	)

	At December 31, 2016
	Less than 12 Months							12  Months or Greater							Total
	Amortized		Fair		Unrealized			Amortized		Fair		Unrealized			Amortized		Fair		Unrealized
	Cost		Value		Losses			Cost		Value		Losses			Cost		Value		Losses
								(In thousands)
Available-for-sale:
Municipal securities	$	40,479		39,424		(1,055	)		—		—		—			40,479		39,424		(1,055	)
US government agencies		3,438		3,386		(52	)		—		—		—			3,438		3,386		(52	)
Collateralized loan obligations		16,792		16,748		(44	)		8,500		8,453		(47	)		25,292		25,201		(91	)
Mortgage-backed securities:
Agency		33,323		32,960		(363	)		10,125		10,002		(123	)		43,448		42,962		(486	)
Non-agency		9,357		9,240		(117	)		8,801		8,730		(71	)		18,158		17,970		(188	)
Total mortgage-backed securities		42,680		42,200		(480	)		18,926		18,732		(194	)		61,606		60,932		(674	)
Trust preferred securities		1,362		1,112		(250	)		8,667		4,333		(4,334	)		10,029		5,445		(4,584	)
Total	$	104,751		102,870		(1,881	)		36,093		31,518		(4,575	)		140,844		134,388		(6,456	)

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DERIVATIVES (Tables)

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of derivative positions of Company

The derivative positions of the Company at March 31, 2017 and December 31, 2016 are as follows:

	At March 31,				At December 31,
	2017				2016
	Fair		Notional		Fair		Notional
	Value		Value		Value		Value
	(In thousands)
Derivative assets:
Cash flow hedges:
Interest rate swaps	$	559		45,000		421		30,000
Non-hedging derivatives:
Interest rate swaps		552		20,000		532		20,000
Mortgage loan interest rate lock commitments		1,827		136,592		1,113		117,439
Mortgage loan forward sales commitments		288		15,670		153		94,001
Total derivative assets	$	3,226		217,262		2,219		261,440
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps	$	234		10,000		195		10,000
Mortgage-backed securities forward sales commitments		448		96,000		147		22,784
Total derivative liabilities	$	682		106,000		342		32,784

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LOANS RECEIVABLE, NET (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Schedule of categories of loans

Loans receivable, net at March 31, 2017 and December 31, 2016 are summarized by category as follows:

	At March 31,					At December 31,
	2017					2016
			% of Total					% of Total
	Amount		Loans			Amount		Loans
	(Dollars in thousands)
Loans secured by real estate:
One-to-four family	$	472,764		33.36	%	$	411,399		34.91	%
Home equity		52,298		3.69	%		36,026		3.06	%
Commercial real estate		540,415		38.14	%		445,344		37.80	%
Construction and development		150,738		10.64	%		115,682		9.82	%
Consumer loans		10,411		0.73	%		5,714		0.48	%
Commercial business loans		190,384		13.44	%		164,101		13.93	%
Total gross loans receivable		1,417,010		100.00	%		1,178,266		100.00	%
Less:
Allowance for loan losses		10,715					10,688
Total loans receivable, net	$	1,406,295				$	1,167,578

The composition of gross loans outstanding, net of undisbursed amounts, by rate type is as follows:

	At March 31,				At December 31,
	2017				2016
	(Dollars in thousands)
Variable rate loans	$	535,935	37.82	%	$	455,589	38.67	%
Fixed rate loans		881,075	62.18	%		722,677	61.33	%
Total loans outstanding	$	1,417,010	100.00	%	$	1,178,266	100.00	%

Schedule of changes in the value of the accretable yield for PCI loans

The following table presents changes in the value of the accretable yield for PCI loans for three months ended March 31, 2017 (in thousands):

	For the Three Months
	Ended March 31, 2017
	(In thousands)
Accretable yield, beginning of period	$	—
Additions		4,995
Accretion		(102	)
Reclassification from nonaccretable balance, net		—
Other changes, net		—
Accretable yield, end of period	$	4,893

Schedule of activity in the allowance for loan losses

The following table presents activity in the allowance for loan losses for the period indicated. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Allowance for loan losses:	For the Three Months Ended March 31, 2017
	Loans Secured by Real Estate
	One-to-					Commercial		Construction
	four			Home		real		and						Commercial
	family			equity		estate		development			Consumer			business			Unallocated		Total
								(In thousands)
Balance, beginning of period	$	2,636			197		3,344		1,132			80			2,805			494		10,688
Provision for loan losses		(114	)		39		244		(190	)		35			(329	)		315		—
Charge-offs		(17	)		—		—		—			(9	)		—			—		(26	)
Recoveries		1			—		25		1			4			22			—		53
Balance, end of period	$	2,506			236		3,613		943			110			2,498			809		10,715

	For the Three Months Ended March 31, 2016
	Loans Secured by Real Estate
	One-to-					Commercial			Construction
	four			Home		real			and					Commercial
	family			equity		estate			development		Consumer			business		Unallocated			Total
	(In thousands)
Balance, beginning of period	$	2,903			151		3,402			1,138		27			2,100		420			10,141
Provision for loan losses		(98	)		1		(37	)		90		(2	)		66		(20	)		—
Charge-offs		—			—		—			—		(2	)		—		—			(2	)
Recoveries		58			—		—			3		6			27		—			94
Balance, end of period	$	2,863			152		3,365			1,231		29			2,193		400			10,233

Schedule of allowance for loan losses and recorded investment in loans by impairment methodology

The following table disaggregates our allowance for loan losses and recorded investment in loans by impairment methodology.

	Loans Secured by Real Estate
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Unallocated		Total
	(In thousands)
At March 31, 2017:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	43		54		48		—		—		23		—		168
Collectively evaluated for impairment		2,463		182		3,565		943		110		2,475		809		10,547
	$	2,506		236		3,613		943		110		2,498		809		10,715
Loans receivable ending balances:
Individually evaluated for impairment	$	4,460		1,114		5,055		491		19		247		—		11,386
Collectively evaluated for impairment		461,515		50,884		523,626		145,506		10,336		188,450		—		1,380,317
Purchased Credit-Impaired Loans		6,789		300		11,734		4,741		56		1,687		—		25,307
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		—		1,417,010
At December 31, 2016:
Allowance for loan losses ending balances:
Individually evaluated for impairment	$	27		29		92		—		—		9		—		157
Collectively evaluated for impairment		2,609		168		3,252		1,132		80		2,796		494		10,531
	$	2,636		197		3,344		1,132		80		2,805		494		10,688
Loans receivable ending balances:
Individually evaluated for impairment	$	4,668		108		5,247		507		24		267		—		10,821
Collectively evaluated for impairment		406,731		35,918		440,097		115,175		5,690		163,834		—		1,167,445
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		—		1,178,266

Schedule of impaired loans by class of loans

The following table presents impaired loans individually evaluated for impairment in the segmented portfolio categories and the corresponding allowance for loan losses as of March 31, 2017 and December 31, 2016. The recorded investment is defined as the original amount of the loan, net of any deferred costs and fees, less any principal reductions and direct charge-offs. Unpaid principal balance includes amounts previously included in charge-offs.

	At March 31, 2017						At December 31, 2016
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,833		4,073		—		4,125		4,366		—
Home equity		839		839		—		—		—		—
Commercial real estate		4,041		4,041		—		4,011		4,011		—
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		36		37		—		258		258		—
		9,259		9,500		—		8,925		9,166		—
With an allowance recorded:
Loans secured by real estate:
One-to-four family		627		627		43		543		543		27
Home equity		275		275		54		108		108		29
Commercial real estate		1,014		1,014		48		1,236		1,236		92
Construction and development		—		—		—		—		—		—
Consumer loans		—		—		—		—		—		—
Commercial business loans		211		211		23		9		9		9
		2,127		2,127		168		1,896		1,896		157
Total:
Loans secured by real estate:
One-to-four family		4,460		4,700		43		4,668		4,909		27
Home equity		1,114		1,114		54		108		108		29
Commercial real estate		5,055		5,055		48		5,247		5,247		92
Construction and development		491		491		—		507		507		—
Consumer loans		19		19		—		24		24		—
Commercial business loans		247		248		23		267		267		9
	$	11,386		11,627		168		10,821		11,062		157

The following table presents the average recorded investment and interest income recognized on impaired loans individually evaluated for impairment in the segmented portfolio categories for the three months ended March 31, 2017 and 2016.

	For the Three Months Ended March 31,
	2017				2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
			(In thousands)
With no related allowance recorded:
Loans secured by real estate:
One-to-four family	$	3,827		36		3,076		11
Home equity		541		3		—		—
Commercial real estate		4,070		136		10,753		136
Construction and development		491		—		25		—
Consumer loans		20		1		65		(4	)
Commercial business loans		38		17		318		4
		8,987		193		14,237		147
With an allowance recorded:
Loans secured by real estate:
One-to-four family		597		3		518		5
Home equity		192		1		—		—
Commercial real estate		1,019		66		1,671		—
Construction and development		—		—		475		—
Consumer loans		—		—		—		—
Commercial business loans		217		6		198		(1	)
		2,025		76		2,862		4
Total:
Loans secured by real estate:
One-to-four family		4,424		39		3,594		16
Home equity		733		4		—		—
Commercial real estate		5,089		202		12,424		136
Construction and development		491		—		500		—
Consumer loans		20		1		65		(4	)
Commercial business loans		255		23		516		3
	$	11,012		269		17,099		151

Schedule of aging of the recorded investment in past due loans by class of loans

A loan is considered past due if the required principal and interest payment has not been received as of the due date. The following schedule is an aging of past due loans receivable by portfolio segment as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	1,526		15		1,536		90		181		11		3,359
60-89 days past due		27		13		—		—		—		—		40
90 days or more past due		3,123		772		135		491		6		623		5,150
Total past due		4,676		800		1,671		581		187		634		8,549
Current		468,088		51,498		538,744		150,157		10,224		189,750		1,408,461
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31, 2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
30-59 days past due	$	3,864		379		206		62		55		136		4,702
60-89 days past due		635		497		—		—		3		—		1,135
90 days or more past due		3,170		108		334		507		26		16		4,161
Total past due		7,669		984		540		569		84		152		9,998
Current		403,730		35,042		444,804		115,113		5,630		163,949		1,168,268
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

Schedule of analysis of loans receivables on nonaccrual status

The following is a schedule of loans receivable, by portfolio segment, on nonaccrual at March 31, 2017 and December 31, 2016.

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Loans secured by real estate:
One-to-four family	$	3,098		3,256
Home equity		772		108
Commercial real estate		1,546		1,703
Construction and development		491		507
Consumer loans		7		27
Commercial business loans		17		24
	$	5,931		5,625

Schedule of analysis of loan portfolio by credit quality indicators

The following is a schedule of the credit quality of loans receivable, by portfolio segment, as of March 31, 2017 and December 31, 2016.

	At March 31, 2017
	Real Estate Loans
	One-to-				Commercial Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	466,380		50,881		535,087		147,728		10,384		186,113		1,396,573
Special Mention		1,934		231		2,749		427		20		2,236		7,597
Substandard		4,450		1,186		2,579		2,583		7		2,035		12,840
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010
Performing	$	469,666		51,526		538,869		150,247		10,404		190,367		1,411,079
Nonperforming:
Nonaccrual		3,098		772		1,546		491		7		17		5,931
Total nonperforming		3,098		772		1,546		491		7		17		5,931
Total loans receivable	$	472,764		52,298		540,415		150,738		10,411		190,384		1,417,010

	At December 31,2016
	Real Estate Loans
	One-to-				Commercial		Construction
	four		Home		real		and				Commercial
	family		equity		estate		development		Consumer		business		Total
	(In thousands)
Internal Risk Rating Grades:
Pass	$	407,612		35,903		442,323		114,751		5,683		162,235		1,168,507
Special Mention		438		15		1,318		424		19		1,849		4,063
Substandard		3,349		108		1,703		507		12		17		5,696
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266
Performing	$	408,143		35,918		443,641		115,175		5,687		164,077		1,172,641
Nonperforming:
Nonaccrual		3,256		108		1,703		507		27		24		5,625
Total nonperforming		3,256		108		1,703		507		27		24		5,625
Total loans receivable	$	411,399		36,026		445,344		115,682		5,714		164,101		1,178,266

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REAL ESTATE ACQUIRED THROUGH FORECLOSURE (Tables)

3 Months Ended

Mar. 31, 2017

Banking and Thrift [Abstract]

Summary of Changes in Other Real Estate Owned

The following presents summarized activity in real estate acquired through foreclosure for the periods ended March 31, 2017 and December 31, 2016:

	March 31,			December 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	1,179			2,374
Additions		323			2,630
Sales		(23	)		(3,810	)
Write downs		—			(15	)
Balance at end of period	$	1,479			1,179

Schedule of composition of other real estate owned

A summary of the composition of real estate acquired through foreclosure follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Real estate loans:
One-to-four family	$	239		—
Construction and development		1,240		1,179
	$	1,479		1,179

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DEPOSITS (Tables)

3 Months Ended

Mar. 31, 2017

Banking and Thrift [Abstract]

Summary of Deposits outstanding

Deposits outstanding by type of account at March 31, 2017 and December 31, 2016 are summarized as follows:

	At March 31,		At December 31,
	2017		2016
	(In thousands)
Noninterest-bearing demand accounts	$	298,365		229,905
Interest-bearing demand accounts		309,961		191,851
Savings accounts		66,506		48,648
Money market accounts		363,600		292,639
Certificates of deposit:
Less than $250,000		524,836		467,937
$250,000 or more		44,452		27,280
Total certificates of deposit		569,288		495,217
Total deposits	$	1,607,720		1,258,260

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ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

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

The carrying amount and estimated fair value of the Company’s financial instruments at March 31, 2017 and December 31, 2016 are as follows:

	At March 31, 2017
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	21,456		21,456		21,456		—		—
Interest-bearing cash		36,582		36,582		36,582		—		—
Federal funds sold		10,560		—		10,560		—		—
Securities available-for-sale		494,130		494,130		—		494,130		—
Federal Home Loan Bank stock		12,478		12,478		—		—		12,478
Other investments		2,116		2,116		—		—		2,116
Derivative assets		3,226		3,226		1,111		2,115		—
Loans held for sale		21,399		21,399		—		21,399		—
Loans receivable, net		1,406,295		1,407,232		—		—		1,407,232
Accrued interest receivable		6,726		6,726		—		6,726		—
Mortgage servicing rights		15,792		21,933		—		—		21,933
Financial liabilities:
Deposits		1,607,720		1,605,218		—		1,605,218		—
Short-term borrowed funds		214,500		213,865		—		213,865		—
Long-term debt		55,304		55,272		—		55,272		—
Derivative liabilities		682		682		234		448		—
Accrued interest payable		690		690		—		690		—

	At December 31, 2016
	Carrying		Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	9,761		9,761		9,761		—		—
Interest-bearing cash		14,591		14,591		14,591		—		—
Securities available-for-sale		335,352		335,352		—		335,352		—
Federal Home Loan Bank stock		11,072		11,072		—		—		11,072
Other investments		1,768		1,768		—		—		1,768
Derivative assets		2,219		2,219		953		1,266		—
Loans held for sale		31,569		31,569		—		31,569		—
Loans receivable, net		1,167,578		1,173,118		—		—		1,173,118
Accrued interest receivable		5,373		5,373		—		5,373		—
Mortgage servicing rights		15,032		20,961		—		—		20,961
Financial liabilities:
Deposits		1,258,260		1,256,119		—		1,256,119		—
Short-term borrowed funds		203,000		202,455		—		202,455		—
Long-term debt		38,465		38,442		—		38,442		—
Derivative liabilities		342		342		195		147		—
Accrued interest payable		327		327		—		327		—

Schedule of notional amount and estimated fair values of off-balance sheet financial instruments

	At March 31, 2017				At December 31, 2016
	Notional		Estimated		Notional		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)
Off-Balance Sheet Financial Instruments:
Commitments to extend credit	$	141,082		—		111,446		—
Standby letters of credit		3,521		—		2,248		—

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

Assets and liabilities measured at fair value on a recurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Available-for-sale investment securities:
Municipal securities	$	—		150,856		—
US government agencies		—		35,700		—
Collateralized loan obligations		—		84,337		—
Corporate securities		—		489		—
Mortgage-backed securities:
Agency		—		145,309		—
Non-agency		—		69,018		—
Trust Preferred Securities		—		8,421		—
Loans held for sale		—		21,399		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		559		—		—
Non-hedging derivatives:
Interest rate swaps		552		—		—
Mortgage loan interest rate lock commitments		—		1,827		—
Mortgage loan forward sales commitments		—		288		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		234		—		—
Mortgage-backed securities forward sales commitments		—		448		—
Total	$	1,345		515,092		0
December 31, 2016
Available-for-sale investment securities:
Municipal securities	$	—		93,212		—
US government agencies		—		3,386		—
Collateralized loan obligations		—		76,249		—
Corporate securities		—		491		—
Mortgage-backed securities:
Agency		—		90,986		—
Non-agency		—		63,864		—
Trust preferred securities		—		7,164		—
Loans held for sale		—		31,569		—
Derivative assets:
Cash flow hedges:
Interest rate swaps		421		—		—
Non-hedging derivatives:
Interest rate swaps		532		—		—
Mortgage loan interest rate lock commitments		—		1,113		—
Mortgage loan forward sales commitments		—		153		—
Derivative liabilities:
Non-hedging derivatives:
Interest rate swaps		195		—		—
Mortgage-backed securities forward sales commitments		—		147		—
Total	$	1,148		368,334		0

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

Assets measured at fair value on a nonrecurring basis are as follows as of March 31, 2017 and December 31, 2016:

	Quoted market price		Significant other		Significant other
	in active markets		observable inputs		unobservable inputs
	(Level 1)		(Level 2)		(Level 3)
	(In thousands)
March 31, 2017
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,417
Home equity		—		—		1,060
Commercial real estate		—		—		5,007
Construction and development		—		—		491
Consumer loans		—		—		19
Commercial business loans		—		—		224
Real estate owned:
One-to-four family		—		—		239
Construction and development		—		—		1,240
Mortgage servicing rights		—		—		21,933
Total	$	—		—		34,630
December 31, 2016
Impaired loans:
Loans secured by real estate:
One-to-four family	$	—		—		4,641
Home equity		—		—		79
Commercial real estate		—		—		5,155
Construction and development		—		—		507
Consumer loans		—		—		24
Commercial business loans		—		—		258
Real estate owned:
One-to-four family		—		—		—
Commercial real estate		—		—		—
Construction and development		—		—		1,179
Mortgage servicing rights		—		—		20,961
Total	$	—		—		32,804

Schedule of significant unobservable inputs used in the fair value measurements

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2017 and December 31, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

	March 31, 2017 and December 31, 2016
		Significant	Significant Unobservable
	Valuation Technique	Observable Inputs	Inputs
Impaired Loans	Appraisal Value	Appraisals and or sales of	Appraisals discounted 10% to 20% for
		comparable properties	sales commissions and other holding costs
Real estate owned	Appraisal Value/	Appraisals and or sales of	Appraisals discounted 10% to 20% for
	Comparison Sales/	comparable properties	sales commissions and other holding costs
	Other estimates
Mortgage Servicing Rights	Discounted cash flows	Comparable sales	Discount rates 12% - 13% - 2017 and 2016
			Prepayment rate 7% - 8% - 2017 and 2016

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2017

Earnings per common share:

Schedule of reconciliation of average shares outstanding

The following is a summary of the reconciliation of weighted average shares outstanding for the three months ended March 31, 2017 and 2016:

	For the Three Months Ended March 31,
	2017				2016
	Basic		Diluted		Basic		Diluted
Weighted average shares outstanding		13,919,711		13,919,711		11,746,574		11,746,574
Effect of dilutive securities		—		219,530		—		232,227
Weighted average shares outstanding		13,919,711		14,139,241		11,746,574		11,978,801

The following is a summary of the reconciliation of shares issued and outstanding and unvested restricted stock awards as of March 31, 2017 and 2016 used to calculate book value per share:

	As of March 31,
	2017			2016
Issued and outstanding shares		16,185,408			12,051,615
Less nonvested restricted stock awards		(227,439	)		(302,028	)
Period end dilutive shares		15,957,969			11,749,587

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SUPPLEMENTAL SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Schedule of Selected Financial Information of Company's reportable business segments

The following tables present selected financial information for the Company’s reportable business segments for the three months ended March 31, 2017 and 2016:

	Community		Mortgage
For the Three Months Ended March 31, 2017	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	17,257		395		6			12			17,670
Interest expense		2,218		12		182			(12	)		2,400
Net interest income (expense)		15,039		383		(176	)		24			15,270
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,419		4,812		—			—			7,231
Intersegment noninterest income		242		34		—			(276	)		—
Noninterest expense		11,324		4,053		209			—			15,586
Intersegment noninterest expense		—		240		2			(242	)		—
Income (loss) before income taxes		6,376		936		(387	)		(10	)		6,915
Income tax expense (benefit)		1,867		291		(143	)		(4	)		2,011
Net income (loss)	$	4,509		645		(244	)		(6	)		4,904

	Community		Mortgage
For the Three Months Ended March 31, 2016	Banking		Banking		Other			Eliminations			Total
	(In thousands)
Interest income	$	12,944		369		5			42			13,360
Interest expense		1,939		5		148			(5	)		2,087
Net interest income (expense)		11,005		364		(143	)		47			11,273
Provision for loan losses		—		—		—			—			—
Noninterest income from external customers		2,133		4,143		—			—			6,276
Intersegment noninterest income		243		19		—			(262	)		—
Noninterest expense		8,429		3,680		159			—			12,268
Intersegment noninterest expense		—		241		2			(243	)		—
Income (loss) before income taxes		4,952		605		(304	)		28			5,281
Income tax expense (benefit)		1,539		204		(116	)		11			1,638
Net income (loss)	$	3,413		401		(188	)		17			3,643

The following tables present selected financial information for the Company’s reportable business segments for March 31, 2017 and December 31, 2016:

	Community		Mortgage
At March 31, 2017	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	2,178,608		70,688		298,319		(365,506	)		2,182,109
Loans receivable, net		1,383,117		27,757		—		(4,579	)		1,406,295
Loans held for sale		1,302		20,097		—		—			21,399
Deposits		1,620,575		—		—		(12,855	)		1,607,720
Borrowed funds		246,500		4,000		23,304		(4,000	)		269,804

	Community		Mortgage
At December 31, 2016	Banking		Banking		Other		Eliminations			Total
	(In thousands)
Assets	$	1,678,541		78,315		179,681		(252,801	)		1,683,736
Loans receivable, net		1,151,704		27,433		—		(11,559	)		1,167,578
Loans held for sale		2,159		29,410		—		—			31,569
Deposits		1,263,030		—		—		(4,770	)		1,258,260
Borrowed funds		226,000		10,990		15,465		(10,990	)		241,465

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	Jun. 15, 2017	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Value of common stock issued to company		$ 162	$ 125
Public offering of common shares		16,185,408	12,548,328	12,051,615
Subsequent Event [Member]
Dividend Declared to Stockholders [Per Share]	$ 0.04
Dividend Declared, Record Date	Jun. 15, 2017
Dividend Declared, Payable Date	Jul. 06, 2017

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BUSINESS COMBINATIONS (Details) - USD ($) $ in Thousands	Jun. 11, 2016	Mar. 31, 2017	Mar. 18, 2017	Dec. 31, 2016	Mar. 31, 2016
Common stock issued		$ 162		$ 125
Common stock issued		16,185,408		12,548,328	12,051,615
Greer Bancshares [Member]
Common stock issued			$ 54,080
Cash payments to common stockholders			4,565
Preferred shares assumed and redeemed at par			$ 58,645
Common stock issued			1,784,831
Congaree Bancshares, Inc. [Member]
Common stock issued	$ 8,557
Cash payments to common stockholders	5,724
Preferred shares assumed and redeemed at par	1,564
Fair value of stock options assumed - paid out in cash	439
Total consideration paid	$ 16,284
Common stock issued	508,910

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BUSINESS COMBINATIONS (Details 2) - USD ($) $ in Thousands		Mar. 31, 2017	Mar. 18, 2017		Dec. 31, 2016	Jun. 11, 2016
Assets
Loans receivable		$ 303,200			$ 119,400
Liabilities
Goodwill		$ 37,287			$ 4,266
Greer Bancshares [Member]
Assets
Cash and cash equivalents			$ 42,187
Securities			121,374
Loans receivable			205,209
Loans held for sale			105
Allowance for loan losses			(3,198)
Premises and equipment			3,928
Foreclosed assets			42
Core deposit intangible
Deferred tax asset			3,831
Other assets			11,367
Total assets acquired			384,845
Liabilities
Deposits			310,866
Long-term debt			43,712
Accrued expenses and other liabilities			7,086
Total liabilities assumed			361,664
Fair Value Adjustments [Member]
Assets
Cash and cash equivalents
Securities						(59)	[1]
Loans receivable			(10,559)	[2]		(4,111)	[3]
Loans held for sale
Allowance for loan losses			3,198	[4]		1,112	[5]
Premises and equipment			4,202	[6]		38	[7]
Foreclosed assets						(250)	[8]
Core deposit intangible			4,480	[9]		1,104	[10]
Deferred tax asset	[11]		(1,434)			915
Other assets			(241)	[12]		(152)	[13]
Total assets acquired			(354)			(1,403)
Liabilities
Deposits			200	[14]		98	[15]
Long-term debt	[14]		(3,510)
Accrued expenses and other liabilities	[16]		512
Borrowings
Other liabilities
Total liabilities assumed			(2,798)			98
As Recorded by the Company [Member]
Assets
Cash and cash equivalents			42,187			11,394
Securities			121,374			9,394
Loans receivable			194,650			74,601
Loans held for sale			105
Allowance for loan losses
Premises and equipment			8,130			2,750
Foreclosed assets			42			1,460
Core deposit intangible			4,480			1,104
Deferred tax asset			2,397			2,728
Other assets			11,126			790
Total assets acquired			384,491			104,221
Liabilities
Deposits			311,066			89,325
Long-term debt			40,202
Accrued expenses and other liabilities			7,598
Borrowings						2,500
Other liabilities						378
Total liabilities assumed			358,866			92,203
Net assets acquired			25,625			12,018
Total consideration paid			58,645			16,284
Goodwill			$ 33,020			4,266
Congaree Bancshares, Inc. [Member]
Assets
Cash and cash equivalents						11,394
Securities						9,453
Loans receivable						78,712
Allowance for loan losses						(1,112)
Premises and equipment						2,712
Foreclosed assets						1,710
Core deposit intangible
Deferred tax asset						1,813
Other assets						942
Total assets acquired						105,624
Liabilities
Deposits						89,227
Borrowings						2,500
Other liabilities						378
Total liabilities assumed						$ 92,105

[1] Adjustment reflects opening fair value of securities portfolio, which was established as the new book basis of the portfolio.

[2] Adjustment reflects the fair value adjustment based on the Company's third party valuation report.

[3] Adjustment reflects the fair value adjustment based on the Company's third party valuation report.

[4] Adjustment reflects the elimination of Greer's historical allowance for loan losses.

[5] Adjustment reflects the elimination of Congaree's historical allowance for loan losses.

[6] Adjustment reflects fair value adjustments on acquired branch and administrative offices based on third party appraisals.

[7] Adjustment reflects fair value adjustments on acquired branch and administrative offices.

[8] Adjustment reflects the fair value adjustment based on the Company's evaluation of the foreclosed assets

[9] Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company's third party valuation report.

[10] Adjustment reflects the fair value adjustment to record the estimated core deposit intangible based on the Company's third party valuation report.

[11] Adjustment reflects the tax impact of acquisition accounting fair value adjustments.

[12] Adjustment reflects the fair value adjustment based on the Company's evaluation of acquired other assets.

[13] Adjustment reflects the fair value adjustment based on the Company's evaluation of acquired other assets.

[14] Adjustments reflects the fair value adjustment based on Company's third party valuation report.

[15] Adjustment reflects the fair value adjustment based on the Company's third party evaluation report on deposits assumed.

[16] Adjustment reflects the fair value adjustment based on the Company's evaluation of acquired other liabilities.

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BUSINESS COMBINATIONS (Details 3) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
		Mar. 31, 2017	Mar. 31, 2016
Net interest income		$ 15,270	$ 11,273
Net income		$ 4,904	$ 3,643
Weighted average shares outstanding
Basic		13,919,711	11,746,574
Diluted		14,139,241	11,978,801
Earnings per common share:
Basic		$ 0.35	$ 0.31
Diluted		$ 0.35	$ 0.3
Supplemental Pro Forma Information [Member]
Net interest income		$ 17,899	$ 14,287
Net income	[1]	$ 6,048	$ 4,673
Weighted average shares outstanding
Basic	[2]	15,704,542	13,531,405
Diluted	[2]	15,924,072	13,763,632
Earnings per common share:
Basic		$ 0.39	$ 0.35
Diluted		$ 0.38	$ 0.34

[1] Supplemental pro forma net income includes the impact of certain fair value adjustments. Supplemental pro forma net income does not include assumptions on cost saves or impact of merger related expenses.

[2] Weighted average shares outstanding include the full effect of the common stock issued in connection with the Greer acquisition as of the earliest reporting date.

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BUSINESS COMBINATIONS (Details 4) - Greer Bancshares [Member] $ in Thousands	Mar. 18, 2017 USD ($)
Contractual principal and interest at acquisition	$ 37,683
Nonaccretable difference	7,248
Expected cash flows at acquisition	30,434
Accretable yield	4,995
Basis in PCI loans at acquisition - estimated fair value	$ 25,439

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SECURITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available For Sale
Amortized Cost	$ 493,678	$ 338,214
Unrealized Gains	5,712	3,594
Unrealized Losses	(5,260)	(6,456)
Securities available for sale	494,130	335,352
Municipal securities [Member]
Available For Sale
Amortized Cost	148,946	92,792
Unrealized Gains	2,570	1,475
Unrealized Losses	(660)	(1,055)
Securities available for sale	150,856	93,212
US government agencies [Member]
Available For Sale
Amortized Cost	35,406	3,438
Unrealized Gains	332
Unrealized Losses	(38)	(52)
Securities available for sale	35,700	3,386
Collateralized loan obligations [Member]
Available For Sale
Amortized Cost	84,212	76,202
Unrealized Gains	188	138
Unrealized Losses	(63)	(91)
Securities available for sale	84,337	76,249
Corporate securities [Member]
Available For Sale
Amortized Cost	474	474
Unrealized Gains	15	17
Unrealized Losses
Securities available for sale	489	491
Mortgage-backed securities Agency [Member]
Available For Sale
Amortized Cost	144,592	90,477
Unrealized Gains	1,304	995
Unrealized Losses	(587)	(486)
Securities available for sale	145,309	90,986
Mortgage-backed securities Non-agency [Member]
Available For Sale
Amortized Cost	68,844	63,628
Unrealized Gains	431	424
Unrealized Losses	(257)	(188)
Securities available for sale	69,018	63,864
Total mortgage-backed securities [Member]
Available For Sale
Amortized Cost	213,436	154,105
Unrealized Gains	1,735	1,419
Unrealized Losses	(844)	(674)
Securities available for sale	214,327	154,850
Asset-backed securities [Member]
Available For Sale
Amortized Cost	11,204	11,203
Unrealized Gains	872	545
Unrealized Losses	(3,655)	(4,584)
Securities available for sale	$ 8,421	$ 7,164

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SECURITIES (Details 2) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Investment securities, Amortized Cost
Less than one year	$ 302
One to five years	3,667
Six to ten years	88,515
After ten years	401,194
Total	493,678	$ 338,214
Investment securities, Fair Value
Less than one year	302
One to five years	3,684
Six to ten years	88,805
After ten years	401,339
Securities available for sale	$ 494,130	$ 335,352

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SECURITIES (Details 3) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Gross realized gains and losses, Available-for-sale
Proceeds	$ 37,697	$ 34,478
Realized gains	373	534
Realized losses	(188)	(117)
Total investment securities gains, net	$ 185	$ 417

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SECURITIES (Details 4) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Available For Sale Securities
Less than 12 Months, Amortized Cost	$ 137,029	$ 104,751
Less than 12 Months, Fair Value	135,645	102,870
Less than 12 Months, Unrealized Losses	(1,384)	(1,881)
Greater than 12 Months, Amortized Cost	36,387	36,093
Greater than 12 Months, Fair Value	32,511	31,518
Greater than 12 Months, Unrealized Losses	(3,876)	(4,575)
Total, Amortized Cost	173,416	140,844
Total, Fair Value	168,156	134,388
Total, Unrealized Losses	(5,260)	(6,456)
Municipal securities [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	37,685	40,479
Less than 12 Months, Fair Value	37,025	39,424
Less than 12 Months, Unrealized Losses	(660)	(1,055)
Greater than 12 Months, Amortized Cost
Greater than 12 Months, Fair Value
Greater than 12 Months, Unrealized Losses
Total, Amortized Cost	37,685	40,479
Total, Fair Value	37,025	39,424
Total, Unrealized Losses	(660)	(1,055)
US government agencies [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	7,129	3,438
Less than 12 Months, Fair Value	7,091	3,386
Less than 12 Months, Unrealized Losses	(38)	(52)
Greater than 12 Months, Amortized Cost
Greater than 12 Months, Fair Value
Greater than 12 Months, Unrealized Losses
Total, Amortized Cost	7,129	3,438
Total, Fair Value	7,091	3,386
Total, Unrealized Losses	(38)	(52)
Collateralized loan obligations [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	19,500	16,792
Less than 12 Months, Fair Value	19,468	16,748
Less than 12 Months, Unrealized Losses	(32)	(44)
Greater than 12 Months, Amortized Cost	8,500	8,500
Greater than 12 Months, Fair Value	8,469	8,453
Greater than 12 Months, Unrealized Losses	(31)	(47)
Total, Amortized Cost	28,000	25,292
Total, Fair Value	27,937	25,201
Total, Unrealized Losses	(63)	(91)
Mortgage-backed securities Agency [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	62,055	33,323
Less than 12 Months, Fair Value	61,586	32,960
Less than 12 Months, Unrealized Losses	(469)	(363)
Greater than 12 Months, Amortized Cost	9,672	10,125
Greater than 12 Months, Fair Value	9,554	10,002
Greater than 12 Months, Unrealized Losses	(118)	(123)
Total, Amortized Cost	71,727	43,448
Total, Fair Value	71,140	42,962
Total, Unrealized Losses	(587)	(486)
Mortgage-backed securities Non-agency [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	10,660	9,357
Less than 12 Months, Fair Value	10,475	9,240
Less than 12 Months, Unrealized Losses	(185)	(117)
Greater than 12 Months, Amortized Cost	8,214	8,801
Greater than 12 Months, Fair Value	8,142	8,730
Greater than 12 Months, Unrealized Losses	(72)	(71)
Total, Amortized Cost	18,874	18,158
Total, Fair Value	18,617	17,970
Total, Unrealized Losses	(257)	(188)
Total mortgage-backed securities [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost	72,715	42,680
Less than 12 Months, Fair Value	72,061	42,200
Less than 12 Months, Unrealized Losses	(654)	(480)
Greater than 12 Months, Amortized Cost	17,886	18,926
Greater than 12 Months, Fair Value	17,696	18,732
Greater than 12 Months, Unrealized Losses	(190)	(194)
Total, Amortized Cost	90,601	61,606
Total, Fair Value	89,757	60,932
Total, Unrealized Losses	(844)	(674)
Asset-backed securities [Member]
Available For Sale Securities
Less than 12 Months, Amortized Cost		1,362
Less than 12 Months, Fair Value		1,112
Less than 12 Months, Unrealized Losses		(250)
Greater than 12 Months, Amortized Cost	10,001	8,667
Greater than 12 Months, Fair Value	6,346	4,333
Greater than 12 Months, Unrealized Losses	(3,655)	(4,334)
Total, Amortized Cost	10,001	10,029
Total, Fair Value	6,346	5,445
Total, Unrealized Losses	$ (3,655)	$ (4,584)

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SECURITIES (Details Narrative) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($)	Mar. 31, 2017 USD ($) Item	Dec. 31, 2016 Item
Securities Details 2
Available for Sale Securities pledged for FHLB advances		$ 14,900
Available for Sale Securities pledged to secure public agency funds		$ 77,600
Available-for-sale, Securities in Unrealized Loss Positions, Number of Positions | Item		96	81
Securities were moved to Available-For-Sale resulting change in Accumulated Other Comprehensive Income	$ 655

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DERIVATIVES (Details) - Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Asset derivatives, Fair value	$ 3,226	$ 2,219
Notional Value, Assets	217,262	261,440
Liability derivatives, Fair value	682	342
Notional Value, Liability	106,000	32,784
Interest rate swaps [Member]
Asset derivatives, Fair value	552	532
Notional Value, Assets	20,000	20,000
Liability derivatives, Fair value	234	195
Notional Value, Liability	10,000	10,000
Interest rate swaps [Member] | Cash Flow Hedging [Member]
Asset derivatives, Fair value	559	421
Notional Value, Assets	45,000	30,000
Mortgage loan interest rate lock commitments [Member]
Asset derivatives, Fair value	1,827	1,113
Notional Value, Assets	136,592	117,439
Mortgage loan forward sales commitments [Member]
Asset derivatives, Fair value	288	153
Notional Value, Assets	15,670	94,001
Liability derivatives, Fair value
Notional Value, Liability
Mortgage-backed securities forward sales commitments [Member]
Asset derivatives, Fair value
Notional Value, Assets
Liability derivatives, Fair value	448	147
Notional Value, Liability	$ 96,000	$ 22,784

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LOANS RECEIVABLE, NET (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
Total gross loans receivable	$ 1,417,010	$ 1,178,266
Percentage of Total Loan	100.00%	100.00%
Allowance for loan losses	$ 10,715	$ 10,688	$ 10,233	$ 10,141
Total loans receivable, net	1,406,295	1,167,578
Consumer loans [Member]
Total gross loans receivable	$ 10,411	$ 5,714
Percentage of Total Loan	0.73%	0.48%
Allowance for loan losses	$ 110	$ 80	29	27
Commercial business loans [Member]
Total gross loans receivable	$ 190,384	$ 164,101
Percentage of Total Loan	13.44%	13.93%
Allowance for loan losses	$ 2,498	$ 2,805	2,193	2,100
Mortgage Receivables [Member] | One-to-four family [Member]
Total gross loans receivable	$ 472,764	$ 411,399
Percentage of Total Loan	33.36%	34.91%
Allowance for loan losses	$ 2,506	$ 2,636	2,863	2,903
Mortgage Receivables [Member] | Home equity [Member]
Total gross loans receivable	$ 52,298	$ 36,026
Percentage of Total Loan	3.69%	3.06%
Allowance for loan losses	$ 236	$ 197	152	151
Mortgage Receivables [Member] | Commercial real estate [Member]
Total gross loans receivable	$ 540,415	$ 445,344
Percentage of Total Loan	38.14%	37.80%
Allowance for loan losses	$ 3,613	$ 3,344	3,365	3,402
Mortgage Receivables [Member] | Construction and development [Member]
Total gross loans receivable	$ 150,738	$ 115,682
Percentage of Total Loan	10.64%	9.82%
Allowance for loan losses	$ 943	$ 1,132	$ 1,231	$ 1,138

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LOANS RECEIVABLE, NET (Details 2) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Loans Receivable Net Details 2
Accretable yield, beginning of period
Additions	4,995
Accretion	372
Reclassification from nonaccretable balance, net
Other changes, net
Accretable yield, end of period	4,893
Variable rate loans	$ 535,935		$ 455,589
Variable rate loans (as a percentage)	37.82%		38.67%
Fixed rate loans	$ 881,075		$ 722,677
Fixed rate loans (as a percentage)	62.18%		61.33%
Total loans outstanding	$ 1,417,010	$ 1,178,266	$ 1,178,266
Total loans outstanding (as a percentage)	100.00%		100.00%

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LOANS RECEIVABLE, NET (Details 3) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	$ 10,688	$ 10,141
Provision for Loan Losses
Charge-Offs	(26)	(2)
Recoveries	53	94
Ending Balance	10,715	10,233
Consumer loans [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	80	27
Provision for Loan Losses	35	(2)
Charge-Offs	(9)	(2)
Recoveries	4	6
Ending Balance	110	29
Commercial business loans [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	2,805	2,100
Provision for Loan Losses	(329)	66
Charge-Offs
Recoveries	22	27
Ending Balance	2,498	2,193
Unallocated [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	494	420
Provision for Loan Losses	315	(20)
Charge-Offs
Recoveries
Ending Balance	809	400
Mortgage Receivables [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Provision for Loan Losses	(58)
Charge-Offs
Recoveries
Mortgage Receivables [Member] | One-to-four family [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	2,636	2,903
Provision for Loan Losses	(114)	(98)
Charge-Offs	(17)
Recoveries	1	58
Ending Balance	2,506	2,863
Mortgage Receivables [Member] | Home equity [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	197	151
Provision for Loan Losses	39	1
Charge-Offs
Recoveries
Ending Balance	236	152
Mortgage Receivables [Member] | Construction and development [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	1,132	1,138
Provision for Loan Losses	(190)	90
Charge-Offs
Recoveries	1	3
Ending Balance	943	1,231
Mortgage Receivables [Member] | Commercial real estate [Member]
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	3,344	3,402
Provision for Loan Losses		(37)
Charge-Offs
Recoveries
Ending Balance	$ 3,613	$ 3,365

XML

LOANS RECEIVABLE, NET (Details 4) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment	$ 168		$ 157
Loans Collectively Evaluated for Impairment	10,547		10,531
Ending Balance	10,715		10,688
Loans receivable ending balances:
Individually Evaluated for Impairment	11,386		10,821
Collectively Evaluated for Impairment	1,380,317		1,167,445
Purchased Credit-Impaired Loans	25,307
Total	1,417,010	$ 1,178,266	1,178,266
Consumer loans [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment
Loans Collectively Evaluated for Impairment	110		80
Ending Balance	110		80
Loans receivable ending balances:
Individually Evaluated for Impairment	19		24
Collectively Evaluated for Impairment	10,336		5,690
Purchased Credit-Impaired Loans	56
Total	10,411	5,714	5,714
Commercial business loans [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment	23		9
Loans Collectively Evaluated for Impairment	2,475		2,796
Ending Balance	2,498		2,805
Loans receivable ending balances:
Individually Evaluated for Impairment	247		267
Collectively Evaluated for Impairment	188,450		163,834
Purchased Credit-Impaired Loans	1,687
Total	190,384	164,101	164,101
Unallocated [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment
Loans Collectively Evaluated for Impairment	809		494
Ending Balance	809		494
Loans receivable ending balances:
Individually Evaluated for Impairment
Collectively Evaluated for Impairment
Purchased Credit-Impaired Loans
Total
Mortgage Receivables [Member] | One-to-four family [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment	43		27
Loans Collectively Evaluated for Impairment	2,463		2,609
Ending Balance	2,506		2,636
Loans receivable ending balances:
Individually Evaluated for Impairment	4,460		4,668
Collectively Evaluated for Impairment	461,515		406,731
Purchased Credit-Impaired Loans	6,789
Total	472,764	411,399	411,399
Mortgage Receivables [Member] | Home equity [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment	54		29
Loans Collectively Evaluated for Impairment	182		168
Ending Balance	236		197
Loans receivable ending balances:
Individually Evaluated for Impairment	1,114		108
Collectively Evaluated for Impairment	50,884		35,918
Purchased Credit-Impaired Loans	300
Total	52,298	36,026	36,026
Mortgage Receivables [Member] | Commercial real estate [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment	48		92
Loans Collectively Evaluated for Impairment	3,565		3,252
Ending Balance	3,613		3,344
Loans receivable ending balances:
Individually Evaluated for Impairment	5,055		5,247
Collectively Evaluated for Impairment	523,626		440,097
Purchased Credit-Impaired Loans	11,734
Total	540,415	445,344	445,344
Mortgage Receivables [Member] | Construction and development [Member]
Allowance for loan losses ending balances:
Loans Individually Evaluated for Impairment
Loans Collectively Evaluated for Impairment	943		1,132
Ending Balance	943		1,132
Loans receivable ending balances:
Individually Evaluated for Impairment	491		507
Collectively Evaluated for Impairment	145,506		115,175
Purchased Credit-Impaired Loans	4,741
Total	$ 150,738	$ 115,682	$ 115,682

XML

LOANS RECEIVABLE, NET (Details 5) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 9,259		$ 8,925
Impaired Financing Receivable, with Related Allowance, Recorded Investment	2,127		1,896
Impaired Financing Receivable, Recorded Investment	11,386		10,821
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	9,500		9,166
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	2,127		1,896
Impaired Financing Receivable, Unpaid Principal Balance	11,627		11,062
Impaired Financing Receivable, Related Allowance	168		157
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	8,987	$ 14,237
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	2,025	2,862
Impaired Financing Receivable, Average Recorded Investment	11,012	17,099
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	193	147
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	76	4
Impaired Financing Receivable, Interest Income, Accrual Method	269	151
Consumer loans [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	19		24
Impaired Financing Receivable, with Related Allowance, Recorded Investment
Impaired Financing Receivable, Recorded Investment	19		24
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	19		24
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance
Impaired Financing Receivable, Unpaid Principal Balance	19		24
Impaired Financing Receivable, Related Allowance
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	20	65
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment
Impaired Financing Receivable, Average Recorded Investment	20	65
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	1	(4)
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method
Impaired Financing Receivable, Interest Income, Accrual Method	1	(4)
Commercial business loans [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	36		258
Impaired Financing Receivable, with Related Allowance, Recorded Investment	211		9
Impaired Financing Receivable, Recorded Investment	247		267
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	37		258
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	211		9
Impaired Financing Receivable, Unpaid Principal Balance	248		267
Impaired Financing Receivable, Related Allowance	23		9
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	38	318
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	217	198
Impaired Financing Receivable, Average Recorded Investment	255	516
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	17	4
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	6	(1)
Impaired Financing Receivable, Interest Income, Accrual Method	23	3
Mortgage Receivables [Member]
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	4,070
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	1,019
Impaired Financing Receivable, Average Recorded Investment	5,089
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	136
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	66
Impaired Financing Receivable, Interest Income, Accrual Method	202
Mortgage Receivables [Member] | One-to-four family [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	3,833		4,125
Impaired Financing Receivable, with Related Allowance, Recorded Investment	627		543
Impaired Financing Receivable, Recorded Investment	4,460		4,668
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	4,073		4,366
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	627		543
Impaired Financing Receivable, Unpaid Principal Balance	4,700		4,909
Impaired Financing Receivable, Related Allowance	43		27
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	3,827	3,076
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	597	518
Impaired Financing Receivable, Average Recorded Investment	4,424	3,594
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	36	11
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	3	5
Impaired Financing Receivable, Interest Income, Accrual Method	39	16
Mortgage Receivables [Member] | Home equity [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	839
Impaired Financing Receivable, with Related Allowance, Recorded Investment	275		108
Impaired Financing Receivable, Recorded Investment	1,114		108
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	839
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	275		108
Impaired Financing Receivable, Unpaid Principal Balance	1,114		108
Impaired Financing Receivable, Related Allowance	54		29
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	541
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	192
Impaired Financing Receivable, Average Recorded Investment	733
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method	3
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method	1
Impaired Financing Receivable, Interest Income, Accrual Method	4
Mortgage Receivables [Member] | Commercial real estate [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	4,041		4,011
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,014		1,236
Impaired Financing Receivable, Recorded Investment	5,055		5,247
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	4,041		4,011
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,014		1,236
Impaired Financing Receivable, Unpaid Principal Balance	5,055		5,247
Impaired Financing Receivable, Related Allowance	48		92
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment		10,753
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment		1,671
Impaired Financing Receivable, Average Recorded Investment		12,424
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method		136
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method
Impaired Financing Receivable, Interest Income, Accrual Method		136
Mortgage Receivables [Member] | Construction and development [Member]
Impaired Financing Receivable, Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	491		507
Impaired Financing Receivable, with Related Allowance, Recorded Investment
Impaired Financing Receivable, Recorded Investment	491		507
Impaired Financing Receivable, Unpaid Principal Balance [Abstract]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	491		507
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance
Impaired Financing Receivable, Unpaid Principal Balance	491		507
Impaired Financing Receivable, Related Allowance
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	491	25
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment		475
Impaired Financing Receivable, Average Recorded Investment	491	500
Impaired Financing Receivable, Interest Income, Accrual Method [Abstract]
Impaired Financing Receivable, with No Related Allowance, Interest Income, Accrual Method
Impaired Financing Receivable, with Related Allowance, Interest Income, Accrual Method
Impaired Financing Receivable, Interest Income, Accrual Method

XML

LOANS RECEIVABLE, NET (Details 6) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	$ 3,359	$ 4,702
60-89 days past due	40	1,135
90 days or more past due	5,150	4,161
Total Past Due	8,549	9,998
Current	1,408,461	1,168,268
Total loans receivable	1,417,010	1,178,266	$ 1,178,266
Nonaccrual	5,931	5,625
Consumer loans [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	181	55
60-89 days past due		3
90 days or more past due	6	26
Total Past Due	187	84
Current	10,224	5,630
Total loans receivable	10,411	5,714	5,714
Nonaccrual	7	27
Commercial business loans [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	11	136
60-89 days past due
90 days or more past due	623	16
Total Past Due	634	152
Current	189,750	163,949
Total loans receivable	190,384	164,101	164,101
Nonaccrual	17	24
Mortgage Receivables [Member] | One-to-four family [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	1,526	3,864
60-89 days past due	27	635
90 days or more past due	3,123	3,170
Total Past Due	4,676	7,669
Current	468,088	403,730
Total loans receivable	472,764	411,399	411,399
Nonaccrual	3,098	3,256
Mortgage Receivables [Member] | Home equity [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	15	379
60-89 days past due	13	497
90 days or more past due	772	108
Total Past Due	800	984
Current	51,498	35,042
Total loans receivable	52,298	36,026	36,026
Nonaccrual	772	108
Mortgage Receivables [Member] | Commercial real estate [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	1,536	206
60-89 days past due
90 days or more past due	135	334
Total Past Due	1,671	540
Current	538,744	444,804
Total loans receivable	540,415	445,344	445,344
Nonaccrual	1,546	1,703
Mortgage Receivables [Member] | Construction and development [Member]
Aging of the recorded investment in past due loans by class of loans
30-59 days past due	90	62
60-89 days past due
90 days or more past due	491	507
Total Past Due	581	569
Current	150,157	115,113
Total loans receivable	150,738	115,682	$ 115,682
Nonaccrual	$ 491	$ 507

XML

LOANS RECEIVABLE, NET (Details 7) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Total loans receivable	$ 1,417,010	$ 1,178,266	$ 1,178,266
Pass [Member]
Total loans receivable	1,396,573	1,168,507
Special Mention [Member]
Total loans receivable	7,597	4,063
Substandard [Member]
Total loans receivable	12,840	5,696
Consumer loans [Member]
Total loans receivable	10,411	5,714	5,714
Consumer loans [Member] | Pass [Member]
Total loans receivable	10,384	5,683
Consumer loans [Member] | Special Mention [Member]
Total loans receivable	20	19
Consumer loans [Member] | Substandard [Member]
Total loans receivable	7	12
Commercial business loans [Member]
Total loans receivable	190,384	164,101	164,101
Commercial business loans [Member] | Pass [Member]
Total loans receivable	186,113	162,235
Commercial business loans [Member] | Special Mention [Member]
Total loans receivable	2,236	1,849
Commercial business loans [Member] | Substandard [Member]
Total loans receivable	2,035	17
Mortgage Receivables [Member] | One-to-four family [Member]
Total loans receivable	472,764	411,399	411,399
Mortgage Receivables [Member] | One-to-four family [Member] | Pass [Member]
Total loans receivable	466,380	407,612
Mortgage Receivables [Member] | One-to-four family [Member] | Special Mention [Member]
Total loans receivable	1,934	438
Mortgage Receivables [Member] | One-to-four family [Member] | Substandard [Member]
Total loans receivable	4,450	3,349
Mortgage Receivables [Member] | Home equity [Member]
Total loans receivable	52,298	36,026	36,026
Mortgage Receivables [Member] | Home equity [Member] | Pass [Member]
Total loans receivable	50,881	35,903
Mortgage Receivables [Member] | Home equity [Member] | Special Mention [Member]
Total loans receivable	231	15
Mortgage Receivables [Member] | Home equity [Member] | Substandard [Member]
Total loans receivable	1,186	108
Mortgage Receivables [Member] | Commercial real estate [Member]
Total loans receivable	540,415	445,344	445,344
Mortgage Receivables [Member] | Commercial real estate [Member] | Pass [Member]
Total loans receivable	535,087	442,323
Mortgage Receivables [Member] | Commercial real estate [Member] | Special Mention [Member]
Total loans receivable	2,749	1,318
Mortgage Receivables [Member] | Commercial real estate [Member] | Substandard [Member]
Total loans receivable	2,579	1,703
Mortgage Receivables [Member] | Construction and development [Member]
Total loans receivable	150,738	115,682	$ 115,682
Mortgage Receivables [Member] | Construction and development [Member] | Pass [Member]
Total loans receivable	147,728	114,751
Mortgage Receivables [Member] | Construction and development [Member] | Special Mention [Member]
Total loans receivable	427	424
Mortgage Receivables [Member] | Construction and development [Member] | Substandard [Member]
Total loans receivable	$ 2,583	$ 507

XML

LOANS RECEIVABLE, NET (Details 8) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Total loans receivable	$ 1,417,010	$ 1,178,266	$ 1,178,266
Nonaccrual	5,931	5,625
Performing Financing Receivable [Member]
Total loans receivable	1,411,079	1,172,641
Nonperforming Financing Receivable [Member]
Total loans receivable	5,931	5,625
90 days or more past due
Nonaccrual	5,931	5,625
Consumer loans [Member]
Total loans receivable	10,411	5,714	5,714
Nonaccrual	7	27
Consumer loans [Member] | Performing Financing Receivable [Member]
Total loans receivable	10,404	5,687
Consumer loans [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	7	27
90 days or more past due
Nonaccrual	7	27
Commercial business loans [Member]
Total loans receivable	190,384	164,101	164,101
Nonaccrual	17	24
Commercial business loans [Member] | Performing Financing Receivable [Member]
Total loans receivable	190,367	164,077
Commercial business loans [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	17	24
90 days or more past due
Nonaccrual	17	24
Mortgage Receivables [Member] | One-to-four family [Member]
Total loans receivable	472,764	411,399	411,399
Nonaccrual	3,098	3,256
Mortgage Receivables [Member] | One-to-four family [Member] | Performing Financing Receivable [Member]
Total loans receivable	469,666	408,143
Mortgage Receivables [Member] | One-to-four family [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	3,098	3,256
90 days or more past due
Nonaccrual	3,098	3,256
Mortgage Receivables [Member] | Home equity [Member]
Total loans receivable	52,298	36,026	36,026
Nonaccrual	772	108
Mortgage Receivables [Member] | Home equity [Member] | Performing Financing Receivable [Member]
Total loans receivable	51,526	35,918
Mortgage Receivables [Member] | Home equity [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	772	108
90 days or more past due
Nonaccrual	772	108
Mortgage Receivables [Member] | Commercial real estate [Member]
Total loans receivable	540,415	445,344	445,344
Nonaccrual	1,546	1,703
Mortgage Receivables [Member] | Commercial real estate [Member] | Performing Financing Receivable [Member]
Total loans receivable	538,869	443,641
Mortgage Receivables [Member] | Commercial real estate [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	1,546	1,703
90 days or more past due
Nonaccrual	1,546	1,703
Mortgage Receivables [Member] | Construction and development [Member]
Total loans receivable	150,738	115,682	$ 115,682
Nonaccrual	491	507
Mortgage Receivables [Member] | Construction and development [Member] | Performing Financing Receivable [Member]
Total loans receivable	150,247	115,175
Mortgage Receivables [Member] | Construction and development [Member] | Nonperforming Financing Receivable [Member]
Total loans receivable	491	507
90 days or more past due
Nonaccrual	$ 491	$ 507

XML

LOANS RECEIVABLE, NET (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) Item	Dec. 31, 2016 USD ($)
Loans receivable	$ 303,200	$ 119,400
Loans designated as troubled debt restructurings	6,600	6,400
Troubled debt restructurings, still accruing	$ 5,500	$ 5,200
Mortgage Receivables [Member]
Number of Contracts due to modification identified as a TDR | Item	1
Pre-Modification Recorded Investment	$ 342
Post-Modification Recorded Investment	$ 342

XML

REAL ESTATE ACQUIRED THROUGH FORECLOSURE (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Real Estate Acquired Through Foreclosure Details
Balance at beginning of period	$ 1,179	$ 2,374
Additions	323	2,630
Sales	(23)	(3,810)
Write downs		(15)
Balance at end of period	$ 1,479	$ 1,179

XML

REAL ESTATE ACQUIRED THROUGH FORECLOSURE (Details 2) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Real Estate Acquired Through Foreclosure	$ 1,479	$ 1,179	$ 2,374
Mortgage Receivables [Member] | One-to-four family [Member]
Real Estate Acquired Through Foreclosure	239
Mortgage Receivables [Member] | Construction and development [Member]
Real Estate Acquired Through Foreclosure	$ 1,240	$ 1,179

XML

DEPOSITS (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Deposits Details
Noninterest-bearing demand accounts	$ 298,365	$ 229,905
Interest-bearing demand accounts	309,961	191,851
Savings accounts	66,506	48,648
Money market accounts	363,600	292,639
Certificates of deposit:
Less than $250,000	524,836	467,937
$250,000 or more	44,452	27,280
Total certificates of deposit	569,288	495,217
Total deposits	1,607,720	1,258,260
Brokered certificates of deposit	86,200	98,300
Institutional certificates of deposit	$ 49,900	$ 44,300

XML

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Financial assets:
Cash and due from banks	$ 21,456	$ 9,761
Interest-bearing cash	36,582	14,591
Federal funds sold	68,598	24,352
Securities available for sale	494,130	335,352
Federal Home Loan Bank stock	12,478	11,072
Other investments	2,116	1,768
Derivative assets	3,226	2,219
Loans held for sale	21,399	31,569
Loans receivable, net	1,406,295	1,167,578
Accrued interest receivable	6,726	5,373
Mortgage servicing rights	15,792	15,032
Financial liabilities:
Deposits	1,607,720	1,258,260
Short-term borrowed funds	214,500	203,000
Long-term debt	55,304	38,465
Derivative liabilities	682	342
Accrued interest payable	690	327
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and due from banks	21,456	9,761
Interest-bearing cash	36,582	14,591
Federal funds sold	10,560
Securities available for sale
Federal Home Loan Bank stock
Other investments
Derivative assets	1,111	953
Loans held for sale
Loans receivable, net
Accrued interest receivable
Mortgage servicing rights
Financial liabilities:
Deposits
Short-term borrowed funds
Long-term debt
Derivative liabilities	234	195
Accrued interest payable
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and due from banks
Interest-bearing cash
Federal funds sold
Securities available for sale	494,130	335,352
Federal Home Loan Bank stock
Other investments
Derivative assets	2,115	1,266
Loans held for sale	21,399	31,569
Loans receivable, net
Accrued interest receivable	6,726	5,373
Mortgage servicing rights
Financial liabilities:
Deposits	1,605,218	1,256,119
Short-term borrowed funds	213,865	202,455
Long-term debt	55,272	38,442
Derivative liabilities	448	147
Accrued interest payable	690	327
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and due from banks
Interest-bearing cash
Federal funds sold
Securities available for sale
Federal Home Loan Bank stock	12,478	11,072
Other investments	2,116	1,768
Derivative assets
Loans held for sale
Loans receivable, net	1,407,232	1,173,118
Accrued interest receivable
Mortgage servicing rights	21,933	20,961
Financial liabilities:
Deposits
Short-term borrowed funds
Long-term debt
Derivative liabilities
Accrued interest payable
Carrying Amount [Member]
Financial assets:
Cash and due from banks	21,456	9,761
Interest-bearing cash	36,582	14,591
Federal funds sold	10,560
Securities available for sale	494,130	335,352
Federal Home Loan Bank stock	12,478	11,072
Other investments	2,116	1,768
Derivative assets	3,226	2,219
Loans held for sale	21,399	31,569
Loans receivable, net	1,406,295	1,167,578
Accrued interest receivable	6,726	5,373
Mortgage servicing rights	15,792	15,032
Financial liabilities:
Deposits	1,607,720	1,258,260
Short-term borrowed funds	214,500	203,000
Long-term debt	55,304	38,465
Derivative liabilities	682	342
Accrued interest payable	690	327
Fair Value [Member]
Financial assets:
Cash and due from banks	21,456	9,761
Interest-bearing cash	36,582	14,591
Federal funds sold
Securities available for sale	494,130	335,352
Federal Home Loan Bank stock	12,478	11,072
Other investments	2,116	1,768
Derivative assets	3,226	2,219
Loans held for sale	21,399	31,569
Loans receivable, net	1,407,232	1,173,118
Accrued interest receivable	6,726	5,373
Mortgage servicing rights	21,933	20,961
Financial liabilities:
Deposits	1,605,218	1,256,119
Short-term borrowed funds	213,865	202,455
Long-term debt	55,272	38,442
Derivative liabilities	682	342
Accrued interest payable	$ 690	$ 327

XML

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Commitments to Extend Credit [Member]
Off-Balance Sheet Financial Instruments:
Notional Amount	$ 141,082	$ 111,446
Estimated Fair Value
Standby Letters of Credit [Member]
Off-Balance Sheet Financial Instruments:
Notional Amount	3,521	2,248
Estimated Fair Value

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ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Securities available for sale	$ 494,130	$ 335,352
Loans held for sale	21,399	31,569
Derivative Asset	3,226	2,219
Brokered deposits	86,200	98,300
Derivative Liability	682	342
Municipal securities [Member]
Securities available for sale	150,856	93,212
US government agencies [Member]
Securities available for sale	35,700	3,386
Mortgage-backed securities Agency [Member]
Securities available for sale	145,309	90,986
Mortgage-backed securities Non-agency [Member]
Securities available for sale	69,018	63,864
Collateralized loan obligations [Member]
Securities available for sale	84,337	76,249
Corporate securities [Member]
Securities available for sale	489	491
Asset-backed securities [Member]
Securities available for sale	8,421	7,164
Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Loans held for sale
Derivative Asset	1,111	953
Derivative Liability	234	195
Fair Value, Inputs, Level 2 [Member]
Securities available for sale	494,130	335,352
Loans held for sale	21,399	31,569
Derivative Asset	2,115	1,266
Derivative Liability	448	147
Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Loans held for sale
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Loans held for sale
Brokered deposits
Assets and liabilities measured at fair value	1,345	1,148
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage loan interest rate lock commitments [Member]
Securities available for sale
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage loan forward sales commitments [Member]
Derivative Asset
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-backed securities forward sales commitments [Member]
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Interest rate swaps [Member]
Loans held for sale	552	532
Derivative Asset	559	421
Assets and liabilities measured at fair value	234	195
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Municipal securities [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US government agencies [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-backed securities Agency [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mortgage-backed securities Non-agency [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized loan obligations [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Assets and liabilities measured at fair value	515,092	368,334
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage loan interest rate lock commitments [Member]
Derivative Asset	1,827	1,113
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage loan forward sales commitments [Member]
Derivative Asset	288	153
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-backed securities forward sales commitments [Member]
Derivative Liability	448	147
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Interest rate swaps [Member]
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Municipal securities [Member]
Securities available for sale	150,856	93,212
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US government agencies [Member]
Securities available for sale	35,700	3,386
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-backed securities Agency [Member]
Securities available for sale	145,309	90,986
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mortgage-backed securities Non-agency [Member]
Securities available for sale	69,018	63,864
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized loan obligations [Member]
Securities available for sale	84,337	76,249
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate securities [Member]
Securities available for sale	489	491
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Asset-backed securities [Member]
Securities available for sale	8,421	7,164
Loans held for sale	21,399	31,569
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Loans held for sale
Brokered deposits
Assets and liabilities measured at fair value	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage loan interest rate lock commitments [Member]
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage loan forward sales commitments [Member]
Derivative Asset
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-backed securities forward sales commitments [Member]
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Interest rate swaps [Member]
Derivative Asset
Derivative Liability
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Municipal securities [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | US government agencies [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-backed securities Agency [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mortgage-backed securities Non-agency [Member]
Securities available for sale
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Collateralized loan obligations [Member]
Securities available for sale

XML

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) - Nonrecurring basis [Member] - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Fair Value, Inputs, Level 1 [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Consumer loans [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Commercial business loans [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage Receivables [Member] | One-to-four family [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage Receivables [Member] | Home equity [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage Receivables [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 1 [Member] | Mortgage Receivables [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Consumer loans [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Commercial business loans [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Mortgage Receivables [Member] | One-to-four family [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Mortgage Receivables [Member] | Home equity [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Mortgage Receivables [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 2 [Member] | Mortgage Receivables [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis
Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on a nonrecurring basis	34,630	32,804
Fair Value, Inputs, Level 3 [Member] | One-to-four family [Member]
Assets measured at fair value on a nonrecurring basis	239
Fair Value, Inputs, Level 3 [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis	1,240
Fair Value, Inputs, Level 3 [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis	1,240	1,179
Fair Value, Inputs, Level 3 [Member] | Consumer loans [Member]
Assets measured at fair value on a nonrecurring basis	19	24
Fair Value, Inputs, Level 3 [Member] | Commercial business loans [Member]
Assets measured at fair value on a nonrecurring basis	224	258
Fair Value, Inputs, Level 3 [Member] | Mortgage Servicing Rights [Member]
Assets measured at fair value on a nonrecurring basis	21,933	20,961
Fair Value, Inputs, Level 3 [Member] | Mortgage Receivables [Member] | One-to-four family [Member]
Assets measured at fair value on a nonrecurring basis	4,417	4,641
Fair Value, Inputs, Level 3 [Member] | Mortgage Receivables [Member] | Home equity [Member]
Assets measured at fair value on a nonrecurring basis	1,060	79
Fair Value, Inputs, Level 3 [Member] | Mortgage Receivables [Member] | Commercial real estate [Member]
Assets measured at fair value on a nonrecurring basis	5,007	5,155
Fair Value, Inputs, Level 3 [Member] | Mortgage Receivables [Member] | Construction and development [Member]
Assets measured at fair value on a nonrecurring basis	$ 19	$ 507

XML

ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 5) - Fair Value, Inputs, Level 3 [Member]	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Mortgage Servicing Rights [Member]
Valuation Techniques	Discounted cash flows	Discounted cash flows
Significant Unobservable Inputs	Comparable sales	Comparable sales
Minimum [Member] | Mortgage Servicing Rights [Member]
Significant Unobservable Input Range	12.00%	12.00%
Assumptions Used to Estimate Fair Value, Prepayment Speed (As a percent)	7.00%	7.00%
Maximum [Member] | Mortgage Servicing Rights [Member]
Significant Unobservable Input Range	13.00%	13.00%
Assumptions Used to Estimate Fair Value, Prepayment Speed (As a percent)	8.00%	8.00%
Impaired Loans [Member]
Valuation Techniques	Appraisal Value	Appraisal Value
Significant Unobservable Inputs	Appraisals and or sales of comparable properties	Appraisals and or sales of comparable properties
Impaired Loans [Member] | Minimum [Member]
Significant Unobservable Input Range	10.00%	10.00%
Impaired Loans [Member] | Maximum [Member]
Significant Unobservable Input Range	20.00%	20.00%
Real estate owned [Member]
Valuation Techniques	Appraisal Value/ Comparison Sales/ Other estimates	Appraisal Value/ Comparison Sales/ Other estimates
Significant Unobservable Inputs	Appraisals and or sales of comparable properties	Appraisals and or sales of comparable properties
Real estate owned [Member] | Minimum [Member]
Significant Unobservable Input Range	10.00%	10.00%
Real estate owned [Member] | Maximum [Member]
Significant Unobservable Input Range	20.00%	20.00%

XML

EARNINGS PER SHARE (Details) - shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Earnings Per Share Details
Weighted average shares outstanding	13,919,711	11,746,574
Effect of dilutive securities	219,530	232,227
Average shares outstanding	14,139,241	11,978,801

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EARNINGS PER SHARE (Details 2) - shares	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Earnings Per Share Details 2
Common stock, shares issued	16,185,408	12,548,328	12,051,615
Common stock, shares outstanding	16,185,408	12,548,328	12,051,615
Less nonvested restricted stock awards	(227,439)		(302,028)
Period end dilutive shares	15,957,969		11,749,587

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SUPPLEMENTAL SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Interest income	$ 17,670	$ 13,360
Interest expense	2,400	2,087
Net interest income (expense)	15,270	11,273
(Recovery of) provision for loan losses
Noninterest income (expense) from external customers	7,231	6,276
Intersegment noninterest income
Noninterest expense	15,586	12,268
Intersegment noninterest expense
Income (loss) before income taxes	6,915	5,281
Income tax expense (benefit)	2,011	1,638
Net income (loss)	4,904	3,643
Community Banking [Member]
Interest income	17,257	12,944
Interest expense	2,218	1,939
Net interest income (expense)	15,039	11,005
(Recovery of) provision for loan losses
Noninterest income (expense) from external customers	2,419	2,133
Intersegment noninterest income	242	243
Noninterest expense	11,324	8,429
Intersegment noninterest expense
Income (loss) before income taxes	6,376	4,952
Income tax expense (benefit)	1,867	1,539
Net income (loss)	4,509	3,413
Mortgage Banking [Member]
Interest income	395	369
Interest expense	12	5
Net interest income (expense)	383	364
(Recovery of) provision for loan losses
Noninterest income (expense) from external customers	4,812	4,143
Intersegment noninterest income	34	19
Noninterest expense	4,053	3,680
Intersegment noninterest expense	240	241
Income (loss) before income taxes	936	605
Income tax expense (benefit)	291	204
Net income (loss)	645	401
Other [Member]
Interest income	6	5
Interest expense	182	148
Net interest income (expense)	(176)	(143)
(Recovery of) provision for loan losses
Noninterest income (expense) from external customers
Intersegment noninterest income
Noninterest expense	209	159
Intersegment noninterest expense	2	2
Income (loss) before income taxes	(387)	(304)
Income tax expense (benefit)	(143)	(116)
Net income (loss)	(244)	(188)
Eliminations [Member]
Interest income	12	42
Interest expense	(12)	(5)
Net interest income (expense)	24	47
(Recovery of) provision for loan losses
Noninterest income (expense) from external customers
Intersegment noninterest income	(276)	(262)
Noninterest expense
Intersegment noninterest expense	(242)	(243)
Income (loss) before income taxes	(10)	28
Income tax expense (benefit)	(4)	11
Net income (loss)	$ (6)	$ 17

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SUPPLEMENTAL SEGMENT INFORMATION (Details 2) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets	$ 2,182,109	$ 1,683,736
Loans receivable, net	1,406,295	1,167,578
Loans held for sale	21,399	31,569
Deposits	1,607,720	1,258,260
Borrowed funds	269,804	241,465
Community Banking [Member]
Assets	2,178,608	1,678,541
Loans receivable, net	1,383,117	1,151,704
Loans held for sale	1,302	2,159
Deposits	1,620,575	1,263,030
Borrowed funds	246,500	226,000
Mortgage Banking [Member]
Assets	70,688	78,315
Loans receivable, net	27,757	27,433
Loans held for sale	20,097	29,410
Deposits
Borrowed funds	4,000	10,990
Other [Member]
Assets	298,319	179,681
Loans receivable, net
Loans held for sale
Deposits
Borrowed funds	23,304	15,465
Eliminations [Member]
Assets	(365,506)	(252,801)
Loans receivable, net	(4,579)	(11,559)
Loans held for sale
Deposits	(12,855)	(4,770)
Borrowed funds	$ (4,000)	$ (10,990)