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, 2016.
or
[      ]
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:  000-17007
Republic First Bancorp, Inc.
(Exact name of registrant as specified in its charter)

Pennsylvania
23-2486815
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
50 South 16th Street, Philadelphia, Pennsylvania
19102
(Address of principal executive offices)
(Zip code)
215-735-4422
(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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X ]
NO [  ]
 
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  [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    [   ]
Accelerated filer     [X]
Non-Accelerated filer   [   ]
(Do not check if a smaller reporting company)
Smaller reporting company    [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  [  ]
NO   [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date.

Common Stock, $0.01 per share
37,893,753
Title of Class
Number of Shares Outstanding as of May 5, 2016
 
 
 
 

 

 
REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
     
Part I:  Financial Information
Page
     
Item 1.
Financial Statements
 
 
Consolidated balance sheets as of March 31, 2016 and December 31, 2015 (unaudited)
 
Consolidated statements of income for the three months ended March 31, 2016 and 2015 (unaudited) 
2
 
Consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015 (unaudited) 
3
 
Consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 (unaudited)
 
Consolidated statements of changes in shareholders' equity for the three months ended March 31, 2016 and 2015 (unaudited)
 
Notes to consolidated financial statements (unaudited)
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
     
Item 4.
Controls and Procedures
     
Part II:  Other Information
 
     
Item 1.
Legal Proceedings
     
Item 1A.
Risk Factors
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
     
Item 3.
Defaults Upon Senior Securities
     
Item 4.
Mine Safety Disclosures
     
Item 5.
Other Information
     
Item 6.
Exhibits
     
Signatures
 
 
 
 

 
 
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2016 and December 31, 2015
(Dollars in thousands, except per share data)
(unaudited)
   
March 31, 2016
   
December 31, 2015
 
ASSETS
       
Cash and due from banks
 
$
18,000
   
$
13,777
 
Interest bearing deposits with banks
   
47,198
     
13,362
 
    Cash and cash equivalents
   
65,198
     
27,139
 
 
               
Investment securities available for sale, at fair value
   
260,269
     
284,795
 
Investment securities held to maturity, at amortized cost (fair value of $181,306 and $171,845, respectively)
   
178,628
     
172,277
 
Restricted stock, at cost
   
1,179
     
3,059
 
Loans held for sale
   
1,983
     
3,653
 
Loans receivable (net of allowance for loan losses of $9,029 and $8,703, respectively)
   
890,088
     
866,066
 
Premises and equipment, net
   
49,586
     
46,164
 
Other real estate owned, net
   
11,393
     
11,313
 
Accrued interest receivable
   
4,434
     
4,216
 
Other assets
   
19,915
     
20,761
 
    Total Assets
 
$
1,482,673
   
$
1,439,443
 
 
               
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Liabilities
               
Deposits
               
   Demand – non-interest bearing
 
$
263,990
   
$
243,695
 
   Demand – interest bearing
   
426,346
     
381,499
 
   Money market and savings
   
586,863
     
556,526
 
   Time deposits
   
60,408
     
67,578
 
       Total Deposits
   
1,337,607
     
1,249,298
 
Short-term borrowings
   
-
     
47,000
 
Accrued interest payable
   
219
     
245
 
Other liabilities
   
5,769
     
7,049
 
Subordinated debt
   
22,476
     
22,476
 
    Total Liabilities
   
1,366,071
     
1,326,068
 
                 
Shareholders' Equity
               
Preferred stock, par value $0.01 per share: 10,000,000 shares authorized; no shares issued and outstanding
   
-
     
-
 
Common stock, par value $0.01 per share: 50,000,000 shares authorized; shares issued 38,366,098 as of March 31, 2016 and 38,365,848 as of December 31, 2015; shares outstanding 37,837,253 as of March 31, 2016 and 37,837,003 as of December 31, 2015
   
384
     
384
 
Additional paid in capital
   
153,069
     
152,897
 
Accumulated deficit
   
(31,748
)
   
(32,833
)
Treasury stock at cost (503,408 shares as of March 31, 2016 and December 31, 2015)
   
(3,725
)
   
(3,725
)
Stock held by deferred compensation plan (25,437 shares as of March 31, 2016 and
December 31, 2015)
   
(183
)
   
(183
)
Accumulated other comprehensive loss
   
(1,195
)
   
(3,165
)
    Total Shareholders' Equity
   
116,602
     
113,375
 
    Total Liabilities and Shareholders' Equity
 
$
1,482,673
   
$
1,439,443
 



(See notes to consolidated financial statements)
 
 
 
 
1

 

Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
For the Three Months Ended March 31, 2016 and 2015
(Dollars in thousands, except per share data)
(unaudited)
 
   
Three Months Ended
March 31,
 
   
2016
   
2015
 
Interest income
       
Interest and fees on taxable loans
 
$
9,717
   
$
8,951
 
Interest and fees on tax-exempt loans
   
214
     
126
 
Interest and dividends on taxable investment securities
   
2,594
     
1,482
 
Interest and dividends on tax-exempt investment securities
   
174
     
125
 
Interest on federal funds sold and other interest-earning assets
   
63
     
77
 
Total interest income
   
12,762
     
10,761
 
Interest expense
               
   Demand-interest bearing
   
415
     
290
 
   Money market and savings
   
609
     
553
 
   Time deposits
   
141
     
175
 
   Other borrowings
   
306
     
276
 
Total interest expense
   
1,471
     
1,294
 
Net interest income
   
11,291
     
9,467
 
Provision for loan losses
   
300
     
-
 
Net interest income after provision for loan losses
   
10,991
     
9,467
 
Non-interest income
               
Loan advisory and servicing fees
   
603
     
599
 
Gain on sales of SBA loans
   
833
     
578
 
Service fees on deposit accounts
   
570
     
363
 
Gain on sale of investment securities
   
296
     
-
 
Other than temporary impairment
   
(2
)
   
(13
)
Portion recognized in other comprehensive income (before taxes)
   
1
     
10
 
    Net impairment loss on investment securities
   
(1
)
   
(3
)
Other non-interest income
   
111
     
40
 
Total non-interest income
   
2,412
     
1,577
 
Non-interest expenses
               
 Salaries and employee benefits
   
6,052
     
5,222
 
 Occupancy
   
1,405
     
1,165
 
 Depreciation and amortization
   
969
     
723
 
 Legal
   
88
     
239
 
 Other real estate owned
   
585
     
377
 
 Advertising
   
129
     
151
 
 Data processing
   
467
     
352
 
 Insurance
   
206
     
180
 
 Professional fees
   
360
     
325
 
 Regulatory assessments and costs
   
342
     
292
 
 Taxes, other
   
24
     
221
 
 Other operating expenses
   
1,716
     
1,271
 
Total non-interest expense
   
12,343
     
10,518
 
Income before benefit for income taxes
   
1,060
     
526
 
Benefit for income taxes
   
(25
)
   
(2
)
Net income
 
$
1,085
   
$
528
 
Net income per share
               
Basic
 
$
0.03
   
$
0.01
 
Diluted
 
$
0.03
   
$
0.01
 

(See notes to consolidated financial statements)
 
 
 
2



Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
(unaudited)

   
Three Months Ended
March 31,
 
   
2016
   
2015
 
         
Net income
 
$
1,085
   
$
528
 
                 
      Other comprehensive income, net of tax
               
          Unrealized gain on securities (pre-tax $3,312, and $630 respectively)
   
2,122
     
404
 
                 
Reclassification adjustment for securities gains (pre-tax $296, and $-respectively)
   
(190
)
   
-
 
                 
          Reclassification adjustment for impairment charge (pre-tax $1, and $3
          respectively)
   
1
     
2
 
Net unrealized gains on securities
   
1,933
     
406
 
                 
          Net unrealized holding losses on securities transferred from available-
          for-sale to held to maturity:
               
Amortization of net unrealized holding losses during the period
(pre-tax $58, and $58 respectively)
   
37
     
37
 
                 
Total other comprehensive income
   
1,970
     
443
 
                 
Total comprehensive income
 
$
3,055
   
$
971
 
                 
                 

(See notes to consolidated financial statements)
 
 
 
3


 
Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
(unaudited)
      
Three Months Ended March 31,
 
   
2016
   
2015
 
Cash flows from operating activities
       
Net income
 
$
1,085
   
$
528
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Provision for loan losses
   
300
     
-
 
Write down of other real estate owned
   
126
     
148
 
Depreciation and amortization
   
969
     
723
 
Stock based compensation
   
171
     
118
 
Gain on sale and call of investment securities
   
(296
)
   
-
 
Impairment charges on investment securities
   
1
     
3
 
Amortization of premiums on investment securities
   
229
     
112
 
Accretion of discounts on retained SBA loans
   
(214
)
   
(201
)
Fair value adjustments on SBA servicing assets
   
70
     
(33
)
Proceeds from sales of SBA loans originated for sale
   
9,695
     
5,825
 
SBA loans originated for sale
   
(7,192
)
   
(8,526
)
Gains on sales of SBA loans originated for sale
   
(833
)
   
(578
)
Increase in accrued interest receivable and other assets
   
(545
)
   
(2,990
)
Decrease in accrued interest payable and other liabilities
   
(1,556
)
   
(871
)
Net cash provided by (used in) operating activities
   
2,010
     
(5,742
)
                 
Cash flows from investing activities
               
Purchase of investment securities available for sale
   
(32,856
)
   
(6,356
)
Purchase of investment securities held to maturity
   
(10,523
)
   
-
 
Proceeds from the sale of securities available for sale
   
54,715
     
-
 
Proceeds from the maturity or call of securities available for sale
   
5,878
     
5,270
 
Proceeds from the maturity or call of securities held to maturity
   
4,100
     
1,141
 
Proceeds from redemption of restricted stock
   
1,880
     
-
 
Net increase in loans
   
(24,140
)
   
(7,831
)
Net proceeds from sale of other real estate owned
   
76
     
319
 
Premises and equipment expenditures
   
(4,391
)
   
(2,266
)
Net cash used in investing activities
   
(5,261
)
   
(9,723
)
                 
Cash flows from financing activities
               
Net proceeds from exercise of stock options
   
1
     
-
 
Net increase in demand, money market and savings deposits
   
95,479
     
49,903
 
Net decrease in time deposits
   
(7,170
)
   
(736
)
Decrease in short-term borrowings
   
(47,000
)
   
-
 
Net cash provided by financing activities
   
41,310
     
49,167
 
                 
Net increase in cash and cash equivalents
   
38,059
     
33,702
 
Cash and cash equivalents, beginning of year
   
27,139
     
128,826
 
Cash and cash equivalents, end of period
 
$
65,198
   
$
162,528
 
                 
Supplemental disclosures
               
Interest paid
 
$
1,445
   
$
1,299
 
Non-cash transfers from loans to other real estate owned
 
$
32
   
$
579
 

(See notes to consolidated financial statements)
 
 
 
 
4

 


Republic First Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Three Months Ended March 31, 2016 and 2015
(Dollars in thousands)
(unaudited)

   
Common
Stock
   
Additional
Paid in
Capital
   
Accumulated
Deficit
   
Treasury
Stock
   
Stock Held by
Deferred Compensation
Plan
   
Accumulated
Other Comprehensive
Loss
   
Total
Shareholders'
Equity
 
                             
Balance January 1, 2016
 
$
384
   
$
152,897
   
$
(32,833
)
 
$
(3,725
)
 
$
(183
)
 
$
(3,165
)
 
$
113,375
 
                                                         
Net income
                   
1,085
                             
1,085
 
Other comprehensive income, net of tax
                                           
1,970
     
1,970
 
Stock based compensation
           
171
                                     
171
 
Options exercised (250 shares)
           
1
                                     
1
 
                                                         
Balance March 31, 2016
 
$
384
   
$
153,069
   
$
(31,748
)
 
$
(3,725
)
 
$
(183
)
 
$
(1,195
)
 
$
116,602
 
                                                         
                                                         
Balance January 1, 2015
 
$
383
   
$
152,234
   
$
(35,266
)
 
$
(3,725
)
 
$
(183
)
 
$
(632
)
 
$
112,811
 
                                                         
Net income
                   
528
                             
528
 
Other comprehensive income, net of tax
                                           
443
     
443
 
Stock based compensation
           
118
                                     
118
 
                                                         
Balance March 31, 2015
 
$
383
   
$
152,352
   
$
(34,738
)
 
$
(3,725
)
 
$
(183
)
 
$
(189
)
 
$
113,900
 
                                                         

(See notes to consolidated financial statements)
 
 
 

 
5


 
Republic First Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)

Note 1:  Basis of Presentation

Republic First Bancorp, Inc. (the "Company") is a one-bank holding company organized and incorporated under the laws of the Commonwealth of Pennsylvania.  It is comprised of one wholly-owned subsidiary, Republic First Bank, which does business under the name of Republic Bank ("Republic").  Republic is a Pennsylvania state chartered bank that offers a variety of banking services to individuals and businesses throughout the Greater Philadelphia and South Jersey area through its offices and store locations in Philadelphia, Montgomery, Delaware, Camden, Burlington, and Gloucester Counties.  The Company also has three unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of three separate issuances of trust preferred securities.

The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.

The Company and Republic are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends and others.  Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board ("FASB").  The FASB sets accounting principles generally accepted in the United States of America ("US GAAP") that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows. All material inter-company transactions have been eliminated. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements.
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to United States Securities and Exchange Commission ("SEC") Form 10-Q and Article 10 of SEC Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for financial statements for a complete fiscal year.  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 month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
Note 2:  Summary of Significant Accounting Policies

Risks and Uncertainties

The earnings of the Company depend primarily on the earnings of Republic.  The earnings of Republic are dependent primarily upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the Company's results of operations are subject to risks and uncertainties surrounding Republic's exposure to changes in the interest rate environment.  Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly and may also cause significant fluctuations in interest margins.
 

 
6

 
Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment ("OTTI") of investment securities, fair value of financial instruments and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.

In estimating the allowance for loan losses, management considers current economic conditions, past loss experience, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews and regulatory examinations, borrowers' perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant and qualitative risk factors. Subsequent to foreclosure, an estimate for the carrying value of other real estate owned is normally determined through valuations that are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less the cost to call. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Company's and Republic's control, the estimates of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term.
In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary.  To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value.  The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of investment.  Once a decline in value is determined to be other-than-temporary, the portion of the decline related to credit impairment is charged to earnings.
In evaluating the Company's ability to recover deferred tax assets, management considers all available positive and negative evidence, including the past operating results and forecasts of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require management to make judgments about the future taxable income and are consistent with the plans and estimates used to manage the business. Any reduction in estimated future taxable income may require management to record a valuation allowance against the deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings.
 
 

 
7

 

Stock-Based Compensation

The Company has a Stock Option and Restricted Stock Plan ("the 2005 Plan"), under which the Company granted options, restricted stock or stock appreciation rights to the Company's employees, directors, and certain consultants.  The 2005 Plan became effective on November 14, 1995, and was amended and approved at the Company's 2005 annual meeting of shareholders.  Under the terms of the 2005 Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that could be available for grant under the 2005 Plan to 1.5 million shares, were available for such grants.  As of March 31, 2016, the only grants under the 2005 Plan were option grants.  The 2005 Plan provided that the exercise price of each option granted equaled the market price of the Company's stock on the date of the grant.  Options granted pursuant to the 2005 Plan vest within one to four years and have a maximum term of 10 years. The 2005 Plan terminated on November 14, 2015 in accordance with the terms and conditions specified in the Plan agreement.

On April 29, 2014 the Company's shareholders approved the 2014 Republic First Bancorp, Inc. Equity Incentive Plan (the "2014 Plan"), under which the Company may grant options, restricted stock, stock units, or stock appreciation rights to the Company's employees, directors, independent contractors, and consultants.  Under the terms of the 2014 Plan, 2.6 million shares of common stock, plus an annual adjustment to be no less than 10% of the outstanding shares or such lower number as the Board of Directors may determine, are available for such grants. At March 31, 2016, the maximum number of shares of common shares issuable under the 2014 Plan was 4.0 million. During the three months ended March 31, 2016, 551,250 options were granted under the 2014 Plan with a weighted average grant date fair value of $971,891.

The Company utilizes the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant.  A summary of the assumptions used in the Black-Scholes option pricing model for 2016 and 2015 are as follows:

   
2016
 
2015
 
Dividend yield(1)
 
0.0%
 
0.0%
 
Expected volatility(2)
 
  47.59% to 52.54%
 
   53.78% to 56.00%
 
Risk-free interest rate(3)
 
1.23% to 1.82%
 
1.49% to 1.95%
 
Expected life(4)
 
5.5 to 7.0 years
 
5.5 to 7.0 years
 
Assumed forfeiture rate
 
10.0%
 
19.0%
 

(1) A dividend yield of 0.0% is utilized because cash dividends have never been paid.
(2) Expected volatility is based on Bloomberg's five and one-half to seven year volatility calculation for "FRBK" stock.
(3) The risk-free interest rate is based on the five to seven year Treasury bond.
(4) The expected life reflects a 1 to 4 year vesting period, the maximum ten year term and review of historical behavior.

During the three months ended March 31, 2016 and 2015, 470,300 shares and 312,812 shares vested, respectively.  Expense is recognized ratably over the period required to vest.  At March 31, 2016, the intrinsic value of the 2,491,175 options outstanding was $1,985,387, while the intrinsic value of the 1,236,949 exercisable (vested) options was $1,252,381.  During the three months ended March 31, 2016, 250 options were exercised with cash received of $488 and 6,050 options were forfeited with a weighted average grant date fair value of $0.
 
 

 
8


 
Information regarding stock based compensation for the three months ended March 31, 2016 and 2015 is set forth below:
 
   
2016
 
2015
 
Stock based compensation expense recognized
 
$    171,000
 
$    118,000
 
Number of unvested stock options
 
   1,254,226
 
   1,220,026
 
Fair value of unvested stock options
 
$ 2,418,303
 
$ 1,911,407
 
Amount remaining to be recognized as expense
 
$ 1,690,057
 
$ 1,335,438
 

The remaining amount of $1,690,057 will be recognized ratably as expense through February 2020.

Earnings per Share

Earnings per share ("EPS") consist of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding plus dilutive common stock equivalents ("CSEs"). CSEs consist of dilutive stock options granted through the Company's stock option plans and convertible securities related to the trust preferred securities issued in 2008.  In the diluted EPS computation, the after tax interest expense on the trust preferred securities issuance is added back to net income. For the three months ended March 31, 2016 and 2015, the effect of CSEs (convertible securities related to the trust preferred securities only) and the related add back of after tax interest expense was considered anti-dilutive and therefore was not included in the EPS calculations.

The calculation of EPS for the three months ended March 31, 2016 and 2015 is as follows (in thousands, except per share amounts):

   
Three Months Ended
March 31,
 
   
2016
   
2015
 
         
Net income - basic and diluted
 
$
1,085
   
$
528
 
                 
Weighted average shares outstanding
   
37,837
     
37,816
 
Net income per share – basic
 
$
0.03
   
$
0.01
 
                 
Weighted average shares outstanding (including dilutive CSEs)
   
38,269
     
38,047
 
Net income per share – diluted
 
$
0.03
   
$
0.01
 




9

 

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods that were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the periods presented.

   
Three Months Ended
March 31,
 
(in thousands)
 
2016
   
2015
 
         
Anti-dilutive securities
       
         
   Share based compensation awards
   
2,059
     
1,756
 
                 
   Convertible securities
   
1,662
     
1,662
 
                 
      Total anti-dilutive securities
   
3,721
     
3,418
 

Recent Accounting Pronouncements

ASU 2014-04

In January 2014, the FASB issued ASU 2014-04, "Receivables – Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure – a consensus of the FASB Emerging Issues Task Force."  The guidance clarifies when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized.  For public business entities, the ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. For entities other than public business entities, the ASU was effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015.  The adoption of ASU 2014-04 did not have a material effect on the Company's consolidated financial statements.

ASU 2014-09

       In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 660): Summary and Amendments that Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs – Contracts with Customers (Subtopic 340-40)."  The purpose of this guidance is to clarify the principles for recognizing revenue.  The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification.  For public companies, early adoption of the update will be effective for interim and annual periods beginning after December 15, 2016.  For public companies that elect to defer the update, adoption will be effective for interim and annual periods beginning after December 15, 2017.  The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect a material impact. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with The Company (Topic 606): Deferral of the Effective Date. The guidance in this ASU is now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company does not expect this ASU to have a significant impact on its financial condition or results of operations.
 
 

 
10


 
ASU 2014-14

      In August 2014, the FASB issued ASU 2014-14, "Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure - a consensus of the FASB Emerging Issues Task Force."  The amendments in this Update address a practice issue related to the classification of certain foreclosed residential and nonresidential mortgage loans that are either fully or partially guaranteed under government programs. Specifically, creditors should reclassify loans that meet certain conditions to "other receivables" upon foreclosure, rather than reclassifying them to other real estate owned (OREO). The separate other receivable recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and interest) the creditor expects to recover from the guarantor. The ASU was effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. For all other entities, the amendments are effective for annual periods ending after December 15, 2015, and interim periods beginning after December 15, 2015. The Company adopted ASU 2014-14 effective January 1, 2015.  The adoption of ASU 2014-14 did not have a material effect on the Company's consolidated financial statements.

ASU 2016-01

       In January 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-01, Financial Instruments - Overall. The guidance in this ASU among other things, (1) requires equity investments with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminates the requirement for public businesses entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (4) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) requires an entity to present separately in other comprehensive income the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (7) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this ASU to have a significant impact on its financial condition or results of operations.

ASU 2016-02

In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases. From the lessee's perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn't convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.
 
Note 3:  Legal Proceedings

The Company and Republic are from time to time parties (plaintiff or defendant) to lawsuits in the normal course of business. While any litigation involves an element of uncertainty, management is of the opinion that the liability of the Company and Republic, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and Republic.

Note 4:  Segment Reporting

       The Company has one reportable segment: community banking. The community bank segment primarily encompasses the commercial loan and deposit activities of Republic, as well as consumer loan products in the area surrounding its stores.




11

 

Note 5:  Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at March 31, 2016 and December 31, 2015 is as follows:

   
At March 31, 2016
 
 
 
(dollars in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
                 
Collateralized mortgage obligations
 
$
153,524
   
$
1,897
   
$
(324
)
 
$
155,097
 
Agency mortgage-backed securities
   
9,932
     
52
     
(22
)
   
9,962
 
Municipal securities
   
22,903
     
764
     
(9
)
   
23,658
 
Corporate bonds
   
54,275
     
107
     
(1,604
)
   
52,778
 
Asset-backed securities
   
17,431
     
-
     
(632
)
   
16,799
 
Trust preferred securities
   
3,069
     
-
     
(1,211
)
   
1,858
 
Other securities
   
115
     
2
     
-
     
117
 
Total securities available for sale
 
$
261,249
   
$
2,822
   
$
(3,802
)
 
$
260,269
 
                                 
U.S. Government agencies
 
$
16,805
   
$
155
   
$
(11
)
 
$
16,949
 
Collateralized mortgage obligations
   
142,760
     
2,562
     
(155
)
   
145,167
 
Agency mortgage-backed securities
   
18,043
     
127
     
-
     
18,170
 
Other securities
   
1,020
     
-
     
-
     
1,020
 
Total securities held to maturity
 
$
178,628
   
$
2,844
   
$
(166
)
 
$
181,306
 


   
At December 31, 2015
 
 
 
(dollars in thousands)
 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
                 
Collateralized mortgage obligations
 
$
180,795
   
$
523
   
$
(3,173
)
 
$
178,145
 
Agency mortgage-backed securities
   
10,073
     
176
     
(78
)
   
10,171
 
Municipal securities
   
22,814
     
562
     
(32
)
   
23,344
 
Corporate bonds
   
54,294
     
135
     
(300
)
   
54,129
 
Asset-backed securities
   
17,631
     
-
     
(626
)
   
17,005
 
Trust preferred securities
   
3,070
     
-
     
(1,187
)
   
1,883
 
Other securities
   
115
     
3
     
-
     
118
 
Total securities available for sale
 
$
288,792
   
$
1,399
   
$
(5,396
)
 
$
284,795
 
                                 
U.S. Government agencies
 
$
17,067
   
$
39
   
$
(72
)
 
$
17,034
 
Collateralized mortgage obligations
   
146,458
     
402
     
(780
)
   
146,080
 
Agency mortgage-backed securities
   
7,732
     
-
     
(21
)
   
7,711
 
Other securities
   
1,020
     
-
     
-
     
1,020
 
Total securities held to maturity
 
$
172,277
   
$
441
   
$
(873
)
 
$
171,845
 




12


 
The following table presents investment securities by stated maturity at March 31, 2016. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay and, therefore, these securities are classified separately with no specific maturity date.
   
Available for Sale
   
Held to Maturity
 
 
(dollars in thousands)
 
Amortized
Cost
   
Fair
Value
   
Amortized
Cost
   
Fair
Value
 
Due in 1 year or less
 
$
6,844
   
$
6,883
   
$
-
   
$
-
 
After 1 year to 5 years
   
13,596
     
13,686
     
4,833
     
4,822
 
After 5 years to 10 years
   
51,741
     
50,051
     
12,992
     
13,147
 
After 10 years
   
25,612
     
24,590
     
-
     
-
 
Collateralized mortgage obligations
   
153,524
     
155,097
     
142,760
     
145,167
 
Agency mortgage-backed securities
   
9,932
     
9,962
     
18,043
     
18,170
 
Total
 
$
261,249
   
$
260,269
   
$
178,628
   
$
181,306
 

Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without prepayment penalties.
      The Company's investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities.  There were no private label mortgage-backed securities ("MBS") or collateralized mortgage obligations ("CMO") held in the investment securities portfolio as of March 31, 2016 and December 31, 2015.  There were also no MBS or CMO securities that were rated "Alt-A" or "sub-prime" as of those dates.

       The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders' equity as a component of accumulated other comprehensive income or loss, net of tax.  Securities classified as held to maturity are carried at amortized cost.  An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary.  Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security.  An other-than-temporary impairment ("OTTI") loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis.  The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration.  Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred.  In the event of a credit loss, that amount must be recognized against income in the current period.  The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale.

Impairment charges (credit losses) on trust preferred securities for the three months ended March 31, 2016 and 2015 amounted to $1,000 and $3,000, respectively.
 
The following table presents a roll-forward of the balance of credit-related impairment losses on securities held at March 31, 2016 and 2015 for which a portion of OTTI was recognized in other comprehensive income:

(dollars in thousands)
 
2016
   
2015
 
         
Beginning Balance, January 1st
 
$
930
   
$
3,966
 
Additional credit-related impairment loss on securities for which an
               
other-than-temporary impairment was previously recognized
   
1
     
3
 
Reductions for securities paid off during the period
   
-
     
-
 
Reductions for securities sold during the period
   
-
     
-
 
Reductions for securities for which the amount previously recognized in other
               
comprehensive income was recognized in earnings because the Company
               
intends to sell the security
   
-
     
-
 
Ending Balance, March 31st
 
$
931
   
$
3,969
 





13

 

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position in the available for sale and held to maturity section:

   
At March 31, 2016
 
   
Less than 12 months
   
12 months or more
   
Total
 
 
(dollars in thousands)
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
                         
Collateralized  mortgage obligations
 
$
14,311
   
$
172
   
$
10,562
   
$
152
   
$
24,873
   
$
324
 
Agency mortgage-backed securities
   
-
     
-
     
5,338
     
22
     
5,338
     
22
 
Municipal securities
   
246
     
-
     
1,298
     
9
     
1,544
     
9
 
Corporate bonds
   
39,179
     
1,543
     
2,934
     
61
     
42,113
     
1,604
 
Asset backed securities
   
16,799
     
632
     
-
     
-
     
16,799
     
632
 
Trust preferred securities
   
-
     
-
     
1,858
     
1,211
     
1,858
     
1,211
 
Total Available for Sale
 
$
70,535
   
$
2,347
   
$
21,990
   
$
1,455
   
$
92,525
   
$
3,802
 
 
 
   
At March 31, 2016
 
   
Less than 12 months
   
12 months or more
   
Total
 
(dollars in thousands) 
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
                         
U.S. Government agencies
 
$
3,802
   
$
11
   
$
-
   
$
-
   
$
3,802
   
$
11
 
Collateralized mortgage obligations
   
24,802
     
155
     
-
     
-
     
24,802
     
155
 
Total Held to Maturity
 
$
28,604
   
$
166
   
$
-
   
$
-
   
$
28,604
   
$
166
 

 
   
At December 31, 2015
 
   
Less than 12 months
   
12 months or more
   
Total
 
 
(dollars in thousands)
 
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
   
Fair
Value
   
Unrealized
Losses
 
                         
Collateralized  mortgage obligations
 
$
116,161
   
$
3,173
   
$
-
   
$
-
   
$
116,161
   
$
3,173
 
Agency mortgage-backed securities
   
2,389
     
14
     
5,502
     
64
     
7,891
     
78
 
Municipal securities
   
886
     
15
     
1,814
     
17
     
2,700
     
32
 
Corporate bonds
   
9,583
     
258
     
2,952
     
42
     
12,535
     
300
 
Asset backed securities
   
17,005
     
626
     
-
     
-
     
17,005
     
626
 
Trust preferred securities
   
-
     
-
     
1,883
     
1,187
     
1,883
     
1,187
 
Total Available for Sale
 
$
146,024
   
$
4,086
   
$
12,151
   
$
1,310
   
$
158,175
   
$
5,396
 
 
 
    At December 31, 2015  
    Less than 12 months    
12 months or more
   
Total
 
(dollars in thousands) 
  Fair
Value 
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
    Fair
Value
    Unrealized
Losses
 
                         
U.S. Government agencies
 
$
11,954
   
$
72
   
$
-
   
$
-
   
$
11,954
   
$
72
 
Collateralized mortgage obligations
   
68,888
     
732
     
15,956
     
48
     
84,844
     
780
 
Agency mortgage-backed securities
   
7,711
     
21
     
-
     
-
     
7,711
     
21
 
Total Held to Maturity
 
$
88,553
   
$
825
   
$
15,956
   
$
48
   
$
104,509
   
$
873
 

Unrealized losses on securities in the investment portfolio amounted to $4.0 million with a total fair value of $121.1 million as of March 31, 2016 compared to unrealized losses of $6.3 million with a total fair value of $262.7 million as of December 31, 2015.  The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.
 
 
 
14


 
The Company held two U.S. Government agency securities, eleven collateralized mortgage obligations and three agency mortgage-backed securities that were in an unrealized loss position at March 31, 2016. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of March 31, 2016.

       All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody's or Standard & Poor's. In addition, the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At March 31, 2016, the investment portfolio included three municipal securities that were in an unrealized loss position. Management believes the unrealized losses were the result of movements in long-term interest rates and are not reflective of credit deterioration.

       At March 31, 2016, the investment portfolio included two asset-backed securities that were in an unrealized loss position. The asset-backed securities held in the investment securities portfolio consist solely of Sallie Mae bonds, collateralized by student loans which are guaranteed by the U.S. Department of Education.  Management believes the unrealized losses on these securities were driven by changes in market interest rates and not a result of credit deterioration.  At March 31, 2016, the investment portfolio included eight corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration.

The unrealized losses on the trust preferred securities are primarily the result of the secondary market for such securities becoming inactive and are also considered temporary at this time. The following table provides additional detail about the trust preferred securities held in the portfolio as of March 31, 2016.
(dollars in thousands)
Class /
Tranche
Amortized
Cost
Fair
Value
Unrealized
Losses
Lowest
Credit
Rating Assigned
Number of
Banks
Currently
Performing
Deferrals / Defaults
 as % of
Current
Balance

Conditional
Default
Rates for
2015 and
beyond
Cumulative
OTTI Life to
Date
TPREF Funding II
Class B Notes
$
731
$
414
$
(317)
C
19
    37%
    0.42%
$
268
TPREF Funding III
Class B2 Notes
 
1,518
 
888
 
(630)
C
15
32
0.41
 
483
ALESCO Preferred Funding V
Class C1 Notes
 
820
 
556
 
(264)
C
42
19
0.37
 
180
Total
 
 $
3,069
 $
1,858
 $
(1,211)
 
76
29%
 
 $
931

During the three months ended March 31, 2016, the proceeds from the sale of investment securities were $54.7 million. Gross gains of $320,000 and gross losses of $24,000 were realized on these sales. The tax provision applicable to the net gains for the three months ended March 31, 2016 was $106,000. No securities were sold during the three months ended March 31, 2015.

       In July 2014, thirteen CMOs with a fair value of $70.1 million that were previously classified as available-for-sale were transferred to the held-to-maturity category.  These securities were transferred at fair value. Unrealized losses of $1.2 million associated with the transferred securities will remain in accumulated other comprehensive loss and be amortized as an adjustment to yield over the remaining life of those securities.  At March 31, 2016, there is an approximate unrealized loss of $885,000 remaining to be amortized.

 
15

 
 
Note 6:  Loans Receivable and Allowance for Loan Losses

The following table sets forth the Company's gross loans by major categories as of March 31, 2016 and December 31, 2015:

(dollars in thousands)
 
March 31, 2016
   
December 31, 2015
 
         
Commercial real estate
 
$
358,740
   
$
349,726
 
Construction and land development
   
45,815
     
46,547
 
Commercial and industrial
   
181,828
     
181,850
 
Owner occupied real estate
   
261,215
     
246,398
 
Consumer and other
   
49,552
     
48,126
 
Residential mortgage
   
2,353
     
2,380
 
Total loans receivable
   
899,503
     
875,027
 
Deferred costs (fees)
   
(386
)
   
(258
)
Allowance for loan losses
   
(9,029
)
   
(8,703
)
Net loans receivable
 
$
890,088
   
$
866,066
 

The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses.  The Company's loan groups include commercial real estate, construction and land development, commercial and industrial, owner occupied real estate, consumer, and residential mortgages.  The loan groups are also considered classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.
 
 

 
16

 

A loan is considered impaired, when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  Impaired loans include nonperforming loans, but also include internally classified accruing loans.  The following table summarizes information with regard to impaired loans by loan portfolio class as of March 31, 2016 and December 31, 2015:

   
March 31, 2016
   
December 31, 2015
 
 
 
(dollars in thousands)
 
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
   
Recorded
Investment
   
Unpaid
Principal
Balance
   
Related
Allowance
 
With no related allowance recorded:
                       
Commercial real estate
 
$
11,487
   
$
11,525
   
$
-
   
$
11,692
   
$
11,730
   
$
-
 
Construction and land development
   
117
     
2,208
     
-
     
117
     
2,208
     
-
 
Commercial and industrial
   
1,616
     
2,740
     
-
     
2,381
     
3,683
     
-
 
Owner occupied real estate
   
458
     
458
     
-
     
507
     
507
     
-
 
Consumer and other
   
857
     
1,149
     
-
     
800
     
1,084
     
-
 
Total
 
$
14,535
   
$
18,080
   
$
-
   
$
15,497
   
$
19,212
   
$
-
 

With an allowance recorded:
                       
Commercial real estate
 
$
505
   
$
505
   
$
77
   
$
511
   
$
511
   
$
47
 
Construction and land development
   
-
     
-
     
-
     
-
     
-
     
-
 
Commercial and industrial
   
3,109
     
5,776
     
1,614
     
3,112
     
5,779
     
1,111
 
Owner occupied real estate
   
2,798
     
2,811
     
1,056
     
2,862
     
2,876
     
1,059
 
Consumer and other
   
278
     
278
     
81
     
147
     
147
     
21
 
Total
 
$
6,690
   
$
9,370
   
$
2,828
   
$
6,632
   
$
9,313
   
$
2,238
 

Total:
                       
Commercial real estate
 
$
11,993
   
$
12,030
   
$
77
   
$
12,203
   
$
12,241
   
$
47
 
Construction and land development
   
117
     
2,208
     
-
     
117
     
2,208
     
-
 
Commercial and industrial
   
4,724
     
8,516
     
1,614
     
5,493
     
9,462
     
1,111
 
Owner occupied real estate
   
3,256
     
3,269
     
1,056
     
3,369
     
3,383
     
1,059
 
Consumer and other
   
1,135
     
1,427
     
81
     
947
     
1,231
     
21
 
Total
 
$
21,225
   
$
27,450
   
$
2,828
   
$
22,129
   
$
28,525
   
$
2,238
 

 

 
17

 

The following table presents additional information regarding the Company's impaired loans for the three months ended March 31, 2016 and 2015:
 
 
Three Months Ended March 31,
 
 
2016
   
2015
 
 
 
(dollars in thousands)
Average
Recorded
Investment
 
Interest Income
Recognized
   
Average
Recorded
Investment
 
Interest Income
Recognized
 
With no related allowance recorded:
         
Commercial real estate
 
$
11,589
   
$
65
     
$
11,864
   
$
162
 
Construction and land development
   
117
     
-
       
108
     
-
 
Commercial and industrial
   
1,998
     
10
       
3,854
     
21
 
Owner occupied real estate
   
483
     
1
       
701
     
1
 
Consumer and other
   
829
     
3
       
501
     
1
 
Total
 
$
15,016
   
$
79
     
$
17,028
   
$
185
 

With an allowance recorded:
                 
Commercial real estate
 
$
508
   
$
8
     
$
13,066
   
$
-
 
Construction and land development
   
-
     
-
       
158
     
-
 
Commercial and industrial
   
3,110
     
19
       
1,508
     
-
 
Owner occupied real estate
   
2,830
     
6
       
4,209
     
33
 
Consumer and other
   
213
     
2
       
-
     
-
 
Total
 
$
6,661
   
$
35
     
$
18,941
   
$
33
 

Total:
                 
Commercial real estate
 
$
12,097
   
$
73
     
$
24,930
   
$
162
 
Construction and land development
   
117
     
-
       
266
     
-
 
Commercial and industrial
   
5,108
     
29
       
5,362
     
21
 
Owner occupied real estate
   
3,313
     
7
       
4,910
     
34
 
Consumer and other
   
1,042
     
5
       
501
     
1
 
Total
 
$
21,677
   
$
114
     
$
35,969
   
$
218
 




18

 

The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the three months ended March 31, 2016 and 2015:

 
 
(dollars in thousands)
 
Commercial Real Estate
   
Construction and Land Development
   
Commercial
and
Industrial
   
Owner Occupied Real Estate
   
Consumer
and Other
   
Residential Mortgage
   
Unallocated
   
Total
 
                             
Three months ended March 31, 2016
                             
Allowance for loan losses:
                             
                             
Beginning balance:
 
$
2,393
   
$
338
   
$
2,932
   
$
2,030
   
$
295
   
$
14
   
$
701
   
$
8,703
 
Charge-offs
   
-
     
-
     
(18
)
   
(28
)
   
-
     
-
     
-
     
(46
)
Recoveries
   
-
     
-
     
72
     
-
     
-
     
-
     
-
     
72
 
Provisions (credits)
   
(348
)
   
76
     
(44
)
   
89
     
17
     
(3
)
   
513
     
300
 
                                                                 
Ending balance
 
$
2,045
   
$
414
   
$
2,942
   
$
2,091
   
$
312
   
$
11
   
$
1,214
   
$
9,029
 
                                                                 
Three months ended March 31, 2015
                                                         
Allowance for loan losses:
                                                         
                                                                 
Beginning balance:
 
$
6,828
   
$
917
   
$
1,579
   
$
1,638
   
$
234
   
$
2
   
$
338
   
$
11,536
 
Charge-offs
   
(231
)
   
(222
)
   
(169
)
   
(55
)
   
-
     
-
     
-
     
(677
)
Recoveries
   
4
     
5
     
45
     
-
     
31
     
-
     
-
     
85
 
Provisions (credits)
   
(338
)
   
(445
)
   
469
     
(5
)
   
(35
)
   
-
     
354
     
-
 
                                                                 
Ending balance
 
$
6,263
   
$
255
   
$
1,924
   
$
1,578
   
$
230
   
$
2
   
$
692
   
$
10,944
 




19

 
 
The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of March 31, 2016 and December 31, 2015:

 
 
(dollars in thousands)
Commercial
Real Estate
 
Construction
and Land Development
 
Commercial
and
Industrial
 
Owner
Occupied Real Estate
 
Consumer
and Other
 
Residential Mortgage
 
Unallocated
 
Total
 
                 
March 31, 2016
               
                 
Allowance for loan losses:
               
                                 
Individually evaluated for impairment
 
$
77
   
$
-
   
$
1,614
   
$
1,056
   
$
81
   
$
-
   
$
-
   
$
2,828
 
Collectively evaluated for impairment
   
1,968
     
414
     
1,328
     
1,035
     
231
     
11
     
1,214
     
6,201
 
Total allowance for loan losses
 
$
2,045
   
$
414
   
$
2,942
   
$
2,091
   
$
312
   
$
11
   
$
1,214
   
$
9,029
 
                                                                 
Loans receivable:
                                                               
Loans evaluated individually
 
$
11,993
   
$
117
   
$
4,724
   
$
3,256
   
$
1,135
   
$
-
   
$
-
   
$
21,225
 
Loans evaluated collectively
   
346,747
     
45,698
     
177,104
     
257,959
     
48,417
     
2,353
     
-
     
878,278
 
Total loans receivable
 
$
358,740
   
$
45,815
   
$
181,828
   
$
261,215
   
$
49,552
   
$
2,353
   
$
-
   
$
899,503
 


 
 
(dollars in thousands)
Commercial
Real Estate
 
Construction
and Land Development
 
Commercial
and
Industrial
 
Owner
Occupied Real Estate
 
Consumer
and Other
 
Residential Mortgage
 
Unallocated
 
Total
 
                 
December 31, 2015
               
                 
Allowance for loan losses:
               
                                 
Individually evaluated for impairment
 
$
47
   
$
-
   
$
1,111
   
$
1,059
   
$
21
   
$
-
   
$
-
   
$
2,238
 
Collectively evaluated for impairment
   
2,346
     
338
     
1,821
     
971
     
274
     
14
     
701
     
6,465
 
Total allowance for loan losses
 
$
2,393
   
$
338
   
$
2,932
   
$
2,030
   
$
295
   
$
14
   
$
701
   
$
8,703